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Published: Thursday March 27, 2014 MYT 12:35:02 AM
Updated: Thursday March 27, 2014 MYT 12:37:02 AM

Ukraine to hike domestic gas prices by 50 percent to meet IMF demands

KIEV (Reuters) - Ukraine's new leaders, in a step the ousted government had balked at, said on Wednesday it would raise the price of gas for domestic consumers by more than 50 per cent from May 1 and would raise prices further under a fixed timetable to 2018.

The move is certain to dent the popularity of Prime Minister Arseny Yatseniuk's interim government, but met the demands of the International Monetary Fund.

IMF officials appeared to be putting the finishing touches on Wednesday to a new aid programme for the ex-Soviet republic, which has experienced months of violent political turmoil.

Domestic consumers in Ukraine have long received supplies of gas for home central heating at subsidised prices in a hang-over from the Soviet era.

"Yesterday, the Cabinet of Ministers made a decision to raise tariffs. There will be a timetable of tariffs until 2018. For the population, the rise will be more than 50 per cent from May 1. For utilities it will be a rise of 40 percent from July 1," Yuri Kolbushkin, a senior Naftogaz official, told journalists.

Naftogaz is Ukraine's biggest state company and occupies a unique place in the economy because of the vast amount of gas and oil it imports from Russia for distribution to home consumers.

But its internal finances are linked to the old Soviet system of subsidies and the IMF has been pressing Ukraine for years to reform a situation in which Naftogaz constantly runs at deficit since it sells the gas at home at a price way below that at which it buys from Russia's Gazprom.

Naftogaz would still be running a deficit of 80 billion hryvnia (8 billion dollars) this year even after the planned rises had come into force, officials said.

IMF officials on Wednesday appeared to be tying up a deal in Kiev with the interim government for a package to help it plug a budget deficit and achieve sustainable economic growth as well as strengthen Naftogaz's financial health.

Ukrainian financial officials said on Tuesday that the government was seeking a new aid package of $15-20 billion from the Fund.

(Reporting by Pavel Polityuk; Writing By Richard Balmforth; Editing by Sonya Hepinstall)

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