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UPDATE 2-Ukraine's Naftogaz needs to be privatised -presidential aide
December 9, 2014 / 12:26 PM / 3 years ago

UPDATE 2-Ukraine's Naftogaz needs to be privatised -presidential aide

* Presidential aide targets skyrocketing subsidies

* Household gas prices must rise, Naftogaz chairman says

* IMF visit adds pressure to reform

* Naftogaz sees new deal with Gazprom in early 2015 (Combines stories, adds detail)

By Sam Wilkin and Marc Jones

LONDON, Dec 9 (Reuters) - A representative of Ukrainian President Petro Poroshenko called for state energy company Naftogaz to be privatised and gas prices to rise as the country grapples with a growing budget deficit and dependence on Russia for gas imports.

“Naftogaz needs to be privatised,” Dmytro Shymkiv, the president’s deputy chief of staff said at a Ukrainian investment conference in London on Tuesday.

“We need to absolutely increase gas prices in the supply chain for both private consumers and commercial consumers.”

He said subsidies to Naftogaz were skyrocketing but that some politicians and much of society would resist moves to price gas commercially.

Naftogaz is a significant burden on Ukraine’s finances. The finance ministry has had to borrow $6.4 billion via the sale of hryvnia-denominated domestic bonds to recapitalise the company this year and help it pay off debts to Russia’s Gazprom .

The Russian state-owned gas exporter cut off Ukraine’s supplies in June, and Ukraine’s supply over the winter depends on its ability to make payments to Gazprom under the terms of a deal made in October..

Naftogaz Chairman Andriy Kobolev said Ukraine had to reduce energy consumption and that meant cutting subsidies for households.

Otherwise, he said, “there will be no incentive for anyone to save gas. Why would you care if it’s dirt cheap?”

He said consumption also could be reduced by targeting corruption in the gas industry, which he described as “the most corrupt in Ukraine”.

The government is under pressure to enact reforms from the International Monetary Fund, which visited Kiev on Tuesday to discuss Ukraine’s progress under a $17 billion bailout programme.

It has so far received two tranches totalling $4.6 billion, but the country sorely needs the next payment of $2.7 billion to support foreign currency reserves, which are at a 10-year low due to gas debt repayments to Russia and efforts to support the struggling currency.

For now at least, Ukraine relies on Russian gas. Kobolev said that Naftogaz would have to hold new talks with Gazprom over their gas supply deal at the start of next year.

He said that with Gazprom sticking to its promise to supply gas and with Naftogaz also paying its bills, he hoped a new deal would cut prices from their current level of $375 per thousand cubic metres.

“There is a good chance that Gazprom will be more willing to reach a commercially fair and transparent agreement on (the) gas price and volumes for Ukraine.” (Editing by Pravin Char and Jane Baird)

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