REUTERS
Ukraine and the European Bank for Reconstruction and Development (EBRD) signed a loan agreement in Berlin on Friday for $300 million to finance purchases of gas for the coming winter, according to the EBRD.
The loan agreement was signed by the EBRD Managing Director for Energy and Natural Resources Riccardo Puliti and CEO of NJSC Naftogaz of Ukraine Andriy Kobolev in the presence of German Chancellor Angela Merkel and Ukrainian Prime Minister Arseniy Yatsenyuk, the EBRD said in a statement.
EBRD First Vice President Phil Bennett and Ukrainian Minister of Finance Natalie Jaresko in turn signed a sovereign guarantee agreement for the loan on the fringes of a Ukraine-Germany business forum.
The loan is tied to a program of corporate governance reforms at Naftogaz, which will use the funds to tender for purchases of about 1.1 billion cubic meters (bcm) of gas. The gas will be used to fill up Ukraine's strategic storage facilities ahead of the winter.
The EBRD loan is conditional upon a program of corporate restructuring at Naftogaz, including the creation of a supervisory board of independent and qualified directors, the introduction of internal audit, compliance, anti-corruption and risk management functions and an ownership and governance structure in line with best international practice.
The EBRD will disburse funds to suppliers, against requests made by Naftogaz, to pay invoices under such properly awarded and concluded contracts.
Several major global suppliers have already expressed interest in providing the gas during a pre-qualification process which was completed according to the EBRD's tender requirements. Pre-qualified suppliers will then be invited to bid to supply gas based on standard contracts.
"The EBRD $300 million loan is part of the international community's effort to strengthen Ukraine's energy security by supporting diversification of natural gas suppliers and delivery routes," the EBRD said in the statement.
The EBRD's loan to NJSC Naftogaz is a three-year revolving facility, which means that the company will be able to pay back and re-borrow this amount over the next three years, to facilitate advance gas purchases ahead of winters.
According to the statement, the European Commission has played a very active part in all initiatives aimed at strengthening Ukraine's energy security and sector reform. In parallel, the World Bank and the European Investment Bank are also working on a program of financial facilities aimed at improving the energy security in the country and reforming the sector.
Puliti said that Naftogaz would purchase gas on the European market via EU-Ukraine interconnectors through the so-called reverse flow, and in line with best European practice. "A public tender, which follows the EBRD public procurement rules, is under implementation and should ensure both efficiency and transparency to the whole purchase exercise," he said.
Kobolev in turn said that the corporate governance reform, strongly supported by the current Naftogaz management, would enable the company to focus on maximizing shareholder value in the interests of the citizens of Ukraine. "An independent supervisory board and improved control mechanisms will help to raise operating efficiency of the group. We are grateful to the EBRD for developing this action plan and to the government of Ukraine for supporting it. When this plan is implemented, it will demonstrate that even the most mismanaged company can turn around with strong commitment to reform," he said.
The EBRD is the largest international financial investor in Ukraine. As of September 1, 2015, the Bank had a total cumulative commitment of EUR 11 billion in 346 projects throughout the country.