Thursday, March 5, 2015

Ukraine ends Russian gas subsidies - Business Insider

The government in Kiev is trying to do something that no previous Ukrainian administration has been able to — wean the country off its gas dependence on Russia.

In order to do that Kiev will have to remove energy subsidies that the government gives to households, something that its predecessors thought was a political poison pill that would sink any administration.

The IMF has spent years campaigning to get the subsidies removed, because they cripple the government's budget, and keep Ukraine under the thumb of Russia, which supplies the gas. (Both of those conditions thus make Ukraine a bad bet for IMF investment.)

Now, as a first step towards ending the subsidies, the Ukraine parliament has passed a bill that will triple the amount that domestic consumers pay for gas supplies used for heat.

Reform of the subsidies was a central part of the $40 billion bailout deal brokered by the IMF. Under the deal, the IMF will inject a further $17.5 billion into Ukraine in exchange for increased restrictions on state pension provision, a reduction in gas subsidies, amendments to the 2015 budget, new legislation to protect the rights of investors, and the provision of financial assistance for low income families.

The problem Kiev faces is that the government is attempting to do this in the middle of a crisis with price rises reportedly reaching hyperinflation proportions and the economy tanking.

Complete story at - Ukraine ends Russian gas subsidies - Business Insider

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