Ukraine eyes coal after Russian gas price hike

KIEV

REUTERS Photo

Ukraine's Western-backed leaders scrambled on Friday to find new sources of energy after Russia hiked its gas price by 80 percent in response to the overthrow of Kiev's pro-Kremlin regime.
      
The crisis-hit nation saw the amount it must pay for 1,000 cubic metres of blue fuel soar to $485.50 from $268.50 after Russia imposed two price increases in three days that reflected its deep displeasure with the ex-Soviet nation's new westward course.
      
Energy Minister Yuriy Prodan called Russia's new price "political" and vowed to explore solutions that included a heavier reliance on coal -- a polluting source of energy whose consumption has imperilled the air quality of nations such as China.
      
"We are now reviewing our electricity and fuel balance for 2014 with a view of using as much domestic coal as possible at the expense of natural gas," Prodan told a cabinet meeting in comments posted on the government website.
      
Ukraine has relied on coal throughout much of the past century despite efforts by global institutions such as the World Bank to help Kiev phase out its use following independence from Moscow.
      
The International Energy Agency estimates that coal accounts for about 30 percent of Ukraine's total energy supply compared to the 40 percent of the balance assumed by natural gas.
      
The nation of 46 million on the EU's eastern frontier is rich in resources but still imports about 30 percent of its needs due to inefficiencies and heavy state subsidies to both households and industries.
      
Ukraine consumed about 50 billion cubic metres of gas last year and imported 28 billion cubic metres from Russia -- a figure it would like to reduce despite the penalties this might incur under the terms of its contract with Russia's state energy giant Gazprom.
      
"There is a probability of Ukraine reducing gas purchases from Russia," Moscow's VTB Capital investment bank wrote in a research note.
      
The hike in Russia's gas price to what Ukraine believes is now the highest in Europe is unlikely to hit consumers directly because of Kiev's continued state subsidies programme.
     
Ukraine has promised to raise the price households pay for gas by 50 percent in May -- and for heating by 40 percent in July -- under the terms of an IMF-backed austerity programme that could lead to the release of up to $27 billion in global assistance over the coming two years.
      
But Russia's new rate is certain to put Ukraine's cash-strapped state energy firm Naftogaz into further debt and force the government to use a part of its foreign assistance on meetings payments to Gazprom.
                      
Prime Minister Arseniy Yatsenyuk said on Friday that Ukraine could receive $13.5 billion in IMF and other aid this year should it quickly pass and implement the required economic restructuring measures.
      
Prodan for his part said he was also negotiating with energy traders in Poland and Hungary that could use Ukraine's existing pipeline network to ship in limited quantities of natural gas from the west.
      
"These gas traders are ready to supply gas that correspond to European market rates," said the energy minister.
      
Yatsenyuk added that similar talks were also underway with Slovakia.
      
Ukraine's decision to reverse the flow of some of its pipelines could further complicate its relations with Russia because Gazprom uses the network to transmit gas to its clients in southern and western Europe.