Vox Ukraine: Why Ukraine Needs Market-Based Gas Prices

A fundamental problem with Ukraine’s gas sector has been very low prices for consumption and domestic production by state-related companies, which have led to overconsumption and underproduction. However, Ukraine does not need to import gas or coal if it only offers normal market-economic conditions for the energy sector.

Gas trade with Russia and inside Ukraine has been one of the main sources of enrichment in Ukraine after the collapse of the Soviet Union. In 1998, Ukraine’s main gas trader at that time, Ihor Bakai, famously stated “All rich people in Ukraine have made their money on Russian gas.” The essence of their enrichment was to buy gas at a low state-regulated price and sell it at a high market price shielded by monopoly, or produce commodities for export using cheap gas.

Such gas trade has been the main source of top-level corruption in Ukraine. The only way of fighting this corruption is to unify all Ukraine’s many different gas prices at the market level¹. Unless Ukraine does so, top-level corruption will prevail, and Ukraine will not attain significant economic growth.

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