EBRD Approves $300 Million Loan for Ukraine Winter Gas

  • Loan will boost Ukraines `energy security,' diversify sources
  • Ukraine plans to resume fuel purchases from Russia after halt

The European Bank for Reconstruction and Development approved a $300 million loan to NAK Naftogaz Ukrainy, a Ukrainian state-run energy company, to finance purchases of natural gas on a European market.

The revolving three-year facility will be used to boost gas storage for the winter heating season, the London-based lender said Wednesday in an e-mailed statement.

“The loan diversifies supplies for the country,” said Francis Malige, the EBRD’s Kiev-based managing director for eastern Europe and the Caucasus, in a phone interview following approval. “We help Naftogaz to purchase gas independently on the EU market using modern standards. It is not just about money. It is a giant step forward with the management of Naftogaz. ”

Ukraine needs to increase its gas stockpiles by about 3.5 billion cubic meters before the heating season starts next month. The country plans to resume fuel purchases from Russia, buying more than 2 billion cubic meters of gas after both sides agreed on a price through March, ending a three-month halt.

Resusable Loan

The EBRD loan can be used again as early as in spring next year after the winter season is over and when the loan is paid back, Malige said. Next year, Naftogaz will have a chance to use the funds over the summer and buy gas at a cheaper rate.

The funds are provided under condition that Ukraine’s cabinet and the management of Naftogaz agree on a reform of the company’s governance, Malige said.

The deal with Russia, which was brokered by the European Union, envisaged a Russian gas price at $227.36 per thousand cubic meters, Naftogaz Chief Executive Officer Andriy Kobolyev said. Ukraine, which is raising fuel imports via Slovakia, is in talks with its European partners on lowering the gas price, Kobolyev said without elaborating.

Pipeline Repair

The EBRD and Ukraine signed an agreement last year to upgrade and repair the western part of the Urengoy-Pomary-Uzhgorod pipeline, a key section of Ukraine’s gas transportation system. Both projects “are designed to stimulate reforms in the Ukrainian gas market that will help move the sector towards best practice with respect to market-based principles and liberalization, ” the lender said.

The loan will strengthen Ukraine’s energy security by supporting diversification of natural gas suppliers and delivery routes, the bank said in the statement.

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