Ukraine to hike gas rates by 50% for IMF loan

Ukraine agreed on Wednesday to quickly hike domestic gas prices by as much as 50 percent to meet a key loan condition set by the International Monetary Fund for the crisis-hit ex-Soviet state. The new Western-backed government in Kiev is seeking $15-20 billion (11-14.5 billion euros) in IMF assistance in order to balance its books and meet a series of foreign loan repayments. An IMF team met with Prime Minister Arseniy Yatsenyuk in Kiev on Wednesday for what Ukrainian officials hoped would be a final round of talks before the package is approved in Washington next month. The Fund has made an immediate end to Ukraine's costly gas subsidies one of its prime conditions for the programme's approval. It also wants the central bank to stop propping up the Ukrainian currency and for the government to cut down on corruption and red tape. A top official at Ukraine's Naftogaz state energy company said Kiev was willing to raise the price households pay for natural gas by 50 percent as of May 1. Naftogaz budget and planning director Yury Kolbushkin added that rates for district heating companies would go up by 40 percent on July 1. Kolbushkin indicated that these prices would increase still further in the coming years. "We will publish a document that sets a schedule for rate increases through 2018," Ukrainian media quoted Kolbushkin as saying. Ukraine's central bank has already limited its currency interventions -- a decision that has seen the hryvnia lose 26.4 percent of its value against the dollar since the start of the year. The IMF programme's approval would set in motion the release of further assistance from both Washington and the European Union. Yatsenyuk said he expected EU officials to send 1.6 billion euros ($2.2 billion) to Kiev within two months of its approval. The United States has also pledged $1 billion (720 million euros) in loan guarantees while Japan has promised up to $1.5 billion (1.1 billion euros). - 'Significant progress' - The IMF team arrived in Kiev on March 4, initially for a 10-day mission aimed at scoping out the willingness of the new government to undertake difficult structural reforms balked at by the ousted, pro-Kremlin president Viktor Yanukovych. After being named interim prime minister last month, Yatsenyuk wasted no time in promising to eliminate many of the Soviet-era subsidies that had weighed on the country's budget. His commitment drew warm praise from IMF mission chief Nikolai Georgiyev last week, while foreign debt markets showed confidence that Ukraine would win final approval for the loan package in a matter of weeks. "Our cooperation with the Ukrainian authorities has been excellent," Georgiyev said on March 20. "The authorities' comprehensive reform programme covers a wide range of issues and additional work needs to be completed to advance programme discussions." However, IMF Managing Director Christine Lagarde has tried to cool expectations, warning Kiev's new leaders on February 28 that they should not demand vast amounts of foreign assistance without clear justifications. "We would certainly hope that the (Ukrainian) authorities refrain from throwing lots of numbers which are really meaningless until they've been assessed properly," Lagarde said at the time.