Ukraine to Refrain From Increasing Household Natural-Gas Prices

Ukraine will refrain from increasing the price of natural gas for households, a requirement to resume lending from the International Monetary Fund, President Viktor Yanukovych said.

The country continues to seek to renegotiate the price it pays Russia for the fuel and plans to lease its gas pipeline system to secure funds for its maintenance, Yanukovych said during a call-in show on state television today. The government plans to make a decision before the end of June, he said.

Reducing the losses of state-managed energy company NAK Naftogaz Ukrainy by raising local utility tariffs is among the IMF’s requirements to resume lending to Ukraine. The country is seeking financial aid with $10 billion of debt payments this year and a shrinking economy.

“This will be taken negatively by markets as there were growing expectations that Ukraine has finally come back to its sense,” said Ivan Tchakarov, an economist at Renaissance Capital in Moscow.

The hryvnia weakened 0.2 percent to 8.14 per dollar as of 1:50 p.m. in Kiev, its biggest drop in almost three weeks. Ukraine’s government bonds due in 2022 fell, pushing yield up to 7.558 percent as of 1:50 p.m, data compiled by Bloomberg show.

The IMF said last week that its representatives will return to Ukraine next month to continue talks on a third bailout in four years. The government needs to address “important” policy issues, the Washington-based lender said.

“Large subsidies on gas and heating for households continue to undermine Ukraine’s budget and its balance of payments,” Christopher Jarvis, the IMF’s mission chief, said in a Feb. 12 statement. Without “corrective policies,” the economy may grow between 0 percent and 1 percent this year, less than the government’s 3 percent forecast, he said.

Ukraine has been in talks with Russia’s OAO Gazprom since 2010 to reduce price of gas imports. In 2009, former prime minister Yulia Tymoshenko, who is now in jail for exceeding her powers, signed a 10-year gas supply and transit accord with Russian counterpart then-prime minister Vladimir Putin. The contract links price for deliveries to oil price.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

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