Loans for Ukraine’s gas purchases still uncertain

06 April 2016 07:30 Source:ICIS
Ukraine

Ukraine is struggling to receive international financial funding to start storage injections this summer season, with loans yet to be agreed.

Finance minister Natalia Yaresko had said earlier this year that the country has secured $1bn (€880m) from international financial bodies, which is earmarked for buying gas to inject in store over the summer.

But last week, head of Naftogaz, Andrei Kobolev, said Ukraine was planning to get $500m from international financial organisations in order to get through the next winter season. This likely means that no final decisions over financial loans to Ukraine have been made yet.

“At the moment, we talk about around $500m which we would spend to import gas in summer and sell it on the domestic market in winter, as we did last year,” Kobolev said.

Sufficient financial resources for Ukraine’s gas purchases are important to guarantee the stability of Russian transit flows to Europe via Ukraine. It also has an impact on Ukraine’s ability to buy gas from Europe.

Expected loans

The $1bn previously expected by Ukraine would include a $500m loan from the World Bank, a $200m loan from the International Financial Corporation (IFC), part of the World Bank group, and a $300m loan from the European Bank for Reconstruction and Development (EBRD).

A spokesman for the World Bank’s Ukraine branch said on Tuesday that the $500m loan was still being discussed. The loan has been in discussion since last year, and Naftogaz first expected to receive it by December 2015.

The spokesman refused to comment on the reason behind the delay and what the conditions of the loan were but said: “As in all Bank’s operations, the technical aspects will need to be discussed and agreed with the Ukrainian authorities.” He said, however, that slow implementation of the energy market reform was not the reason for the delay.

The $300m loan from the EBRD is a three-year revolving scheme with the European Commission. The loan was also agreed last year, and over the past winter Ukraine bought 1.7 billion cubic metres of gas using the loan. If Ukraine repays the loan, it will be able to receive the money again.

An EBRD spokesman in Ukraine said it was “too early to talk about the loan repayment.”

A spokeswoman for the IFC did not reply to ICIS’ request to comment.

Naftogaz’ Kobolev said that $500m would not be enough to purchase all gas needed for the next winter season, adding that Naftogaz planned to buy the remaining volumes using its own financial resources. He did not specify the amount of gas Naftogaz intended to buy but said it may be less than last year.

Ukrainian stocks are currently holding 0.4 billion cubic meters (bcm) more gas than during the same period last year. In 2015, storage injections started on 11 April, after Ukraine and Russia concluded a summer deal that allowed the former to buy gas from Russia’s Gazprom with a discount.

This year, no agreement between the two countries has been reached, with Ukraine saying European gas is cheaper than Russian gas. Russia says the price of its gas is competitive without a discount this year.

Slow reform

When a number of loans was delayed last year, Naftogaz said the reason was the international financial institutions waiting for Naftogaz to change its structure as part of the energy market reform launched last year.

Slow implementation of the reform may be again the reason for the delay with loan allocation. Late last week, Naftogaz said that the process of the Ukrainian gas network unbundling was five months behind schedule.

Last week, the Ukrainian government also delayed by one month the introduction of new natural gas tariffs for residential users and for heat and power producers supplying residential users, provoking criticism from the International Monetary Fund, one of the Ukraine’s creditors. ekaterina.kravtsova@icis.com

By Ekaterina Kravtsova