Hundreds of millions of dollars could go into the Ukrainian gas transport network, helping to meet the country’s biggest infrastructure challenge, under an agreement between the EBRD and EIB.
The EBRD is in talks with Ukrainian officials about loans that could be made under a memorandum, signed with the EIB in November 2006, that provides for joint financing of projects related to European energy security.
“We are playing a high stakes game in terms of transition impact and reward”, Kamen Zahariev, the EBRD’s country director for Ukraine, told Emerging Markets. “The oil and gas transportation system is key for Ukraine both politically and economically. This concerns energy security and energy efficiency.”
Zahariev said finance could be provided under the EBRD-EIB scheme for upgrading compressor stations and the Ugerskoe gas storage complex in western Ukraine, at the end of this year at the earliest. Loans for oil transport and storage projects, including a terminal at Odessa, could be completed beforehand.
In an interview with Emerging Markets Ukraine’s economy minister Anatoly Kinakh said: “Obviously we need to increase [Naftogaz’s] efficiency. The government is marking out a programme for increasing the financial health of the company to attract the necessary investment to increase the efficiency of the gas transit system.”
Four-fifths of Russia’s gas exports to Europe, more than 130 bcm per year, go through the Ukrainian transport network. Large-scale modernisation is long overdue: the national oil and gas company Naftogaz Ukrainy, which manages the state-owned network, announced a $4.6 billion investment programme in September last year, but does not have the money to undertake it. It says gas losses and other inefficiencies are unacceptably high.
The network is the focus of Russian-Ukrainian disputes. Russia has long sought a share in ownership and management of the system such as that it received from Belarus in January, while Ukraine has used its dominance of Russian gas transit as a bargaining lever in talks with Moscow on gas prices and debt payments.
Zahariev said: “We want to start investment and decouple that discussion from talks about the [Russian-Ukrainian] consortium [through which Moscow hopes to achieve some control over the system].
“However there are also problems to overcome with Naftogaz Ukrainy. We will insist on transparency, and some people within the corporation may not be happy with that.”
An accident this month on the Urengoi-Pomary-Uzhgorod, the largest of those that carries Russian gas across Ukraine, highlighted both the importance of the network to energy security – and Naftogaz’s ability to deal with emergencies.
An explosion on May 7 shut down a 30-metre section of the pipeline near Kiev. Although parliamentary speaker Aleksandr Moroz absurdly blamed the blast on saboteurs trying to destabilise the government, industry officials confirmed that it was caused by a long-standing problem with unstable ground. Engineers immediately diverted gas volumes via alternative routes until May 16, when repairs were completed.
EU officials commented on the explosion by calling for Naftogaz to make public more information about the security of the transport system.