Ukraine will lose up to 1% of GDP if gas transit cut by three times - NBU

The National Bank of Ukraine (NBU) estimates that Ukraine's gas transit will decrease to 50 billion cubic meters in 2020 and to 30 billion cubic meters in 2021, with direct economic losses expected to reach less than 1% of GDP every year.

This is stated in a quarterly inflation report of the NBU for October 2019, the central bank's press service reported.

"According to the NBU's assumptions about the baseline macroeconomic forecast, transit volumes may decline from about 90 billion cubic meters in 2019 to 50 billion cubic meters in 2020 and up to 30 billion cubic meters from 2021. Direct economic losses, compared with transit volumes at 2019 levels, will amount to 0.6% of GDP in 2020 and 0.9% of GDP in 2021 and in the future," the report reads.

It notes that the suspension will not only lead to a direct loss of foreign exchange earnings but also create risks for the activities of related sectors of the economy and the provision of Ukraine's own gas needs.

Given that there is no definite amount of transit today, the NBU is considering alternative scenarios that involve both higher and lower transit volumes.

"Russia is actively putting into operation bypass pipelines that, with their total capacity, are capable of completely replacing the Ukrainian gas transmission system in the coming years," the NBU's press service reported.

In January-September 2019, the Ukrainian gas transmission system delivered 64.3 billion cubic meters of gas to European countries and Moldova, which is 1% more than in the same period last year.

Thanks to gas transit, Ukraine receives about $3 billion per year. The contract for the transit of Russian gas through Ukraine expires on December 31, 2019.

On October 28, Brussels hosted trilateral consultations between the European Commission, Ukraine and Russia on the transit of Russian gas to the European market through Ukraine.

Russia proposed extending the current gas transit contract for one year. Ukraine and the European Commission are in favor of concluding a ten-year gas transit agreement. Naftogaz said that at the upcoming negotiations, Russia would be proposed that Ukraine transport 60 billion cubic meters of gas annually.

The preliminary rounds of the trilateral talks on gas transit took place on July 17, 2018, January 21, 2019 and September 19, 2019.

op