EBRD approves $300 mln for Ukraine to buy gas
Directors at the European Bank for Reconstruction and Development (EBRD) have approved a project that will provide Naftogaz Ukrainy with $300 million, with state guarantees, to buy natural gas on the European market to fill underground storage facilities for the winter period.
The bank's board reached the decision at a meeting on Wednesday, EBRD Principal Adviser for External Affairs Anton Usov told Interfax-Ukraine.
Earlier, the bank said that the loan will strengthen Ukraine’s energy security by supporting diversification of natural gas suppliers and delivery routes. It is closely linked to a previous Naftogaz pipeline project to upgrade and repair a key section of Ukraine’s gas transmission system, the western part of the Urengoy-Pomary-Uzhgorod pipeline, which was signed between the EBRD and Ukraine in 2014.
Ukrainian Prime Minister Arseniy Yatseniuk said at a cabinet meeting on Wednesday that should the loan be approved, Naftogaz would hold a tender in keeping with the EBRD's procedures to buy gas for $300 million on the western border.
Naftogaz has already accumulated $500 million, Yatseniuk said, and the EBRD's decision will unblock another $500 million which will be provided by the World Bank against state guarantees on gas purchases.
"Thus, the total package of financing needed for this winter is about $1.3 billion, including $500 million already available in the account," he said.
The EBRD said in a Wednesday press release that both projects are designed to stimulate reforms in the Ukrainian gas market that will help move the sector towards the best possible practices in line with market-based principles and liberalization. They will strengthen corporate governance at Naftogaz and introduce greater transparency and efficiency in its purchases of natural gas.
"Proceeds from the loan will be used in strict compliance with the EBRD’s Procurement Policies and Rules, the best European practice and the European Federation of Energy Traders documentation," reads the press release.
Riccardo Puliti, EBRD Managing Director, Energy and Natural Resources, said: "This project is another important landmark in the reform of Ukraine’s gas sector. Our loan will support key areas such as the establishment of a truly independent regulator, the improvement of tariff methodology as well as the introduction of a gas network code. It will contribute to better governance and financial sustainability of Naftogaz."
Technical assistance for the implementation of a Corporate Governance Action Plan for Naftogaz is being provided by the EBRD-Ukraine Multi-Donor Account established at the bank in 2014 and funded by Finland, France, Germany, Netherlands, Sweden, Switzerland, UK, the U.S., Denmark, Japan and Norway.
Naftogaz Ukrainy is a state holding, which consists of a group of enterprises that extract, transport, store and process oil and gas, and supply fuel.
The EBRD is the largest international financial investor in Ukraine. As of 1 September 2015, the bank had a total cumulative commitment of EUR 11 billion in 346 projects throughout the country.