Ukraine Tackling Gas Corruption Means Potatoes for Poor
By Ladka Bauerova and Eduard Gismatullin Mar 18, 2014 8:51 AM ET
Galina Pavlik barely scrapes by on her monthly pension of $290. Like many Ukrainians, the 73 year-old Kiev resident depends on gas to heat her three-room apartment. The bill swallows about a sixth of her income.
The new Ukrainian government will soon need people like Galina to pay even more for power and gas as it wrestles with protracted economic and political crisis. In the wake of a diplomatic showdown between the West and Russia over Crimea’s March 16 vote to secede from the country, Ukraine’s future now depends in large part on its ability to secure $35 billion in U.S. and European Union aid. Cutting energy subsidies, considered economically wasteful and a magnet for corruption, will be key to getting that help, even if it means more pain for households.
“I will have to eat only potatoes and the cheapest sardines to be able to pay more for gas,” said the pensioner, who has supported the interim cabinet headed by Arseniy Yatsenyuk that replaced the Russian-backed government of President Viktor Yanukovych. “I can’t afford to pay more.”
Ukraine’s system of subsidies for household gas has long been abused. Typically, distributors buy government-allotted gas at low prices intended for families and resell it for far higher prices to businesses. Analysts estimate that the scheme robs hundreds of millions of dollars a year from state coffers in added subsidy costs, further destabilizing Ukraine’s economy, which is already teetering on the verge of default.
The average gas price for families in the Kiev region was $76 per 1,000 cubic meters last month, while industrial clients paid about $447. As much as 2 billion cubic meters a year is lost to fraud, estimated Dmytro Marunych, co-chairman of the Energy Strategies Fund in Kiev.
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http://www.bloomberg.com/news/2014-03-18/ukraine-tackling-gas-corruption-means-potatoes-for-poor.html
