Gas prices for certain market segments reveal the government’s fragmentary approach to pricing and inconsistency of its actions
Despite the protection of certain segments of the gas market in Ukraine against price fluctuations by quasi-administrative regulations, the prices at European gas hubs will have impact on inflation in our country anyway, because of the government’s inconsistent actions in this area, the article by DiXi Group expert Andrii Ursta in Novoye Vremya says.
“Prices in the wholesale market are pegged to quotes at European hubs, and therefore, it is hardly likely that the gas price at the Ukrainian Energy Exchange will decline – most likely, it will rise,” the expert says.
Thus, Andrii Ursta continues, the growth of gas price will have the biggest impact on industrial consumers.
“It means that Ukrainians will feel anyway (and they already do) the rise of prices for goods in which the gas cost is included to the cost price. The overall impact of gas costs on the consumer price index is only 2.2%, but in combination with other sectors of economy, the rise of gas price was one of the reasons for accelerating inflation in 2Q 2021. According to the NBU’s forecasts, the inflation rate will remain high (9.6%) till the end of 2021, and only in 2022 will it start to decline,” the DiXi Group expert points out.
In addition, budget-funded institutions have to buy gas at market prices, which could reach 20 hryvnias per cubic meter and higher.
“The Association of Ukrainian Cities has already requested the government to fix the price for budget-funded institutions at 11.2 hryvnias,” he reminded.
In the opinion of Andrii Ursta, gas prices for these market segments reveal the government’s fragmentary approach to pricing of gas and inconsistency of its actions.
“For reasons of political expediency, the government plays an active “social role” (like in the case of gas supply to households), and in some cases, refrains from intervention (like in the case of budget-funded institutions). With the onset of the heating season, this “litmus” may become a real test for strength, as the “tariff protests” of early 2021 and the subsequent debt crisis amply indicated,” the expert points out.