Ukraine introduces single price for residential consumers

The Ukrainian government on 27 April approved a single natural gas price for residential consumers and for heat and power producers supplying residential users, with effect from 1 May.

The new tariffs are part of a reform launched in Ukraine last year to liberalise the gas market. They also address one of the conditions set by the International Monetary Fund (IMF) in order for Ukraine to receive loans.

From 1 May, the price for residential consumers will be Hryvnia 6,879/thousand cubic metres (kcm), equivalent to €22.910/MWh. Previously there were two different types of residential tariffs.

Heat producers will be charged Hryvnia 6,810/kcm.

Incumbent Naftogaz said on 27 April a previous proposal called for the new price to be changed every quarter or when there was a significant change in the market. But neither the company, regulator NERC or the energy ministry were immediately able to confirm whether this was included in the government’s new price plan.

The price of imported EU gas is the main component of the new tariff. The government will be using German NCG price assessment offers as quoted by ICIS. Other components are transport and distribution tariffs, VAT and a permitted profit margin.

On 27 April, ICIS assessed the NCG May ‘16 at €14.10/MWh, while the same product in Slovakia was assessed at €14.638/MWh. Slovakia is the key transit state for moving gas from liquid EU hubs to Ukraine.

The new tariff will lead to a considerable increase in the gas price for some residential users and for all heat and power producers supplying residential users.

Opening a government session on 27 April, Ukraine’s prime minister Volodymyr Groysman promised this would be “the last change of the gas price in the country’s history.” However, complete liberalisation of prices for residential consumers is planned for April 2017. It was previously planned that prices will increase gradually until that time.

“If we make this decision now, prices for 3m people may become cheaper,” Groysman said, adding the price for gas before 1 May is Hryvnia 7,200/kcm.

According to information from Naftogaz from last year, only 27% of the population paid a price of Hryvnia 7,200/kcm, while 73% of gas sales to residential users was priced at, or below, Hryvnia 3,600/kcm.

The sharp increase in the tariff was one of the main reasons its introduction has been delayed since March, which was criticised by the IMF.

The introduction of the single tariff now may be a good political decision as prices on the European hubs have dropped significantly since the beginning of this year.

A spokeswoman for the Ukrainian Association of Gas Traders said the single tariff would lead to a positive change on the gas market as it would establish market relations between all categories of consumers and suppliers.

She added the price of Hryvnia 6,879/kcm turned out to be below the price that was planned for introduction on 1 April, because import prices fell, as did tariffs for industrial consumers. ekaterina.kravtsova@icis.com