International deal agreed for Ukraine gas bills

3rd August 2009, Comments 0 comments

Under the new deal, Ukraine will have to modernise its energy sector, especially Naftogaz, in return for funding from World Bank, the International Monetary Fund and the European Bank for Reconstruction and Development.

Brussels – Ukraine has reached a deal with international financial bodies and the EU for payment of Russian gas bills, the European Commission said Friday, allaying fears of another winter cut-off.

The deal, which will allow Kiev to re-stock its reservoirs, involves the International Monetary Fund releasing a third tranche worth USD 3.3 billion (EUR 2.3 billion) from a 16.4-billion-dollar credit line over two years.

It also allows for an October influx of funding from the World Bank and the European Bank for Reconstruction and Development, totalling EUR 570 million, a Commission spokesman said.

"I'm extremely pleased that political agreement has been reached with Ukraine on reform of its gas sector which opens the way for a financial assistance package to be provided by the international financial institutions to Ukraine," said Commission chief Jose Manuel Barroso.

"The agreement should provide the stability needed to significantly reduce the risk of a further gas crisis between Ukraine and Russia and therefore provide the security of supply that member states and our consumers expect."

Ukraine has to pay a gas bill of around USD 640 million on 7 August, the national gas company Naftogaz said.

One of the conditions for the loans is a recapitalisation of Naftogaz to the tune of USD 2 billion, the Commission said.

A statement on the EBRD website made it clear that its funding was conditional on Ukraine modernising its energy sector, in particular Naftogaz.

"Our aim 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," said EBRD President Thomas Mirow.

Ukraine would also have to raise gas prices inside its own borders to bring them into line with international prices, said IMF deputy director John Lipsky.

But the arrangement will allay fears in Europe of a repeat of January's crisis when Russian gas supplies were cut off as part of a bitter dispute over payments and prices between Russia and Ukraine.

Russia provides about a quarter of the gas consumed in the EU, or which 80 percent is piped through Ukraine. January's dispute between Moscow and Kiev hit homes and businesses in eastern and western Europe.

Price and pay disputes between Russia and Ukraine have led to serious disruptions to the natural gas supply in recent years across the European Union, which relies on Russia for around a quarter of its gas consumption.

Russia has the world's largest gas reserves and is the biggest exporter.

AFP / Expatica

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