EU and Ukraine Discuss Gas Loan

by Roman Kupchinsky

Consultations between Ukraine and the EU Commission about Ukraine’s urgent need for a loan to buy Russian gas ended Monday night in Brussels. Ukraine needs the loan to insure a steady flow of gas to Europe in the rapidly approaching heating season.

The EU was optimistic that terms could be worked out; however the size of the loan would be $2 billion, half of the $4 billion Ukraine was seeking. Moreover the Commission attached a number of conditions to the loan, foremost of which is a restructuring of Naftohaz Ukraine, the state-owned Ukrainian gas monopoly in order to improve its transparency. The Commission wants to see Naftohaz split into separate entities which would each be responsible for different functions such as transport, sales, production and storage.

Kommersant Daily reported that the EU was demanding that Ukraine insure the implementation of the March 2009 agreement on renovating the Ukrainian gas pipeline system, an agreement which has come under heavy criticism from Russia.

Ukraine needs to store 19.5 billion cubic meters (bcm) of Russian gas in its underground storage facilities in order to insure an uninterrupted flow of gas to Europe. This gas is used to power compression stations along the route of the Ukrainian pipeline.

The talks included representatives of Gazprom and Naftogaz, the World Bank, the IMF, the EBRD and the EU.

"The participants made good progress in identifying the key issues of concern and elements for possible solutions including possible financing arrangements," the representatives said in a joint statement.

Despite the optimistic prognosis, Russian energy experts and officials were not convinced that the problem could be solved in time for the heating season. One "Gazprom official was quoted as saying “We heard that it would be impossible to finalize the loan before September. This is already too late and we hope that it be agreed upon earlier.”