Agreement Reached on Reform of Ukrainian Natural Gas Sector

August 4, 2009 // Published as a news service by IHS

Ukraine, which is struggling with a severe economic downturn, had sought financial assistance to pay Russia for natural gas supplies. A payment dispute between Ukraine and Russia halted European gas deliveries in January, cutting off supplies to thousands of European Union (EU) residents.

The European Bank for Reconstruction and Development (EBRD) said it is ready to consider extending a sovereign-guaranteed loan to the Ukraine government-owned Naftogaz that will provide Naftogaz with working capital for immediate natural gas storage requirements, as well as longer-term finance to support an investment program for the rehabilitation of the existing gas transit system.

In addition, funding of up to $300 million for immediate working capital and, in 2010, up to $450 million for investment is also a possibility, with no more than $450 million to be committed at any one time.

The World Bank said it will consider providing up to $500 million in loans aimed at supporting cross-sectoral fiscal and structural reforms, including targeted social assistance for vulnerable populations and public procurement.

The European Investment Bank (EIB) confirmed its willingness to consider up to $450 million in long-term loans to help pay for upgrading the natural gas transit system.

The financial assistance package to Ukraine also includes technical assistance.

In close cooperation with the International Monetary Fund (IMF), the EC, EBRD, Word Bank and EIB stated their collective intent:

• To work together in the development of a support package to the Ukrainian authorities designed to assist in developing a sustainable solution to Ukraine's medium-term natural gas transit and payment obligations.
• To continue to support Ukraine's economic stabilization and reform, including reform of the natural gas sector and accompanying reform of the social safety net.

EC President José Manuel Barroso said, "The agreement should provide the stability needed to significantly reduce the risk of a further gas crisis between Ukraine and Russia and therefore provide the security of supply that [EU] Member States and our consumers expect."

"The commitments made by Ukrainian Prime Minister Tymoshenko should ensure increased transparency and long-term viability of Ukraine's gas sector, and I very much hope that the strict time frames set out in the reform agenda are fully respected."

The EC said it will continue to facilitate discussions between the international financial institutions and the Ukrainian authorities regarding this package of support measures to reform the natural gas sector. It also committed to helping Ukraine become part of the Energy Community Treaty.

The international financial institutions also committed to the ongoing development of specific proposals in the natural gas sector for supporting Ukrainian authorities.

Source: European Commission (EC).