Olha Hordienko (UNIAN)
Electricity
tariffs for households have risen 25% from March 1, the Ministry of Finance
responded to the Russian lawsuit in London court and announced the start of
social payments verification, the National Bank eased a number of forex rules,
and Japan is to allocate a new $300 mln loan for Ukraine. These are the main
economic news of the past week.
The beginning
of last week has brought the long-awaited spring warming and, unfortunately,
another increase in electricity tariffs.
National Commission on Energy
Regulation and Utilities on March 1 raised the minimum tariff for electricity
for the households by 25% - up to 57 kopiykas per kWh. The tariff was reviewed
as part of a two-year schedule, approved in February 2015, and the next review
is still to come on September 1, 2016. In addition, as commission warned, the
minimum tariffs for gas for the households and thermal power companies are also
expected to rise this April by 53%, or up to UAH 5,500 UAH per 1,000 cubic
meters.
But there was
also some good energy news this week. The Cabinet on March 2 approved and
submitted to the Rada a bill on the electricity market, providing for the
elimination of monopoly. Commenting on the decision of the Government, Prime
Minister Arseniy Yatsenyuk noted that the bill as a whole was endorsed by all
Western partners, including the EBRD, USAID, and the World Bank, and will allow
choosing electricity suppliers.
Also last
week, the Minister of Energy and Coal Industry, Volodymyr Demchyshyn announced
that tripartite gas talks with the participation of the EU will be held before
late March. The talks are expected to cover the issues of gas transit and gas
purchase. The European Commission, which has been a mediator between Ukraine
and Russia for quite a while, called for Kyiv to get prepared for the next
heating season and the new negotiations with Gazprom, without waiting for the
ruling of the Stockholm arbitration. According to European Commission
forecasts, the court may not manage to resolve the gas dispute between Naftogaz
and the Russian monopoly by the end of 2016.
Experts
believe that Gazprom deliberately delays proceeding in Stockholm. " Delays
in the arbitration are an additional factor of uncertainty with regard to
Ukraine, which Russia and Germany – by the way, we don’t know which of them to
a greater extent – are using to justify the need for Nord Stream-2," president
of the Strategy XXI Center Mykhailo Honchar has said in an interview with
UNIAN. In his opinion, the arbitration can go on until 2019, when the disputed
contract with Gazprom actually expires.
There were
some developments regarding another, just as interesting dispute between
Ukraine and Russia, this one in London court.
British Themis
One of the key
events during a relatively quiet last week in the economy was Ukraine’s
response to the lawsuit lodged by the Russian Federation with the High Court in
London, as Moscow is trying to recover a $3 billion loan granted in December
2013 through the purchase of eurobonds via the Irish Stock Exchange under the
agreement between Russian President Vladimir Putin and then President of
Ukraine Viktor Yanukovych. Russian officials have said that Ukraine has until
March 4 to respond to the lawsuit, so that the court could schedule hearings. And Ukraine’s response was “complex
and multi-layered."
Firstly, at
the beginning of last week, the Ministry of Finance of Ukraine has resumed
payment of coupons on external state loan bonds, paying the first coupon on the
new bonds issued in November 2015 as part of the debt operations. The Finance
Ministry transferred $ 473.3 million to the creditors who took part in the
operation and received new bonds in return for the restructured ones. Thus, the
creditors who had not refused to negotiate with the Ukrainian authorities
received their first bonus: all of them, except Russia.
Secondly, late
Thursday, Ukrainian Finance Ministry issued a statement indicating that Ukraine
had submitted to London's High Court confirmation of its receipt of procedural
documents, where Ukraine confirmed its intention to defend itself in a lawsuit
brought by The Law Debenture Trust Corporation Plc in relation to the so-called
debt to the Russian Federation."Ukraine re-confirms its previously stated
intention vigorously to defend the claim. The Ministry of Finance of Ukraine
has instructed the leading international litigation firm Quinn Emanuel Urquhart
& Sullivan to represent Ukraine in the proceedings," the statement
said. The company has dealt with more than 2,500 international arbitration
disputes, 88% of which resulted in gains for its customers worth over $50
billion.
