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Articles / 19 December 2013 | 13:24
IMF and gas tariffs: Kyiv will not yield

IMF and gas tariffs: Kyiv will not yield


The majority of experts agree that a new agreement with the International Monetary Fund would help Ukraine's economy to settle foreign and domestic debts and other difficulties. However, among the IMF requirements there is the increase of gas tariffs for population, which may badly hit Ukrainians in the pocket. This November President Viktor Yanukovych confirmed once again that the requirement on gas tariff rise will never be accepted. "We will never take steps, which may hurt the people," he said.

In turn, economy and trade minister Ihor Prasolov adds that the Cabinet intends to exclude the issue of gas tariffs from the agenda of talks with IMF. In this respect, economists remind that the enslaving gas contract, signed by then PM Yulia Tymoshenko, has been the major problem for the domestic economy, when the country has to overpay about $7 billion annually. "This contract is the key factor of pressure on the economy and budget balance, and amid such situation the government was proposed to shift responsibility for Kharkiv agreement onto common people, increasing expenses for energy products to 1/4 of their general structure of cost. It is unacceptable," sector analyst Oleksandr Nabut says. Well, it is comforting that the President has managed recently to reach an agreement with the Kremlin on lower gas prices - $268.5 per 1000 cu m, valid till the end of the current gas contract in 2019.

Moreover, Prasolov points out that withdrawal of gas issue from the dialogue with IMF is also possible thanks to the development of domestic gas recovery, replacement of Russia gas and energy saving. ForUm has decided to go in details of the matter.

Growing recovery

For 11 months of this year Kyiv has reduced gas import by 15.5% (down to 25.7 b cu m), including gas supplies from Europe (1.88 b cu m). Coal and energy minister Eduard Stavitski informs that already in November Ukrainian gas storages had more than 18 b cu m, and Ukraine could buy no more gas till the yearend (though a different decision has been made for now). "Gas storages have enough reserves to supply national needs in case of not very cold winter. For your information, in 2012 Ukraine bought 33 b cu m of Russia gas, costing $14 billion, and a year before it was more than 40 b cu m," fuel and energy complex specialist Valentyn Zemlianski notes.   

According to Stavitski, much of gas import reduction is owed to domestic production, which grew by 1.7% (to 18.6 b cu m) for January-November period of 2013 (comparing to the same period of last year). Thus, thanks to the launching of new boosting compressor stations and new wells, as well as upgrading of inactive ones, collective gas production, both state and private, may grow up to 20 b cu m by the yearend, which is almost enough to supply national needs - to cover the needs of population, the country must produce 24 b cu m minimum. Yanukovych promises to equal the performance soon and to increase production up to 27 billion cubic meters by 2017.

Such production growth and upgrade of technologies will enable to reduce the prime cost and establish a stable sale price for population, co-chairman of the Fund of energy strategies Dmytro Marunich says. Indeed, in 2013 "Naftogaz" purchasing gas prices for supplies to population have dropped: UAH 349.2 per 1000 cu m for "Ukrgasdobycha" fuel (UAH 350 in 2012); UAH 440/1000 cu m for "Chernomorneftgas" (UAH 456 last year), and only gas of "Ukrnafta" has grown in price from UAH 458 to 492.6 per 1000 cu m. Considering the market situation and recent visit of President Yanukovych to Moscow, there is no need to increase tariffs for population, Oleksandr Narbut notes.
 
Shelf, shale, synthesis...

Ukraine still has rich deposits of natural gas, and shelf is one of the most promising sectors of production. Thus, in 2012 there were recovered 1.177 b cu m of gas (11% growth), and for 11 months of 2013 the figures made 1.478 b cu m (+40.2% compared with the same period of last year). As of today, "Chernomorneftgas" develops six gas deposits, three gas condensate fields and one oilfield. Principal gas fields include Shtormovoye, Archangelskoye and Golitsynskoye, while Odesskoye and Bezymiannoye are up and coming. Moreover, this September in New-York the Cabinet signed an agreement with the consortium of companies ExxonMobil (US), Shell (the Netherlands) and OMC Petrom (Romania), which won in August the tender for development of Skifski hydrocarbon field of the Black Sea shelf. The total area of the field makes 16.69 thousand sq m, total investments in the development are estimated at $10-12 billion, and gas capacity - at 3-4 billion cu m annually. 

