Ukraine in Line for $1 Billion Gas Financing
September 24 2015 - 11:40AM
Dow Jones News
BRUSSELS—International financial institutions, led by the World
Bank, are patching together a $1 billion financing package to help
Ukraine and its energy giant OAO Naftogaz to fill up its natural
gas-storage facilities and avoid shortages in the conflict-ridden
country and the rest of Europe over the winter.
The funding, which would come through a mix of loans and
guarantees, would remove one of the central obstacles to forging
another gas-supply deal between Kiev and Moscow and preventing a
repeat of the 2009 gas cutoffs that led to shortages in several
European Union states. EU-mediated talks between the two sides have
been complicated by conflict in eastern Ukraine and Naftogaz's
financial problems.
Officials in Brussels hope that the energy ministers of Ukraine
and Russia, along with representatives of Naftogaz and its Russian
counterpart, OAO Gazprom, can agree on a new gas deal at a meeting
in Brussels on Friday. Such an accord, similar to the one sealed
last year, would likely govern the price of gas and the minimum
volumes Naftogaz will buy from Gazprom until the end of March,
European officials say.
Around half of the EU's gas imports from Russia—just over 80
billion cubic meters—is shipped via Ukraine. At the same time,
Ukraine's ample gas storage acts as a backup for domestic and
European consumption, both to maintain sufficient pressure in the
pipelines to allow transit and to ensure supply during the winter,
when more gas is used than can be transported on a daily basis.
The $1 billion financing package would allow Naftogaz to buy
some 5 billion cubic meters of gas in the coming weeks and months,
bringing volumes in its ample storage facilities to around 19 BCM,
European officials say. That is the level the European Commission,
the EU's executive, believes is necessary to bring Ukraine and the
EU through a cold winter.
The complex financing package, involving loans and guarantees
from four international public institutions, is the result of
months of negotiations between officials in Brussels, Kiev, Berlin
and Washington.
Most of the funding will come from the World Bank, which is
preparing a $500 million guarantee for the Ukrainian government for
gas purchases by Naftogaz. "This is currently in the works, and we
are discussing the technical aspects with the Ukrainian
authorities," a World Bank spokeswoman confirmed.
That initiative, in turn, is made possible by up to $520 million
in guarantees from the Luxembourg-based European Investment Bank
for other World Bank infrastructure projects in Ukraine, where the
Washington-based development bank is approaching its funding
limits.
The EIB guarantees were approved by the bank's board of
directors on Tuesday, an EU official said, adding that they are
"part of an emergency initiative by the EU and international
financing institutions aimed at preventing a potentially severe
crisis in Ukraine."
The European Bank of Reconstruction and Development already
announced in July that it would lend Naftogaz as much as $300
million to finance gas purchases. The loan is slated to be approved
by the EBRD's board on Sept. 30.
The final part of the package is the most convoluted and stems
from a €200 million ($224 million) loan agreement signed by
Germany's development bank KfW and Ukrainian Finance Minister
Natalie Jaresko earlier this month.
The loan was officially made to support Ukraine's
deposit-guarantee fund and is meant to help compensate depositors
who lost their savings in now-bankrupt Ukrainian banks, according
to a KfW news release from Sept. 3. But once the loan has been
transferred into Ukrainian hryvnia, "it is up the Ukrainians to
decide what they do with it," a German government official
said.
Ukraine's finance ministry confirmed that the funds, part of the
general budget, would be used for "temporary bridge financing for
Naftogaz."
Laura Mills in Kiev contributed to this article
Write to Gabriele Steinhauser at
gabriele.steinhauser@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
September 24, 2015 11:25 ET (15:25 GMT)
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