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Week’s balance: Final dance around PM chair, industrial output growth, and gas thriller

President-oriented MPs seem to have found a substitute for Arseniy Yatsenyuk and are ready to form a new government team, which will have to ensure sustained economic growth and to fight corruption.

The past week was marked by significant economic news / wikipedia.org
The past week was marked by significant economic news / wikipedia.org

Last week marked the end to a months-long debate on what the new government’s shape will be and whether there will be a "reset" as such.

There shall be a new Cabinet, as we see now, following a meeting of the coalition factions of the Verkhovna Rada on March 24. Key participants in the prime minister's race flashed their cards and confirmed what many had suspected.

It turned out that two people were simultaneously offered to gather their teams. These two people have vastly different backgrounds and visions of the prime minister's mission: Minister of Finance Natalie Jaresko, who just a week ago insisted that she didn’t think of such career heights, and Speaker of the Verkhovna Rada Volodymyr Groysman, who recently suggested that the discussion about any new premier stop.

An American university graduate Jaresko and Vinnytsia-born Groysman both promised the country a technocratic Cabinet with new faces, ready to carry out reforms in the name of the state and its citizens.

Groysman and Jaresko said they were ready to lead the Cabinet / Photo from UNIAN
Groysman and Jaresko said they were ready to lead the Cabinet / Photo from UNIAN

"If the coalition factions consider my candidacy as possible for a transition to the Cabinet of Ministers, I'll be ready to take up responsibility," said Groysman.

"I'm ready to put together a team, which would be able, right now, to work in the interest of the whole country and all of its citizens, not of some political business groups," Jaresko wrote on Facebook.

At the March 24 meeting of the Bloc of Petro Poroshenko faction, the final choice was made in favor of Volodymyr Groysman. The decision to change the head of government was approved even in pro-Yatsenyuk People’s Front faction, which received as compensation, a parliament speaker seat. Later, however, it turned out that the BPP chose not to consider opinions of a number of its own members.

According to MP Serhiy Leshchenko, there was no faction meeting whatsoever, therefore it remains unclear, how the MPs managed to nominate Groysman.

But this did not prevent Groysman from announcing the list of nominees for ministerial posts.

Groysman said he was talking about “[former] vice prime minister and finance minister of Slovakia Ivan Miklos, who “implemented a lot of systemic reforms." "It’s also about Yulia Kovaliv who today is a First Deputy Economy Minister, Maksym Nefyodov who is Deputy Minister of Economic Development," said Groysman.

At this, Groysman emphasized that he was not going to “serve anyone high and mighty.”

The President asked the Rada to endorse personal composition of the government at the plenary session on March 29, before his trip to Washington. However, today’s ministers headed by Yatsenyuk are in no rush to resign.

As Yatsenyuk stressed, it was not him who created political crisis in Ukraine. "But I demand a speedy solution to this crisis. Personalization of Ukrainian politics leads to a loss of confidence in Ukraine. Collect 226 votes, present the Cabinet, the program, and the actual Coalition that will implement it. Otherwise, support this [current] composition of the government," said the head of the Cabinet on March 25.

However, the start of a final lap of the premiership race was not the only political news of the past week.

On Monday, a Russian court in Donetsk (Rostov region), executing an order of the Kremlin ruler, contrary to testimony of witnesses and common sense, found Nadia Savchenko, a Ukrainian fighter who defended her Homeland, guilty of the murder of Russian citizens and the "illegal crossing of the Russian border."

REUTERS
REUTERS

A two-year long show trial ended up with a cruel sentence – 22 years in prison. President Petro Poroshenko said that Ukraine would never recognize "neither the show trial, nor the sentence," which the "aggressor state staged against the Ukrainian Officer (with a capital letter), who, as expected, defended her land from enemy invasion." In response to the show trial, Ukraine began to form a so-called "Savchenko list" containing the names of Russian officials who may become subject of international sanctions upon the initiative of the Ukrainian authorities.

Timid growth

Last week, the government announced the major macroeconomic indicators of the country's economy, reporting a timid economic recovery. For the first time in three years, State Statistics recorded a 7.6% industrial output growth compared to February 2015. In general, since year-start, the Ukrainian industry grew 3%.

GDP dynamics showed a positive trend. According to the prime minister, GDP growth last month was at 1%, which is in line with the Cabinet’s expectations. At the end of 2015, GDP dropped by almost 10%.

As noted by chief economist at Dragon Capital Olena Belan, the February GDP growth was caused by strong data on industrial output; transport performance which is expected to boast a 9% growth in commodity turnover in 2016, according to Dragon Capital; and construction (plus 12% yoy).

At the same time, Belan believes that the low base of comparison has also contributed to the positive figures: in January-February 2015, the Ukrainian economy was close to the bottom of its fall.

"So it is more important, whether in the first quarter of 2016 there will be signs of consistent improvement in economic performance; whether the trend of the 2H of 2015 will continue, when real GDP grew by 1.4% qoq, excluding seasonal factors in 4Q 2015, and by 1.1% - in 3Q," says Belan.

