Ukraine Cancels Gas Pipeline Takeover After Lender Criticism

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  • Transfer to government control risks EBRD, World Bank loans
  • UkrTransGaz is currently owned by state-run Naftogaz Ukrainy

Ukraine canceled a government takeover of state gas-transportation company UkrTransGaz after an international creditor said the step raised management issues and the nation’s biggest energy company warned of risks to hundreds of millions of dollars of loans.

The decision to cancel was taken Monday after a meeting between Prime Minister Volodymyr Hroisman, U.S. Ambassador Marie Yovanovitch and representatives of the European Bank of Reconstruction and Development, the World Bank, state gas company Naftogaz Ukrainy’s and UkrTransGaz officials, the government said in a statement.

Earlier in the day, Deputy Prime Minister Stepan Kubiv ordered the takeover suspended, saying discussions were needed with all sides involved in the process, including UkrTransGaz’s owner, Naftogaz Ukrainy. Naftogaz warned that transferring oversight to the Economy Ministry violated a $300 million gas-purchase loan pact with the EBRD and endangered a planned $500 million credit from the World Bank. The original decision was part of a plan to break up Naftogaz’s extraction and transit operations.

“During the meeting, the prime minister assured participants that he adheres to commitments to reforms in the energy sector,” the government said in its statement. “He also emphasized the need to accelerate the reform of corporate governance of Naftogaz Ukrainy and UkrTransGaz.”

The government, which came to power with a mandate to retool Soviet-era industry and stamp out years of corruption, has received praise for bringing energy prices to market levels and improving efficiency at Naftogaz. The UkrTransGaz decision, however, raised questions over corporate governance.

Ukraine must respect its commitments to the EBRD, Francis Malige, the London-based lender’s Kiev-based managing director, said last week.