NAK Naftogaz Emergency Pipeline Upgrade and Modernisation



Project number:


Business sector:


Notice type:


Environmental category:


Approval date:

10 Dec 2014



PSD disclosed:

11 Nov 2014

Translated version of this PSD: Ukrainian

Project Description

The project consists of the replacement of four sections of the Urengoy-Pomary-Uzhgorod gas pipeline, which are in need of repair as well as the modernisation of the Romny gas compression station. The Urengoy-Pomary-Uzhgorod is a key part of the Ukrainian gas transit system ensuring deliveries of gas from Russia to Europe and reverse imports of gas by Ukraine from the European Union countries. This is part of an emergency upgrade and modernisation project under which Ukraine has initiated repair of three sections of pipeline and needs support from EBRD and EIB to finance the remaining sections and compressors.

Transition Impact

The transition impact potential of the Project stems primarily from:
(i) assisting in the institutional reform process for the Ukrainian gas sector;
(ii) improving corporate governance, environmental, social and health & safety practices at Ukrtransgaz.
(iii) improving the performance of operation of the Romny compressor station and the pipelines that will be modernised, including energy efficiency and reduction of related carbon emissions.

The Client

The project will be implemented by Public Joint Stock Company Ukrtransgaz (“Ukrtransgaz”), the gas transmission operator in Ukraine. Ukrtransgaz is 100 per cent owned by PJSC National Joint Stock Company Naftogaz of Ukraine, a State oil and gas holding company under the control of the Ministry of Energy and Coal of Ukraine.

EBRD Finance

A sovereign loan of up to EUR 150 million to Ukraine with proceeds to be on-lent to Ukrtransgaz as the implementation agency for the Project. Parallel co-financing by the European Investment Bank is envisaged.

Project Cost

The IFI financed part is up to EUR 300 million out of a total project cost of up to EUR 466.3 million

Environmental Impact

Categorised B. The scope will include the repair of existing pipes, including the replacement of severely corroded original welded joints and cathodic protection stations, for those individual sections of the pipeline where critical faults were identified by a technical study. The Bank will finance four non-continuous sections, and the cumulative length of individual sections to be repaired is 119 km. The individual pipe sections are located at the extreme western and eastern regional sections of the UPU pipeline and inlcude Romny-Grebinky section (26.7 km); Grebinky-Soviivka section (31.5 km); Bar-Gusiatyn section (33.7 km) and Gusiatyn-Bogorodchany section (27.1 km). 
In addition, the Project will finance a modernisation/replacement of two compressor units at the Romny Compressor station to increase energy efficiency and reduce  emissions of nitrogen oxides and carbon dioxide. The impacts of these activities were identified by the independent environmental and social analysis, which was part of the due diligence completed before Board approval (including a site visit to Project locations). The ESDD included a review of National EIA reports and other documents containing information on social issues, health and safety, community safety, land acquisition, etc., and other issues (e.g., the Environmental Policy of Ukrtransgaz, materials for preparing the land allotment project; samples of land-lease agreements; a methodology for assessing damages; an agreement on the establishment of the land use and a  report of average selling price and crops yield; land transfer acts; socio-economic data for village councils located along the route of the Project, etc.). The ultimate aim of the Project is to improve the safety of the operations and thus reduce potential adverse impacts to the communities and employees and to ensure an uninterrupted supply of gas through the repair of the pipeline.   All land take will occur within the existing Right-of-Way, except for an 800m marsh crossing which is required by the technical requirements for the operation of main pipelines, whereas a reserve pipe should be in place to allow diverting  gas flow in case of maintenance, repairs or accidents, in order to maintain a steady supply of gas and avoid the release of methane into the atmosphere. The marshland crossing was chosen after the review of alternative locations to minimise the land take and also to ensure the reserve pipe is located within the technologically required parameters. The national EIA identified that the proposed crossing will not result in significant environmental or social impacts due to the existing footprint, and any impacts will be localised and short-term and mitigated by a horizontal directional drilling method for laying pipes. An additional pre-construction survey will be conducted to supplement the EIA findings. This survey is included in the Environmental and Social Action Plan and is required as a legal condition that must be met prior to disbursement.

Relevant Declarations of Intent containing information on (i) the location and scope of the Project; (ii) the expected impacts and standards to follow; (iii) the contact details of the project developer (e.g. Ukrtransgaz) and the project designer have been published in local papers as part of the Ukrainian public consultation requirements. Any questions and provisions of information on the Project are handled through the heads of village councils with whom Ukrtransgaz has established good contacts, as was confirmed during the ESDD.  In addition, extensive meetings and consultations have been conducted with  land-owners and land-users along the pipeline’s Right-of-Way. However, meetings with the heads of selected village councils identified a preference for more information to be disclosed at local level. This will be managed through the implementation of the Stakeholder Engagement Plan. Land acquisition and compensation are based on detailed cadastral plans, developed by licensed experts, and information provided by the State statistics committee which identifies the market value for reference crops as well as crop yield. An independent commission is formed for land acquisition and consultations with affected land-owners and land-users are conducted. Land-users are paid a one-off compensation for loss of crops, and a land-lease agreement is signed with the land-owners under which an annual lease fee is paid. An independent certified body conducts an analysis of the soil within the land plots and the contractors are responsible for reinstatement of soil upon completion of works to its original quality parameters.

An industrial safety declaration is developed as part of the technical design documentation and there are specific procedures for work within the pipeline exclusion zone that have to be complied with. However, the safety information campaign, which would set clear restrictions on the type of activities that cannot be conducted by land-users, needs to be expanded. Pipeline security will also need to be improved. Required mitigation measures for identified impacts are included in the Environmental and Social Action Plan, which has been agreed with Ukrtransgaz. The ESAP contains, inter alia, actions aimed at improving Ukrtransgaz's management systems, developing Construction Environmental Management Plans; obtaining required permits prior to the construction, etc.  Ukrtransgaz will be assisted by the Project Implementation Unit in implementing the ESAP, and its performance will be monitored by the Lenders’ consultants.

The PSD disclosure period for this project was shorter than the 60 days normally required for sovereign projects categorised B. This was based on the urgency of the investments needed to ensure the integrity of the pipeline and because the Project was subject to changes at the Final Review stage.
A request for deferral of the release of the PSD was granted by the Office of the Secretary General in discussions with Management and in line with the deferrals allowed under the Bank’s Public Information Policy. The Board of Directors was made aware of this deferral at the time of approval.

Technical Cooperation

The Gas Transportation System and Storage Reconstruction Pre-Feasibility Study (€ 2.6 million) has been completed and funded by the EU NIF. Further assistance is being discussed to assist Ukrtransgaz on different aspects of project implementation, including procurement, corporate governance, environmental and energy efficiency matters.


Business opportunities

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