Ukraine cuts energy subsidies in bid to please IMF

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“They brought domestic gas prices to import parity. Very positive move,” said Olena Bilan , an economist at Kiev-based investment bank Dragon Capital.

Ukraine moved to further eliminate unsustainable energy subsidies by unifying household and commercial natural gas tariffs, marking the first big move by the country’s new government in demonstrating its commitment to unfreeze a $17.5bn IMF loan programme that fell off track amid a months-long political crisis.

The decision by a reshuffled government ushered in this month and led by presidential loyalist Volodymyr Groysman brings tariffs for households, which had long paid a tiny share of market prices, to about $272 per 1,000 cubic metres, nearly double more than some customers paid this winter.

“They brought domestic gas prices to import parity. Very positive move,” said Olena Bilan, an economist at Kiev-based investment bank Dragon Capital.

The prime minister stressed that millions of Ukrainians in need will continue to be protected by more targeted and effective subsidies, Roman Olearchyk reports from Kiev.

“This is consistent with the Ukrainian obligations to the International Monetary Fund,” Mr Groysman said at a Cabinet meeting on Wednesday, stressing that the old system was prone to rent-seeking diversions of subsidised gas to vested interests that drained budget resources.

The politically-charged tariff hikes was announced as US Assistant Secretary of State Victoria Nuland wrapped up a three-day visit for talks with Kiev’s pro-western leadership by noting that she was “encouraged by the commitment of all the political forces … to continuing and accelerating reform, economic reform, anti-corruption reform, in particular judicial reform.”

She urged the war-torn country, which is struggling to crawl out of a deep recession, to “make reforms irreversible” by continuing progress – including often-unpopular austerity measures implemented by the past government.

Visiting Kiev after joining President Barrack Obama during talks with European leaders in Hanover, Germany, Ms Nuland announced the US would “accelerate its own diplomacy” with Moscow in parallel with European leaders through the so-called Normandy format. The aim is to find a lasting settlement to Ukraine’s two-year, still-smouldering war with Russian-backed separatists controlling breakaway eastern regions, as outlined in a ceasefire agreed in Minsk last year.

Pointing to a “a unified commitment to keep sanctions on Russia in place until it meets its obligations”, Ms Nuland said the US “wants to see Minsk implemented.”