EBRD, Ukraine agree Naftogaz reform, sign US$ 300 million loan for winter gas purchases

By Svitlana  Pyrkalo
@pyrkalo

EBRD, Ukraine agree Naftogaz reform, sign US$ 300 million loan for winter gas purchases

EBRD First Vice President, Phil Bennett, and Ukrainian Minister of Finance, Natalie Jaresko, signed a sovereign guarantee agreement for the loan on the fringes of a Ukraine-Germany business forum.

Loan signed following government approval of EBRD-designed Naftogaz corporate governance action plan

Today in Berlin, in the presence of German Chancellor, Angela Merkel, and the Prime Minister of Ukraine, Arseniy Yatsenyuk, the European Bank for Reconstruction and Development (EBRD) and Ukraine signed a loan agreement for US$ 300 million to finance purchases of gas for the coming winter. The loan is tied to a programme of corporate governance reforms at NJSC (National Joint Stock Company) Naftogaz, the national energy company.

Naftogaz will use the funds to tender for purchases of about 1.1 billion cubic metres (bcm) of gas. The gas will be used to fill up Ukraine’s strategic storage facilities ahead of the winter.

The EBRD loan is conditional upon a programme of corporate restructuring at Naftogaz, including the creation of a supervisory board of  independent and qualified directors, the introduction of internal audit, compliance, anti-corruption and risk management functions and an ownership and governance structure in line with best international practice.

EBRD First Vice President, Phil Bennett, and Ukrainian Minister of Finance, Natalie Jaresko, signed a sovereign guarantee agreement for the loan on the fringes of a Ukraine-Germany business forum.

Minister Jaresko said: “We are thankful to the EBRD for this loan agreement, a true milestone of our shared commitment to Ukraine’s energy sector reform. With the EBRD’s support, we have taken a significant step forward in ensuring financing for continuous gas supplies for the winter.”

The EBRD’s Phil Bennett stated: “By providing this loan to Naftogaz, we are not only helping to strengthen energy security in Ukraine but we also foster the reform agenda in the energy sector making it more open, transparent and efficient.”

The loan agreement was signed by the EBRD Managing Director for Energy and Natural Resources, Riccardo Puliti, and the CEO of Naftogaz, Andriy Kobolev.

Riccardo Puliti said, “Under the facility, Naftogaz will purchase gas on the European market, via EU-Ukraine interconnectors, through the so-called reverse flow, and in line with best European practice. A public tender, which follows the EBRD public procurement rules, is under implementation and should ensure both efficiency and transparency to the whole purchase exercise.”

Andriy Kobolev added: “The corporate governance reform, strongly supported by the current Naftogaz management, will enable the company to focus on maximising shareholder value in the interests of the citizens of Ukraine. An independent supervisory board and improved control mechanisms will help to raise operating efficiency of the group. We are grateful to the EBRD for developing this action plan and to the government of Ukraine for supporting it. When this plan is implemented, it will demonstrate that even the most mismanaged company can turn around with strong commitment to reform”.

Several major global suppliers have already expressed interest in providing the gas during a pre-qualification process which was completed according to the EBRD’s tender requirements. Pre-qualified suppliers will then be invited to bid to supply gas based on standard contracts. The EBRD will disburse funds to suppliers, against requests made by Naftogaz, to pay invoices under such properly awarded and concluded contracts.

The EBRD US$ 300 million loan is part of the international community’s effort to strengthen Ukraine’s energy security by supporting diversification of natural gas suppliers and delivery routes.

The European Commission has played a very active part in all initiatives aimed at strengthening Ukraine’s energy security and sector reform. In parallel, the World Bank and the European Investment Bank are also working on a programme of financial facilities aimed at improving the energy security in the country and reforming the sector.

The EBRD’s loan to NJSC Naftogaz is a three-year revolving facility, which means that the company will be able to pay back and re-borrow this amount over the next three years, to facilitate advance gas purchases ahead of winters.

The EBRD is the largest international financial investor in Ukraine. As of 1 September 2015, the Bank had a total cumulative commitment of €11 billion in 346 projects throughout the country.