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Rise in gas prices: what solution is offered by the Cabinet of Ministers and Naftogaz

The Ministry of Energy proposed to limit and fix for a year the gas price for "vulnerable" consumers at the "hub minus" level with the addition of a certain suppliers’ marginal markup from February 1, 2020.

As The Acting Energy Minister Yuriy Vitrenko wrote on his Facebook page, it is about the price level of UAH 5,356, and that is 44% less than the weighted average price in January.

Quote"To understand, if nothing is done, then it should be expected that the price in February will increase by about 15%," he explained.

According to Vitrenko, Ukrgasvydobuvannya will sell gas for "vulnerable" consumers to suppliers at a "hub minus" price that will be reviewed once a year, based on the stock exchange quotations in November. At the same time, suppliers will be able to compete by offering a lower markup to the price, and the consumer is free to choose a supplier.

In another post, Vitrenko explained his position as follows:

  • half a year since the PSO cancellation, private gas supplying companies have been selling gas at a markup of 33% on average;
  • a year has already passed since the new agreement with Gazprom signing that removed the last technical problems for the gas transmission at the border of the Russian Federation-Ukraine, or for the gas export from producers independent of Gazprom in the Russian Federation or Central Asia. At the same time, the Naftogaz price for the population is 22% higher than it could be in favor of Russia;
  • there are regulations in the European Union defining that it is wrong to consider as "vulnerable" consumers only those who cannot pay the market price. They also distinguish between "vulnerability" and "energy poverty".

«Let's not touch anything and wait? P.S. Maybe I studied, lived, and worked somewhere at the wrong place. Because at INSEAD and at Merrill Lynch, in Singapore, France, UK, and Germany, I saw a clear understanding that markets need effective government regulation.»

Yuriy Vitrenko

Yuriy Vitrenko

Acting Minister of Energy

At the same time, the Prime Minister Denys Shmyhal in his Telegram channel reported on the meeting with the leadership of the Ministry of Energy, representatives of Naftogaz, the energy regulator, the GTS Operator, and the Office of the President's Office. During the meeting they worked out two approaches that will reduce gas tariffs for the population:

  • the first approach concerns precisely the gas tariffs formation according to the formula "price at European hubs minus gas transportation". Within this approach the margin for gas suppliers will also be temporarily limited;
  • the second approach is to increase competition in the market by obligatory publication of annual gas tariff by all gas supply companies. This idea was proposed by Naftogaz explaining it by the fact that gas supply companies will have to compete actively for the consumer base, and that will lead to lower tariffs.

Context. Previously we reported that the gas price for the population in January will increase by at least 17.5%. The minimum price will be 6.99 UAH/m3, in December this figure was 5.95 UAH/m3. At the same time, the maximum price increased by 19.3% from UAH 9.05 per cubic meter to UAH 10.8.

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