Romania Vows Before IMF To Slash Heating Aid, Bills May Soar

05.10.2011 By Andrei Circhelan

Romania's government committed in the latest talks with the International Monetary Fund to eliminate the thermal energy subsidy in the near future, which could increase household heating bills by up to 60% by the end of the year, depending on the mayoralties' capacity to cover the difference.

The heating subsidy is currently granted through a combination of funding from the state budget and local budgets.

Jeffrey Franks, the head of the IMF mission to Romania, told MEDIAFAX the government plans to eliminate the subsidy granted from a central level by the end of the year, with the exception of social cases, who may even receive an increase.

"There are different subsidies for heating: the heating allowance for the most vulnerable will stay or it will even be increased.

There is a heating subsidy from the central government which the government is planning to eliminate in the course of the 2011 budget. And there is also subsidies for heating from local government and those are not part of the agreement right now," Franks said in an interview.

The IMF representative added the removal of subsidy may also impact inflation, which could rise to 6% this year, overshooting the central bank's forecast.

"We are expecting that it will be somewhere in the range of between 5% and 6%. We will do the exact calculations when we'll know also the changes on the gas prices," Franks added.

The central bank revised last week its inflation forecast for this year to 5.1%, from 3.6%, but calculations did not include potential increases in administered prices since there was no clear agenda in this respect.

The government currently subsidizes up to 45% of fuel costs of thermal power producers, and household bills vary from one town to the next, depending on the reference price established by the local council and the subsidy granted by each particular mayoralty.