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06KIEV3758, UKRAINE: RADA ROLLS BACK UTILITY PRICES, BUT WILL IT

September 29, 2006

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Reference ID Created Released Classification Origin
06KIEV3758 2006-09-29 13:30 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

VZCZCXYZ0000
RR RUEHWEB

DE RUEHKV #3758 2721330
ZNR UUUUU ZZH
R 291330Z SEP 06
FM AMEMBASSY KIEV
TO RUEHC/SECSTATE WASHDC 1728
INFO RHEBAAA/DEPARTMENT OF ENERGY WASHDC
RUEHMO/AMEMBASSY MOSCOW 1195
RUEHAH/AMEMBASSY ASHGABAT 0609

UNCLAS KIEV 003758 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DOE FOR LEKIMOFF, CCALIENDO 
 
E.O. 12958: DECL: NA 
TAGS: EPET ENRG PGOV PREL RS TX UP
SUBJECT: UKRAINE: RADA ROLLS BACK UTILITY PRICES, BUT WILL IT 
STICK? 
 
Sensitive but Unclassified. Not for Internet Distribution. 
 
1.  (SBU) Summary.  The Verkhovna Rada (parliament) on September 22 
overrode an April presidential veto to pass a law rolling back 
residential natural gas and electricity prices to January 1, 2006 
levels and putting a moratorium on future increases.  The law, if it 
comes into effect, would cancel summer price increases of 131% for 
residential gas and 56% for electricity.  Prime Minister Viktor 
Yanukovych has asked the Rada to withdraw the September 22 law and 
said that his government would propose next month a "new mechanism" 
for utility pricing that would lower consumer prices.  For state oil 
and gas company NaftoHaz, a Rada rollback or CabMin rate reduction 
would worsen its existing financial difficulties.  End Summary. 
 
Rada Overrides Veto; Rolls Back Utility Price Increases 
--------------------------------------------- ---------- 
 
2.  (U) The Verkhovna Rada (parliament) on September 22 overrode a 
President Yushchenko April veto of a measure to roll back gas, 
electricity, and public transportation prices to January 1, 2006 
levels and put a moratorium on future rate increases.  The law 
stipulates that the moratorium would last until the GOU fully funds 
pensions and other social payments to the subsistence level.  If it 
comes into effect, the law, would cancel summer residential price 
increases of 131% for gas and 56% for electricity.    The law, 
submitted by Communist Party leader Petro Symonenko, passed the Rada 
on January 19, 2006.  President Yushchenko vetoed the measure in 
April, saying the Rada had overstepped its constitutional mandate by 
trying to set prices.  The Rada Economic Policy Committee 
resubmitted the vetoed law September 22, and the Rada overrode 
Yushchenko's veto with 340 of 444 parliamentarians present voting in 
favor..  Among those voting for the override were 183 of 188 Party 
of Regions MPs, 100 of 125 BYuT MPs, 30 of 33 Socialists, 20 of 21 
Communists and only 4 of 80 Our Ukraine MPs. 
 
Yanukovych Promises Slightly Lower Prices in October 
--------------------------------------------- ------- 
 
3.  (U) Prime Minister Yanukovych said on September 25 that the 
Cabinet of Ministers endorsed the Rada decision and would soon 
propose a new price mechanism for setting gas and electricity 
pricing that would include rate cuts for residences.  Deputy Prime 
Minister Volodymyr Rybak, however, announced on September 28 that 
the Cabinet of Ministers wanted the Rada to withdraw its veto 
override, noting that Ukraine could not afford the 7.2 billion UAH 
($1.4 billion) necessary to fully fund the social expenditures 
mandated by the law.  Rybak pledged that the government would find 
ways to cut utility rates.  According to press reports, the Economy 
Ministry already has drafted a recommendation to the National 
Electricity Regulatory Commission to reduce domestic gas prices 18% 
for households (from 414 to 339 UAH/tcm) and 24% (from 658 to 498 
UAH/tcm) for regional cogeneration plants. 
 
Politics over pragmatism? 
------------------------- 
 
4.  (SBU) Comment.  The Yanukovych team's apparent reversal on the 
price rollback/moratorium law may illustrate a victory of 
practicality over political posturing.  Even without a rollback, a 
slight reduction of residential prices for the balance of 2006 could 
bring Yanukovych a political payoff.  It would come, however at a 
time when state oil and gas monopoly NaftoHaz is facing serious 
financial difficulties.  Lower residential prices would mean 
NaftoHaz will have to rely as much as possible on domestic natural 
gas production for household and municipal customers, but they will 
have to cover some with imports.  NaftoHaz will also have to ensure 
that the wellhead price for domestic gas remains low, thus impeding 
prospects for investment and modernization in the sector. 
 
TAYLOR

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