Ukrainian
authorities are carefully preparing for trial, however, they do not intend to
disclose details of such preparation and their defense strategy, Ukrainian
Finance Minister Natalie Jaresko told journalists on Friday "It's hard
work that we don't want to reveal. We will work to protect the interests of
Ukraine," Jaresko said.
In addition,
the Ministry of Finance last week focused on a project unprecedented for our
country - verification of social payments.
Fighting scams with social aid
Last week, the
Finance Ministry announced the official start of the verification of recipients
of pensions and social benefits. Presenting the project, the finance minister
stressed that such a comprehensive inspection will be conducted for the first
time in the years of Ukraine's independence. She assured that the verification
does not mean a halt to payments and does not threaten honest citizens, as it
involves analysis of data from different sources. The payments will only stop
after scam schemes are revealed.
The minister
said that a pilot verification regarding internally displaced persons has
already been held last year, which resulted in saving over UAH 1 billion of
budget money previously received in illegal schemes, while honest citizens were
not affected. According to ministry’s estimates, the State Pension Fund will
spend over UAH 350 billion for all social support programs in 2016.
Experience of
similar inspections conducted in other countries shows that about 30% of social
payments may not go as intended. "According to our estimates, due to the
verification, we may potentially save a minimum of UAH 5 billion of budget
money in 2016. The key task of verification is to help identify the frauds
among the recipients of social assistance, as well as [the so-called] ‘dead
souls,’ thereby ensuring the effective use of taxpayers' money," Jaresko
said.
The Finance
Ministry said that the completion of testing is expected by July 1, after the
verification will be conducted on an ongoing basis.
To ensure such
inspections on a regular basis, the Cabinet last week decided to create a
unified database of the e-data on the Ukrainian citizens. At its core, it will
have the registers of the National Bank, the Pension Fund, the social insurance
funds, enterprises, banks and financial institutions, regardless of ownership.
The bankers
supported the initiative. For example, the state-owned Ukrgazbank has
recognized that the problem of illicit accrual and receipt of social benefits
actually exists. Referring to the procedures of the Ministry of Finance, the
bank assured that the verification is in no way a threat to banking secrecy as
a necessary amount of information about the recipients of social payments is
minimal and cannot be used for the benefit of third parties.
The Ministry
of Social Policy is also working on revealing illegal recipients of social
payments. Last week, the press service of the department, referring to the
Security Service, reported that up to 40% of IDPs claim social benefits
illegally, because they get the money in Ukraine, while actually residing in
the territory of so-called “LPR-DPR.” "Each week, the Security Service of
Ukraine detains couriers with a bunch of credit cards and cash transported to
the militant-controlled territories.
Since early 2016, the law enforcers seized
the equivalent of nearly UAH 35 million in cash," the press service said
quoting Minister Pavlo Rozenko as saying. The ministry added that the money can
directly or indirectly get to the militants.
The budget losses
caused by fraud in social assistance payments to pseudo-IDPs range between UAH
6 bln and UAH 12 bln a year, according to the ministry's press service.
These billions
with a high probability reemerge at the "black" currency market,
which last week did not go unnoticed by the country’s financial regulator.
Forex easing
Last week was
marked by another stage of liberalization of currency market. The main
innovations announced by NBU Governor Valeriya Gontareva Thursday relate the
cash market. From March 5, citizens are allowed to take from banks and ATMs up
to UAH 500,000 and the equivalent of UAH 50,000 in foreign currency per day,
whereas previously, the maximum daily amount of cash issuance almost half of
that – UAH 300,000 and UAH 20,000 respectively.
The NBU also doubled the
ceiling of sale of the cash currency to individuals – up to UAH 6,000 per day.
In addition, the regulator pledged to return in the near future the opportunity
for importers to prepay for critical imports without restrictions on contract
volumes.
