EBRD supports reform of Ukrainian energy company and gas market

By Anthony Williams

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The EBRD and other leading International Financial Institutions (IFIs) have reached an understanding with the Government of Ukraine on concrete measures to reform the Ukrainian energy market and Naftogaz, the state-owned energy company.

The government of Ukrainian Prime Minister Yulia Tymoshenko has committed to the implementation of an ambitious programme of market-oriented reforms to the country’s gas sector.

The international financial institutions are developing a support package that will help modernise the sector and facilitate medium-term gas payments by Naftogaz.

For its part, the EBRD is prepared to consider a sovereign-guaranteed loan to Naftogaz that will provide working capital for immediate gas storage requirements and longer-term finance to support the rehabilitation of the existing gas transit system, with a particular emphasis on energy efficiency measures to reduce costly wastage.

Subject to detailed due diligence, the EBRD could envisage funding of up to $300 million for immediate working capital and, in 2010, of up to $450 million for investment could be envisaged, with no more than $450 million to be committed at any one time.

The EBRD loan would be conditional on implementation of planned reforms at Naftogaz and also subject to approval by the EBRD’s Board of Directors.

The IFI financing, involving the IMF, the World Bank, the EBRD and the European Investment Bank, will support the long-term future of the Ukrainian gas sector with major infrastructure investments linked to the Prime Minister’s programme of reforms.

“Our aim is to improve the sustainability, accountability and above all the transparency of the Ukrainian gas market, to the benefit of both Ukraine and of energy security in all of Europe” said EBRD President Thomas Mirow.

The IFI support package is also expected to help ensure an unhindered transit of gas to Europe via Ukraine ahead of next winter.

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