The international contract to provide recession-ravaged Ukraine with financing to provide energy reforms and protect stable supplies of Russian natural gas to Europe would amount to some USD1.8bn, it emerged on Sunday.

Specialists reported the support would help Ukraine reform its vast Soviet-built natural gas provision and transfer systems, and supply with financing to purchase build Kyiv’s gas reserves in order to avoid a repeat of January’s energy spat with Russia, during which supplies to Europe were cut off.

The European Bank for Reconstruction and Development (EBRD) noted it could supply with USD300m for immediate working capital and up to USD460m in 2010 for investing. Another USD500m and USD460m could come from the World Bank and European Investment Bank, respectively.

The financing hangs on reforms at Kyiv’s debt-ridden state gas company, Naftogaz, including modernization of its gas transport system by reduction costly wastage, and removal of subsidies for households. Lately, Ukraine’s government unveiled plans to gradually hike tariffs on households to market levels.

The loan follows alarmist warnings from the Russian capital, which urged Brussels to broker a loan for Ukraine of up to USD5bn, warning that providers would once again be cut off if Kyiv fails to pay its bills. Europe has in recent years obtained nearly a quarter of its gas needs from Russia, with the lion’s share pumped via Ukraine.

With its finances reached to the limit amid a deep recession, many question Kyiv’s ability to pay its gas bills, warning that another energy standoff could breakout.
Our country has thus far made monthly payments in time, and has built up 25 billion cubic meter underground gas reservations, which are used to fill peak demand in Ukraine and Europe during next winter. But capital of Ukraine needs financing to purchase an additional 5-6 bn cubic meters needed to fill the reserves to appropriate levels.

“I’m extremely happy that political contract has been concluded with Ukraine on reform of its gas sector which opens the way for a financial assistance package to be supplied by the international financial institutions to Ukraine,” proclaimed Jose Manuel Barroso, European Commission president.

Mr Barroso added that commitments made by Yulia Tymoshenko, Ukraine’s Prime Minister, “should ensure increased transparency and long-term viability of Ukraine’s gas sector.”

Thomas Mirow, EBRD president, reported: “Our purpose is to improve the sustainability, accountability and above all the transparency of the Ukrainian gas market, to the benefit of both Ukraine and of energy security in all of Europe.”