Contrary to recent reports, Ukraine has not yet finalized a record-sized $3.7 billion loan deal with the People’s Republic of China for coal gasification, an informed source in the Chinese government said.
Local Ukrainian media outlets Interfax-Ukraine and Kommersant, as well as leading international business news source Bloomberg, reported on July 16 that Ukraine and China already agreed on the deal. But so far, China and Ukraine have merely held discussions about such a possible loan, which if signed would be the latest in a flurry of multi-billion-dollar deals discussed by both sides.
While preliminary discussions where held, no agreement has been sealed, said a Chinese government source who spoke on condition of anonymity. If Ukraine lands the loan, the funds could be used for upgrades and modernization energy facilities over a span of many years to decrease the national economy’s dependence on increasingly costly Russian gas.
Ukraine’s Energy Ministry, which triggered speculation about the deal through a press release issued early this week, would not comment in detail on the issue. In a vague statement released earlier this week the ministry said that a “protocol” had been signed during discussion about the loan.
The negotiated deal includes building coal gasification plants in Ukraine and switching utilities from using gas to coal slurry, a mix of water, coal and about 1 per cent of additives. Experts say the deal would decrease Ukraine’s dependency on increasingly expensive gas from Russia and stimulate the consumption of locally produced hard and brown coals.
“We think this deal has no immediate short-term impact on Ukraine’s fuel supply balance as coal gasification plants will take three to five years to build. However, their launch could enable the phasing out of gas imports in the medium term,” investment bank Dragon capital wrote in a note to investors.
“Directly substituting coal-water slurry fuel for gas is a more complicated project given its environmental impact as well as associated coal and ash logistics needs, which may be significant in scale in large and densely populated areas,” said Dragon capital.
The deal is likely to be realized, predicted Dmytro Marunych, director of the Kyiv-based Energy Studies Institute, a think tank. The reason is mainly because China is interested in selling its technologies to Ukraine for the loaned money, he added, particularly in the field of coal slurry.
The Chinese appear eager to give loans to modernize Ukrainian state-owned coal mines. A pilot project deal was signed in 2010 and includes financing the modernization of a coal mine in Lysychansk for $85 million. China already transferred the first $16 million in June.
A total of $1 billion loaned Chinese money will be used on modernizing Ukrainian old Soviet mines, most of which are in desperate need of investment.
China also appears to be eyeing Ukraine’s agriculture promise. Ukrainian officials earlier this year announced plans to lure in $3 billion in loans from China to support agricultural projects in areas including trade, fertilizer and cultivation. Major areas of investment are said to include procuring pesticide, seeds and equipment from China, and selling Ukrainian agricultural products to China.
Weeks ago, China revealed that it had inked a central bank currency swap with the National Bank of Ukraine valued at $2.4 billion.
Activity between private sector Ukrainian companies and China also appears to be on the rise.
Citing a Ukrainian agricultural tycoon, Reuters reported on July 19 that Ukraine expects to sign a corn quarantine agreement with Beijing by the end of the year, paving the way for exports of the grain to China.
“Ukraine is expecting the agreement to be signed by the end of the year and soon after that, we can start to load corn to China,” Oleg Bakhmatyuk, chairman of the board of UkrLandFarming, was quoted by Reuters as saying.
According to Reuters, the corn deal marks a move by China, the world’s second largest corn consumer and a big importer of this crop from the U.S., to “strengthen food security” by diversifying supplies.
Kyiv Post staff writer Svitlana Tuchynska can be reached at [email protected]
