EU and Ukraine reach gas reform and aid deal

The European Union, Ukraine and international lenders reached a deal on gas sector reforms in the ex-Soviet republic that would pave the way for financial aid the country needs to pump gas to Western Europe.

"I'm extremely pleased that a 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 international financial institutions," Jose Manuel Barroso, President of European Commission, said in a statement.

Ukraine transports about a fifth of the EU's gas needs.

The agreement is intended to help national gas firm Naftogaz pay its debts and prevent a repeat of a gas crisis in January when supplies of Russian gas via Ukraine were interrupted during two weeks of freezing weather.

Officials close to the talks have said Ukraine is seeking as much as $4 billion (Dh14.7bn) in a loan, partly to buy Russian gas for storage ahead of the winter so that it can keep pace with soaring European demand.

But international banks had refused to lend money until Naftogaz ends years of subsidising household gas supplies and finds ways to force domestic companies to pay their bills.

Following the deal, the European Bank for Reconstruction and Development (EBRD) said it was prepared to consider a loan to Naftogaz that will provide working capital for immediate gas storage requirements and longer-term finance. It said in a statement that subject to due diligence it could envisage funding of up to $300 million for immediate working capital and, in 2010, up to $450m.

"Our aim is to improve the sustainability, accountability and transparency of the Ukrainian gas market, to the benefit of both Ukraine and of energy security in all of Europe," said Thomas Mirow, President of EBRD.

The commission did not give details on the reforms Ukraine had agreed to.

"The commitments made by Ukrainian Prime Minister [Yulia] Tymoshenko should ensure increased transparency and long-term viability of Ukraine's gas sector, and I very much hope that the strict time frames set out in the reform agenda are fully respected," said Barroso.

Tymoshenko pledged in a letter that domestic gas prices would be raised, but that is likely to be an unpopular strategy in the run-up to January elections.

 

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