The Ukrainian government has defied the International Monetary Fund (IMF) and says it sees no reason to increasing the gas price for the population as the heating season starts making any more distributions of donor money this year unlikely.

Raising gas tariffs for households was a key reform demand by the IMF, but as President Petro Poroshenko’s popularity ratings plummet the government is increasingly reluctant to inflict more economic pain on the already suffering voters ahead of a presidential election in 2019. By backtracking on a gas tariff hike Kyiv endangers the further allocations of funding under the International Monetary Fund (IMF)'s $17.5bn funding programme, agreed by Kyiv with the IMF in 2015. So far this year the IMF has released only one tranche of $1.5bn.

"There are no changes to increase the gas prices," the ukrinform.net online outlet quoted the country's Energy Minister Ihor Nasalyk as saying on October 2. "The prime minister has clearly stated that there are no economic justifications for this [gas price increase], and the ministry can confirm this."

Utilities were free in Soviet times and charging for heating remains deeply unpopular throughout the Commonwealth of Independent States (CIS). The Ukrainian government has always subsidised the cost of heating and run large budget deficits as a result.

A March cabinet resolution required that this gas price be determined based on an import parity principle, as the government and the IMF had agreed upon, Kyiv-based brokerage Concorde Capital wrote in a research note on October 3.

The government was supposed to increase prices as of October 2017 if the calculated price exceeded the existing one by 10% or more. Based on various calculations, this should have raised retail gas prices by 18%-19%, according to Concorde.

Ukraine’s Prime Minister Volodymyr Groysman voiced his opposition to raising gas prices for the public, and the government is currently seeking to revise its pricing methodology for gas to avoid any increase. A new methodology has yet to be agreed upon with the IMF, which insists upon an import parity principle.

"Natural gas pricing is among the key outstanding issues in Ukraine’s talks with the IMF on a new loan tranche," Concorde's Alexander Paraschiy wrote in the note. "This week, Ukraine’s parliament is scheduled to adopt pension reform, which is the most critical demand of the IMF. But the loan tranche won't come without resolving the gas pricing issue."

At the same time, Paraschiy still believes Ukraine and the IMF will be able to find common ground in the coming weeks, and Ukraine will be able to receive at least $1bn in a new IMF tranche by the year end.