The market
took currency innovations ambiguously. On the one hand, the Ukrainian hryvnia
in recent months has been slowly but surely becoming cheaper. According to the
NBU estimates, since the beginning of the year the national currency
depreciated by 13.4% - to UAH 27.2 to the dollar. Meanwhile, the "black”
market clings to the last year’s maximum of 29-30 UAH / USD. To support the
hryvnia, the NBU over the two months has already held 13 currency sale
auctions, selling $298 million from its reserves to the banks. Under these
conditions, the NBU’s decision to "loosen the reins" was an
unexpected and pleasant surprise, as experts have repeatedly drawn attention to
the fact that administrative levers are now poorly performing their function to
support the hryvnia, instead actively supporting the "black" market.
"Banks,
just as customers, really waited for some easing. The lowering of the
restrictions bar is a sign that the situation in the country is getting
better," head of deposit products and current accounts department at
UniCredit Bank Iryna Strepetova said in comments to UNIAN. According to her,
the liberalization of the foreign exchange market will help in the difficult
process of rebuilding trust between banks and customers, because the clients
will no longer be afraid to place money on deposits, because they will be able
have it back upon request. However, the banker has warned that the effect of
easing of forex rules is unlikely to be seen immediately, it will rather be
gradual given the National Bank continues its policy of liberalization, and the
investors begin to return to the banks.
On the other
hand, the bulk of the restrictions interfering with the business and preventing
foreign investment will remain in place for another three months. It is about a
mandatory sale of 75% of foreign exchange earnings by exporters and a 90-day
monitoring of payments under foreign trade contracts, as well as a ban on early
repayment of loans to non-residents, return of investment and transfer of dividends
to foreign investors. In addition, the requirement is extended to coordinate
with the NBU applications for purchase of foreign currency exceeding the
equivalent of $50,000.
In addition,
the National Bank has kept the annual discount rate at 22% for the fourth
consecutive month, traditionally promising easing of monetary policy in the
future given the reduced inflation risks.
The
regulator’s cautiousness is clear - a memorandum with Ukraine’s key creditor,
the International Monetary Fund, on which the fate of the national currency and
the stability of the domestic economy depends, has still not been agreed.
The IMF and the others
The IMF last
week has once again assured that he is ready to continue cooperation with
Ukraine but expects more clarity from Kyiv about the status of the
government and the parliamentary coalition. "We would like more clarity -
the government and the coalition. Director of the IMF Communications Department
Gerry Rice admitted though that Ukrainian President Petro Poroshenko, quite
clearly expressed commitment to reform. He noted that the list of required
reforms has long been known and is represented both in the cooperation program,
and in the draft memorandum on the second review of the program, which is still
being agreed in the Ukrainian government.
In response to
this statement, Finance Minister Natalie Jaresko said that the Ukrainian
authorities continue to work on harmonization of the updated Memorandum."
"It's a living draft, every week, something changes," she said,
stressing that there are no specific problems in the memorandum, but it is
constantly adjusted. Jaresko also said that the allocation of another tranche
from the IMF is possible only after a meeting of the Foundation Council, but
until the Memo is signed, the IMF cannot set a date for such meeting. "Now
we have to concentrate on the Memorandum, to agree all these details, and after
that, there will be the signing and the meeting of the Council, and the
allocation of tranches," she said.
Meanwhile,
international partners continue supporting Ukraine. In particular, Ukraine and
Japan have ratified an agreement on the allocation of the second loan for
development policies in the amount of $300 million. The agreement will come
into force in March, while the flow of funds is expected in April of this year.
Under the
agreement, the loan is provided for 20 years, with a six-year grace period. The
rate is set at LIBOR plus 0.5%, which is currently less than 1%. "Foreign
governments would not have supported our country, had there been no
reforms," said the finance minister during the deal presentation,
reminding that Japan has been Ukraine’s partner for many years, and its total
financial assistance reached $1.8 billion.
The next week
promises to be just as exciting: on March 9, the planet will witness a total
solar eclipse, and the State Statistics will publish data on February
inflation. Stay tuned.
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