Each institution plans to invest US$ 154 million this year in the first part of the upgrade – the reconstruction of the Urengoi-Pomary-Uzhgorod main gas pipeline. The balance of the estimated US$ 500 million total cost of this first phase will be provided by NAK NaftoGaz.
Financing will be provided against a 15-year sovereign guarantee from the Ukrainian government and is conditional on sector reforms and the satisfactory outcome of a project appraisal, currently being carried out by an independent consultancy.
The EBRD’s Country Director for Ukraine, André Küüsvek, said the Bank hopes to sign the project later this year. “The further reconstruction of the country's gas transportation system could also be backed by the EBRD, as long as the necessary sector reforms and restructuring of NAK NaftoGaz take place,” he added.
The Bank's support for this project is specifically linked to the comprehensive, integrated reform of the Ukrainian gas sector, and to greater transparency and better governance of NAK NaftoGaz. Such provisions were outlined in a memorandum of understanding reached in Brussels in March 2009 by the government of Ukraine, the EBRD, the EIB, the World Bank and the European Commission.
Ukraine hopes to attract more than US$ 5 billion within seven years to completely overhaul its gas transportation infrastructure. It includes more than 37,000 kilometres of pipelines, which carry 140 billion cubic metres of the gas supplied annually to Europe.
Signing the financing agreement, the Ukrainian Prime Minister Mykola Azarov said it was a very important event for the country.
“We hope that Russia will also be interested in modernising the pipeline, now that Ukraine has begun to implement the project with its European partners,” he said.
An efficient, well managed gas transportation system is crucial to the future economic well-being of Ukraine, a country that plays a key transit role in bringing energy supplies into Europe.
The European Bank for Reconstruction and Development is the largest financial investor in Ukraine. As of 30 June 2011, the Bank had committed over €6.5 billion (US$ 9.3 billion) through 276 projects.