Ukraine agrees to 50% gas price hike amid IMF talks

Image source, AFP
Image caption,
Ukrainians are accustomed to heavily subsidised gas prices

Ukraine's interim government says it will raise gas prices for domestic consumers by 50% in an effort to secure an International Monetary Fund (IMF) aid package.

An official at Ukraine's Naftogaz state energy company said the price rise would take effect on 1 May, and further rises would be scheduled until 2018.

Ukrainians are accustomed to buying gas at heavily subsidised rates.

But the IMF has made subsidy reform a condition of its deal.

Ukraine currently buys more than half of its natural gas from Russia's Gazprom, and then sells it on to consumers at below market prices.

Yury Kolbushkin, budget and planning director at Naftogaz, told reporters that gas prices for district heating companies would also rise by 40% from 1 July.

IMF negotiators are still in Kiev to negotiate a package of measures worth billions of dollars to help Ukraine's interim government plug its budget deficit and meet foreign loan repayments.

Deal expected

The IMF is also asking Ukraine to crack down on corruption and end central bank support for the Ukrainian currency.

On Tuesday, Ukraine's finance minister Olexander Shlapak said the country was seeking $15-20bn (£9-12bn) from the IMF.

The Financial Times has reported that a rescue package worth about $15bn is close to being agreed, and could be announced as early as Thursday.

An agreement with the IMF is necessary to unlock further financial support from the EU and US.

Financial help is urgently required as Ukraine has been forced to plunder its foreign currency reserves, and the economy is expected to contract by 3% this year, according to the country's finance ministry.

In the US, arguments in Congress over reforms to the IMF have held up plans to offer Ukraine $1bn in loan guarantees.

The EU says its financial support, potentially worth 1.6bn euros (£1.3bn) is contingent on the IMF deal being agreed.