OREANDA-NEWS. December 12, 2007. Import gas price for Ukraine is set at the level of USD 179.5 per 1000 cm in 2008, while transit fee is raised from USD 1.6 to 1.7 per 1000 cm transportation for 100 km. So, next year the price of imported gas will rise for 38% (from USD 130 in 2007) that adds around USD 2.7 bln to total import bill, while increase in transit fee will bring additional income of USD 120-130 mln, Dimitry Sologoub, Raiffeisen Bank Aval analyst, said.

Thus, next year Ukraine’s economy will face significant gas price hike, larger than was expected as officials were hoping to agree for the price not higher than USD 160. Nevertheless, import gas price for Ukraine is still lower than in all neighboring countries (except Belarus where Gasprom is going to set the price at the level of USD 165 next year) and is just around 60% of average price in European Union (minus transportation costs).

The increase in import gas price will lead to corresponding adjustment of domestic gas tariffs — the government is going to raise the tariff for industrial consumers for 36.4%, which implies that enterprises will pay around USD 250-260 per 1000 cm (including taxes and fees).

The plans for household gas tariffs increase are unclear yet. At the moment gas tariffs for households are lower than cost recovery levels, thus de-facto the households are cross-subsidized by industrial consumers, plus certain share of losses is absorbed by Naftogas in its balance sheet. However, with another import gas price hike this situation is clearly not sustainable, thus household tariffs should be raised significantly, at least for 30-40%. Nevertheless, the government is likely to limit gas tariffs increase for households for political reasons.

The entrepreneurs in general remain upbeat on their business perspectives despite gas price increase. Even the representatives of chemical industry, where gas constitutes a lion share of input costs, are optimistic as global chemicals’ prices are extremely high at the moment. Metallurgical enterprises are also likely to cope with higher gas prices, since, first, gas accounts for less than 10% of input costs in this industry, and, second, in last two years the companies are heavily investing into energy saving technologies, thus lowering the exposure to high gas prices.

Despite higher than expected gas price increase next year we do not change so far our GDP and inflation forecasts: GDP will grow 5.5% in 2008, while CPI growth rate is projected at the level of 9%.