Ukraine’s national gas company Naftogaz has lowered the price of gas for households in February to UAH6.89 per cubic metre (including VAT but excluding transportation costs) from UAH7.22 per cubic metre in January, Naftogaz announced on January 27.

"Naftogaz, as a price leader, set the lowest price for gas for consumers in February. It is lower than the price recommended by the government [UAH6.99 per cubic metre] due to its own minimum margin," the group said in the press release as cited by Interfax Ukraine.

The reduction is part of a government decision to ease the burden on Ukrainians suffering as a result of the economic crisis of the last year, as well as a popularist move by Ukrainian President Volodymyr Zelenskiy, whose approval rating has recently been battered in the polls.

The decision has been criticised by the International Monetary Fund (IMF), which has insisted that gas be sold at market rates as one of the conditions of its $5bn stand-by agreement (SBA) agreed last year.

The government has promised the measure is “temporary”, but the IMF has suspended its SBA for the meantime due to backsliding on reforms and it is currently in talks with the government and will want solid reassurances.

Previously the government promised to hike rates but reneged on them. Domestic gas tariffs remain a very sensitive political topic in Eastern Europe, where the population is used to getting all their utilities for free as a legacy of the Soviet Union.

The company said that for customers who signed up for the annual tariff last year, the cost of gas will remain at the levels of UAH4.73, UAH5.24 and UAH6.45 per cubic metre (depending on the month of subscription to the tariff).

Naftogaz is the supplier of last resort (SOLR) and is ready to supply gas to all household consumers who are unable to source gas from other suppliers at the price limit set by the government for February-March of UAH6.99 per cubic metre.

Chairman of the board Andriy Kobolev explained the price reduction was possible because the group operates without its own branches, prefers electronic services and works with the networks of the banks Oschadbank and FUIB.

He said that government regulation destroys competition, as evidenced by the absence of new gas suppliers for households over the six years of the public special obligations (PSO, until August 2020) and the unwillingness of large market players to adjust to the situation after the PSO's cancellation and to abandon inflated prices.

"Although we can continue competing with each other within the marginal price, we hope that this regime will be short-lived. All suppliers can accelerate the return to market conditions by offering their customers not a price that was cut from the top, but their own unique offer," Kobolev said.