Week's balance: IMF mission starts SBA revision, Cabinet appoints acting energy minister, and Naftogaz ups gas price for thermal distributors
The IMF mission began its work on revising the stand-by arrangement for Ukraine, the Cabinet appointed Yuriy Vitrenko acting Minister of Energy, while Naftogaz raised gas prices for thermal power distributors – these are the key economic developments of the outgoing week.
The penultimate week of the year was filled with important events for the Ukrainian economy and business. The mission of Ukraine's key creditor, the International Monetary Fund, has started revising a $5 billion Stand-By Arrangement.
After receiving in June the first loan tranche in the amount of $2.1 billion, further disbursements were being postponed. But the state budget for 2021, adopted recently, and assurances by the Ukrainian authorities of commitment to anti-corruption and judicial reform seem to allow the government to finally receive a new dose of financial support from the Fund.
Alternate Executive Director at the International Monetary Fund (IMF) for Ukraine Vladyslav Rashkovan is optimistic about the prospects of the country.
"I can say that the scheduled meetings, both at the highest and expert levels, have been held successfully over the recent three days," he said.
President of Ukraine Volodymyr Zelensky even named the approximate timeframe for obtaining the second tranche of the loan – early 2021. Moreover, in a conversation with the President of another major financial partner, the European Bank for Reconstruction and Development (EBRD) Odile Renaud-Basso, the head of our state noted that at the moment, even without a new IMF tranche, the Ukrainian banking system is showing stable performance and budget targets are being fulfilled...
However, the dynamics of the hryvnia exchange rate in the outgoing week suggests that the IMF loan tranche would not be superfluous in the current conditions, to say the least. While on Monday the National Bank set the official dollar exchange rate at UAH 27.82, by Thursday the Ukrainian currency had lost 64 kopiykas.
Pouring more fuel onto the fire, the NBU already predicts the risk of revenue shortcomings in the 2021 budget. The National Bank stressed that the government's ability to finance the state treasury directly depends on access to loans on foreign markets, which, in turn, depends on cooperation with the Fund.
While the government is yet to secure a loan from the IMF as soon as possible, the situation with attracting money for infrastructure projects is more favorable. Last week, the EBRD said it would allocate EUR 450 million to Ukravtodor road management agency for the reconstruction of the Kyiv-Odesa highway and the construction of a bypass around Lviv. In addition, the European Investment Bank approved the allocation of EUR 270 million for the development of Boryspil International Airport.
In any case, access to international loans is extremely important for the crisis-ridden national economy. The country's gross domestic product in the third quarter contracted by 3.5% in annual terms, while industrial output in November shrank by 0.3%, as per the state statistics agency.
New acting energy minister
Last week, the Ministry of Energy, which has proved to be strategic for the country, saw major personnel shifts. The Cabinet at an extraordinary meeting on Monday appointed a former top manager of Naftogaz, Yuriy Vitrenko, acting energy minister.
The appointment came following the government's failure in the Verkhovna Rada last week, when Vitrenko, who was nominated for the minister's post, fell short of votes to be approved. Parliament Speaker Dmytro Razumkov hinted opaquely that Vitrenko's appointment as a full-fledged minister in the future remains in limbo.
Vitrenko's first days in office were marked by energy companies settling their debts. The ministry paid UAH 32 billion in compensation to Naftogaz for the supply of imported gas to the households below market value in 2015-2019 as part of a special obligation, thereby completing debt settlements between the government, Naftogaz and the largest oil company Ukrnafta.
Besides, Ukrnafta transferred UAH 28.9 billion to the national budget's special fund, fully paying off its tax debt to the state.
The new acting energy minister's former employer has made news this week by not only settling debts but also by reviving an old story of top management's salaries. The Cabinet of Ministers approved the state company's financial plan for 2020, which provides for a doubling of the salary fund.
"It is necessary to revise the financial plan in terms of the wage fund. It's proposed to double the cost of remuneration per employee: by 56% – for board members, by 75% – for regular employees," Finance Minister Serhiy Marchenko told a government meeting.
Rising gas prices
National Joint Stock Company Naftogaz of Ukraine in December set the wholesale gas price for heat producers at UAH 6,013 per cubic meter, which is 13.5% higher than that set for November.
Even despite such a Christmas present, heat producers in many regions still have colossal debts before Naftogaz, but in the current situation of falling household incomes, higher gas bills could further aggravate the situation with debts.
The reaction of the part of the energy regulator NEURC was not long in coming. In the wake of Naftogaz's decision, the regulator on Thursday increased tariffs for heat production for the households, budget-funded and religious organizations for 2021 as regards 23 thermal power distributors. Tariffs will rise by 5.5%-50%, depending on a TPP.
However, there were also some promising reports in the Ukrainian gas sector. Naftogaz said the company has discovered in Poltava region a new gas condensate field with prospective reserves of 2 billion cubic meters.
It should be recalled that in early December, the Cabinet allowed Naftogaz to develop the Yuzivska oil and gas bearing site, the largest shale gas field in the country, whose resources are estimated at almost 3 trillion cubic meters with a baseline scenario of annual output of about 10 billion cubic meters. A few weeks earlier, the government also entitled Naftogaz with extracting oil and gas on the Ukrainian part of the Black Sea shelf, where gas resources could stand at 1-2 trillion cubic meters.
All this suggests that Naftogaz could turn into a large regional gas production company, which will allow Ukraine to increase its chances of achieving energy independence. These steps also herald new jobs and cheaper gas for Ukrainian consumers.
The next week will bring us a new year, flipping the last page of the dramatic 2020 calendar as we harbor hope that 2021 will become the year of recovery for the national economy and a better well-being for all Ukrainians.