Ukraine unnerved by leap in Russian gas prices

A 79 per cent rise in the price of gas from Russia next month will push the country towards an economic disaster, Ukraine's prime minister Arseny Yatseniuk said yesterday.

Russia said it would charge Kiev US$480 per 1,000 cubic metres from April 1.

Ukraine, which depends on Russia for more than half of its gas needs, plans to import about 30 billion cubic metres this year, Yuriy Prodan, the country’s energy minister said this month.

Said the prime minister: “Ukraine is on the edge of economic and financial bankruptcy.”

He said inflation this year would range between 12 and 14 per cent and unless laws were passed to support the austerity measures proposed by the IMF to stabilise the economy, GDP could fall 10 per cent during the year and Ukraine could default.

Ukraine yesterday reached a preliminary deal with the IMF to unlock $27 billion of international support to avert default and limit economic damage from a four-month political crisis.

The government in Kiev reached a staff-level agreement with the Washington-based lender for a two-year loan of $14bn to $18bn, the IMF said.

The IMF’s board must still sign off on the package, Ukraine’s third since 2008, and the government needs to complete “prior actions” to receive the first instalment.

Ukraine’s government bonds rallied in response to a rescue deal that appears to shield the investors that hold them from losses.

The price of the country’s once-troubled bonds rose to their best levels since late January.

The yield on a Ukrainian dollar-denominated bond maturing in 2023 fell 0.36 percentage points from Wednesday’s close to 8.94 per cent, according to Tradeweb. Yields fall as prices rise.

But the hryvnia, this year’s worst performer against the dollar with a 25 per cent decline, weakened 0.5 per cent to 11 per dollar in early trading.

The Micex Index retreated 1.3 per cent to 1,331.35 by early afternoon in Moscow, trimming this week’s increase to 1.9 per cent.

Follow us on Twitter @Ind_Insights