Ukraine 2013 Draft Budget Assumes Russian Gas Priced at $417

14:10, 04 December 2012
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Ukraine’s parliament has started debating the 2013 draft budget based on an average price of natural gas imported from Russia equal to $417 per 1,000 cubic meters, according to RIA Novosti.

“As for the price of gas [imported from Russia], the budget is based on $417 [per 1,000 cu m]. This is the calculation price which exists today,” Alexander Yefremov, head of the ruling Party of Regions faction in the Ukrainian parliament told journalists.

The draft budget for next year, which will see Ukraine continue heavily subsidizing gas prices for domestic customers, was submitted to the Ukrainian parliament on Monday.

The government will have to find 21.5 billion hryvna (about $2.69 billion) to finance the gap between the high price of imported gas, which has risen steeply over the past few years, and the price at which it will sell natural gas to domestic enterprises and households.

Ukraine imports about two-thirds of the gas it consumes from Russia under a 2009 deal that ties the price of gas to oil prices, which have risen strongly since 2009, boosting Ukraine's gas bill. Naftogaz Ukrainy imported Russian gas at $416 per 1,000 cubic meters in the first quarter of this year, around $425 in the second quarter, $426 in the third quarter and will have to pay around $432 in the fourth quarter.

Under the 2013 draft budget, the Ukrainian government will have to resort to domestic government bond issues worth around 8 billion hryvna (about $1 billion) and use Naftogaz’s other sources of around 13.5 billion hryvna (about $1.69 billion) to bridge the gap.

The budget draft puts the budget deficit at 3.2 percent of GDP in 2013 or almost double the size projected in the original version, with GDP growth at 3.4 percent and inflation at 4.8 percent while the state foreign debt is expected to reach 483 billion hryvna (about $60.3 billion) at the end of next year.

Ukraine has long sought to alter the terms of the gas deal it signed with Russia in 2009, insisting on both price and volume cuts.

Moscow has repeatedly said it will cut the price for Ukraine only if Gazprom is allowed to buy into Ukrainian gas pipelines. Ukraine has so far refused to accept the offer, arguing this would impinge on the country’s sovereignty.

Gazprom’s long-term contract with Naftogaz contains a “take-or-pay” provision that applies to 80 percent of the contracted volumes for a given year. That means Ukraine must pay for at least 41.6 bcm of gas this year (based on the entire contracted volume of 52 bcm), even if it takes less.

Ukraine has said that, due to high prices, it will slash gas imports from the contracted 52 billion cu m to just 27 billion cu m, possibly as early as this year. Russia's position is that the contracted volume for this year is already fixed and that no alterations can take place within six months of the contracted delivery date.

Energy Minister Yuriy Boyko has said Ukraine planned to slash its gas imports from Russia to 18 billion cubic meters in 2013. He previously described moves to slash Russian gas imports as breaching the terms of the contract, and that this would lead to a dispute with Russia, but added that Kiev would safeguard its interests by all legal means.

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