Ukraine quadruples domestic gas transport fees to offset impact of Russian deal expiry

KYIV (Reuters) - Ukraine will quadruple gas transmission tariffs for domestic consumers from Jan. 1 to offset the impact of lost revenue following the year-end expiry of the gas transit agreement with Russia, officials said on Monday.

Almost three years after the start of the war with Russia, Ukraine has refused to extend the deal that allowed Russian gas to be pumped to customers in the European Union.

The Ukrainian regulator - the national commission for state regulations in the energy and utilities sectors - approved a decision to increase domestic gas transmission tariffs to about 502 hryvnias ($11.95) for 1,000 cubic meters from some 124 hryvnias ($2.95) previously.

"In 2024, 85% of our revenue came from transporting gas originating in the Russian Federation. It means that only 15% remains for us from domestic customers," Dmytro Lyppa, general director of Ukraine's gas transport operator, said during the meeting to discuss the tariff increase.

Although Russian gas supplies to Europe via Ukraine have shrunk as many European countries have sought alternative energy sources, Ukraine still earns $0.8-$1 billion in transit fees per year from Russian transit.

The domestic fees are paid by Ukraine's utilities and intensive energy users, such as steel-makers.

Olha Kulik from the Federation of Ukrainian Employers said the higher tariffs would cost Ukrainian industry more than 1.6 billion hryvnias a year.

Russia shipped about 15 billion cubic metres (bcm) of gas via Ukraine in 2023 - equivalent to 8% of peak Russian gas flows to Europe via various routes in 2018-19.

Lyppa said the tariff increase would not cover fully the lost revenues, but that "the Ukrainian economy required balanced and fair decisions," with reference to higher production costs many businesses face because of wartime economic challenges.

The gas transport operator was cutting its costs by closing some infrastructure and laying off staff, he said.

Ukraine's economy was devastated by Russia's full-scale invasion in February 2022 as millions of people fled the fighting, cities and infrastructure were bombed and damaged, and exports and logistics were disrupted.

Gross domestic product fell by nearly 30% in 2022 and despite growing in 2023 and 2024, the Ukrainian economy is about 78% of its size before the war.

($1 = 42.0700 hryvnias)

(Reporting by Olena Harmash; editing by Barbara Lewis)