## Ukraine's Gas Arrears: Issues and Recommendations

_IMF Policy Discussion Papers, April 1, 1996_

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**Canonical URL:** [Ukraine's Gas Arrears: Issues and Recommendations](https://www.imf.org/en/publications/imf-policy-discussion-papers/issues/2016/12/30/ukraine-s-gas-arrears-issues-and-recommendations-2005)

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## Bibliographic details
- Authors: Amer Bisat
- Published: April 1, 1996
- Series: IMF Policy Discussion Papers
- DOI: https://doi.org/10.5089/9781451974010.003

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### Summary and central conclusion
- The paper examines the gas arrears "crisis" in Ukraine and concludes that the problem can be traced to policy distortions and can be contained through an acceleration of structural reforms.
- The analysis covers contractual relations with foreign suppliers, the de facto government guarantee for gas import payments, mechanisms for imposing financial discipline on non-payers, gas-related subsidy schemes, and methods for calculating domestic energy prices.
- An Appendix derives lessons from the Estonian case, an economy which, despite relatively similar initial conditions, avoided the emergence of energy payment difficulties.

### Key findings about the arrears problem
- Arrears are linked to policy distortions rather than solely to external shocks.
- The de facto government guarantee for gas import payments plays a central role in the emergence and persistence of arrears.
- Weak mechanisms for imposing financial discipline on non-payers contribute to arrears accumulation.
- Gas-related subsidy schemes and the methods used to calculate domestic energy prices perpetuate cross-subsidization and reduce incentives for payment.

### Analysis themes (contractual, fiscal, and regulatory)
- Contractual relations between Ukraine and foreign suppliers:
  - Examines the nature of contractual obligations and how they interact with domestic payment enforcement.
- Role of the de facto government guarantee:
  - Identifies the guarantee as a moral-hazard factor that supports arrears accumulation.
- Financial discipline on non-payers:
  - Reviews the process (or lack thereof) of penalizing or restricting supply to non-paying entities.
- Gas-related subsidy schemes:
  - Describes how subsidy designs distribute burdens across consumers and enterprises and can undermine payment discipline.
- Methods for calculating domestic energy prices:
  - Assesses price-setting methodologies that fail to reflect cost recovery and market signals.

### Lessons from Estonia (Appendix)
- Estonia avoided energy payment difficulties despite relatively similar initial conditions, offering lessons applicable to Ukraine.
- The Estonian experience underscores institutional and policy approaches that prevent arrears accumulation (details and mechanisms are examined in the Appendix).

### Policy recommendations
- Accelerate structural reforms aimed at:
  - Reducing policy distortions that encourage arrears.
  - Removing or restructuring de facto government guarantees that create moral hazard.
  - Strengthening enforcement and financial discipline mechanisms for non-payers.
  - Reforming gas-related subsidy schemes to target assistance and restore payment incentives.
  - Revising methods for calculating domestic energy prices to ensure cost-reflective pricing and transparency.
- Draw on Estonia-derived lessons to design and implement reform sequencing that prevents renewed arrears accumulation.

### Subject and keyword focus (as identified in the paper)
- Subject: Arrears, Expenditure, External debt, Import payments, Imports, International trade, Social assistance spending, Tariffs, Taxes
- Keywords: Arrears, arrears accumulation, enterprise, enterprise restructuring, gas arrears, gas import company, gas import payment, Import payments, Imports, PDP, restructuring program, Social assistance spending, subsidy, supplier, Tariffs, Western Europe

*Source: IMF Policy Discussion Paper by Amer Bisat, April 1, 1996.*

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_Source: https://www.imf.org/en/publications/imf-policy-discussion-papers/issues/2016/12/30/ukraine-s-gas-arrears-issues-and-recommendations-2005_