But with the economic performance of companies in various sectors may see difficulties. At a cabinet meeting on March 25 Prime Minister admitted that the key Ukrainian exporters – the main pillar of the economy – are in need of state assistance. Falling prices of Ukraine’s traditional exports – metal, ore, and grain, has already led to the loss of revenue in foreign currency and the reduction in tax payments to the budget.

After meeting with Ukraine’s top businessmen, Yatsenyuk instructed the Economy Ministry, the Ministry of Infrastructure and the Interior Ministry to set up a government meeting on stimulating the export. In a few days, we will know what decisions the officials and the business community will take.

Yatsenyuk instructed to increase wages and pensions starting May / Photo from UNIAN
Yatsenyuk instructed to increase wages and pensions starting May / Photo from UNIAN

But for now, the government does not ring the alarm. Quite the contrary. Last week, Yatsenyuk instructed the Ministry of Social Policy to prepare a solution for an immediate increase from May of wages and pensions by 6%. As expected, the cost of living – as a key value for the calculation of pensions – will increase by UAH 69 – up to UAH 1,399, while the minimum salary will rise UAH 72 – up to UAH 1,450.

Japanese loan and new people in Naftogaz

The Ministry of Finance last week unsealed a credit history of 2016. Ukraine received a $331 million loan from the Japanese government. The money has already been put in the general fund of the state budget and will be aimed at improving the efficiency and transparency of the public sector, deregulation and improvement of business environment, and in general at improving the investment climate. Also, the money will help finance priority needs of the country, including social spending and key reforms. The loan is granted for 20 years with a six-year grace period at a rate less than 1% per annum.

In general, Ukraine expects to receive in 2016 $10 billion in loans from all sources. Officials predict that these borrowings, due to repayment of previous loans, will help keep the volume of public debt at a manageable level. According to the government data released March 23, Ukraine’s gross external debt decreased in 2015 by $23.5 billion (16.5%), while the volume of public debt dropped by $7 billion. At the same time, the gross external debt of Ukraine, including public debt, amounted to $118.7 billion at the end of 2015.

The country’s major energy holding PJSC Naftogaz of Ukraine reported some good news March 25. Three experienced professionals, citizens of EU member states, have joined the Supervisory Board as independent directors. The Ukrainian government and the president are also expected to delegate their representatives to the Supervisory Board.

Representative of the European Bank for Reconstruction and Development in Ukraine Sevki Acuner noted that the three directors have an impeccable reputation and experience in the energy sector – two of them held high positions in the British oil and gas giant BP. At this, Acuner expressed hope that other new members of the Supervisory Board – from the Cabinet and the Presidential Administration – will be a match to their foreign counterparts in terms of business skills and non-bias.

A failed gas rendezvous and a bogeyman story for regional gas companies

Last week there came reports that there will be no tripartite talks (earlier scheduled for March) on the purchase of the Russian gas by Ukraine. Naftogaz CEO Andriy Kobolev made it’s Russia who is to take the next step as Ukraine and the EU have long declared their positions..

Moreover, the European Commission Vice President Maros Sefcovic sent letters both to Kyiv and Moscow offering to discuss gas issues and to begin preparations for the new heating season of 2016-2017.

"But this month, there will probably be no talks. We are waiting for the reaction of Gazprom. Probably, it will be in April," said Kobolev, stressing that the negotiating process is influenced by the political crisis in Ukraine and the fact that foreign partners are waiting for certainty as to the composition of the Ukrainian Cabinet of Ministers.

Kobolev: No gas talks in March / Photo from UNIAN
Kobolev: No gas talks in March / Photo from UNIAN

Meanwhile, the Cabinet last week set a new norm of monthly gas consumption in households not equipped with gas meters: 4.4 cubic meters per person. Earlier, the regional gas companies used the norm of 6 cubic meters. But it is now recognized as illegal. The earlier issued bills must be recalculated, according to the government resolution, and overpaid money must be returned to the citizens.

"Right now, gas supplying companies have taken an illegal decision of billing the Ukrainian citizens for gas, including if there is no meter, at 6 cubic meters for each household depending on its size, ranging between UAH 195 UAH to UAH 1,800 UAH though the heating season: the money they want to get illegally from the Ukrainian citizens and report as income of regional gas companies," Yatsenyuk said. "I demand to immediately recalculate [the bills] and return the people's money."

And that's not all. There is still no clarity as to the government plans for the next increase in gas prices for the households. Head of the National Commission for regulation in the energy sector and utilities Dmytro Vovk has already announced that from April 1, the minimum price of gas for households and thermal power companies will increase by 53% from UAH 3,600 including VAT per 1,000 cubic meters to UAH 5,000 including VAT. However, the government did not give an approval to this move. At the moment, it is still unclear whether there will be such increase.

In addition to this organizational "fog," the government has not yet extended the terms of special obligations of Naftogaz, allowing the company to sell gas to the households on favorable conditions. Naftogaz CEO Andriy Kobolev last week lamented: "If the decision is not taken, we won’t be able to supply gas to the households at all [from April 1]. What should the regional energy companies do in such situation? Most likely, they’ll have to buy gas at the market price," said Kobolev. A week earlier, he said that the "market" price of gas is about $200 per 1,000 cubic meters, taking into account transport costs. We will learn in a week how the "gas war" on the internal and external fronts will end.

Olesia Safronova (UNIAN)

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