Moreover, the government holds talks with corporations Eni (Italia) and Electricite de France on development of such shelf fields as Subbotin structure, areas of Abikh, Mayachnaya, Kavkazskaya. The project budget makes up to $4 billion, and annual gas and oil capacity is expected at the level of 2-3 million tons of reference fuel.

And another two large projects to point out include extraction of shale gas in Yuzovski and Olesski fields. The tender for Yuzovski field has been won by Shell, and for Olesski - by Chevron (US). Yuzovski deposits are estimated at more than four trillion cu m with annual production of 20 b cu m. In October, the investor drilled the first extension well "Beliayevska-400" in Kharkiv region. Commercial extraction should start in 2015. As for Olesski field, the forecast deposits make three trillion cu m with planned annual production of 8-10 b cu m.

Moreover, during the recent visit of President Yanukovych to China, Ukraine and Chinese national chemical engineering corporation signed an agreement on construction of synthetic gas plants, based on coal gasification technology, tested by Shell in China. It will enable to save up to four b cu m of natural gas per year and will form a bonus demand for about 10 million tons of domestic coal. Plants are expected to be built in Luhansk, Donetsk and Odessa regions. In general, the project will become a part of the program on replacement of natural gas with coal, stipulated by the credit agreement for $3.656 billion, signed in December of 2012 between the "Naftogaz Ukrainy" state company and the China Development Bank.    

In general, the state energy saving policy has already demonstrated results - gradual reduction of gas consumption for the last three years. Thus, according to the Cabinet's data, for 11 months of 2011 the country consumed 48.5 b cu m of gas (excluding service gas), for January-November of 2012 - 44.1 b cu m, and for the same period of this year - 40.6 b cu m. The tendency is obvious. Considering active development of domestic production, in 7-8 years the country might shift to full gas self-sufficiency and then gas export, economists admit.

And finally, the latest Moscow agreements are of no less importance. Now, with reasonable gas price, Ukraine can quietly focus on projects of domestic gas recovery and energy efficiency, thus stabilizing the trade balance and easing the prime cost load for the major part of industry.
No tariff rise is expected

According to Stavitski, the government should focus not on banal tariff rise, but energy efficiency and development of domestic gas production. "When we reach significant progress, then we will calculate fair tariffs for Ukrainians," the minister believes. In turn, Prasolov points out that if in 2015 Ukraine recovers its first shale gas, the issue of tariff rise will disappear by itself.

In this respect, Vice Prime Minister Yuri Boiko confirms - no tariff rise is expected. According to him, this is the task set by the President, and the Cabinet will make every effort to fulfill it. "The government does not count on IMF money, as its requirements include tariff rise for population by 40%. President's position clearly states that we cannot shift responsibility for "Tymoshenko" gas contract onto common people," he said.

It seems that even IMF starts understanding the groundlessness of tariff rise. Thus, income and fees minister Oleksandr Klymenko informed recently that the Fund made certain advances to Kyiv regarding the formation of tariff policy, and a certain progress in talks is expected within the next couple of weeks. "They have finally heard us. And our positions on tariff, fiscal and monetary policies have found common ground," he said.

Let's hope the talks will the Fund will bring fruits, and the parties will find a compromise for Ukraine to get a mutually beneficial credit line without any negative social obligations. The task of Ukrainian authorities is to defend national interests, especially if it concerns regular people. Otherwise, what's the point? 

Production and consumption of gas in Ukraine, mln cu m

 

2012

2013*

Gas production in Ukraine

20727

22 049

Population demand

17 071

16 500

Demand of district heating companies for heat production for population

8150

6300

Gap between production and collective domestic consumption

-4 494

-751

* forecast

Source: Cabinet

Andriy Boyarunets


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