Ukraine has received a much-needed credit line of 300 million euros ($384 million) from Citibank N.A. London to help the country upgrade its dilapidated motorways.
Questions remain, however, on how the money will be used, following accusations by a major international lending institution that Ukraine’s road service had misappropriated funds provided earlier for similar work.
Heorhiy Hlynskiy, deputy chairman of Ukravtodor, Ukraine’s state road service, announced on July 20 that Citibank had provided the first 82-million-euro ($105 million) tranche of the $384 million loan for the construction, reconstruction and repair of Ukrainian roads, adding that the second of the loan’s three tranches would not be received earlier than September.
Neither Citibank London, its subsidiary Citibank (Ukraine), nor Ukravtodor would disclose the period or other details of the loan upon requests from the Post.
Hlynskiy said that Citibank won the tender to provide the loan in May, with Ukraine’s Cabinet of Minister giving Ukravtodor the go-ahead to receive the funds from the loan in July.
Ukravtodor said that it plans to invest the funds from the loan into the reconstruction of a number of major Ukrainian roadways this year.
The loan was attracted in line with the 2006 state budget bill, which provides that funds from the loan be used for major repairs along the Kyiv-Odessa highway, minor improvements of the Kharkiv-Simferopol-Sevastopol road, and reconstruction along the Kyiv-Kharkiv road, Hlynskiy said.
Differentiating the loan that Ukravtodor received from Citibank and other similar loans received in the past, Hlynskiy said that the Citibank loan was earmarked for more than just road repair work.
“Citibank N.A. London is, for now, the only organization to provide Ukravtodor with a credit not only for repairing, but also for constructing new roads. New tenders could be announced later, but this will depend on the decisions that the government makes,” Hlynskiy told the Post Aug. 15.
According to Ukravtodor’s website, it was founded in 2001 as the central agency to operate Ukraine’s general purpose automobile roads, excluding city streets and thoroughfares in populated areas. The agency is accountable to Ukraine’s president and Cabinet of Ministers.
However, following earlier road development loans to Ukravtodor by the European Bank for Reconstruction and Development, the EBRD has put that accountability to question.
The EBRD granted Ukravtodor a credit line of $100 million in February 2005 to reconstruct a portion of the 824-kilometer Kyiv-Chop highway near Lviv, which links Ukraine with Western Europe.
“The project builds on the cooperation between the Bank and Ukravtodor, which began in 2000 with a 75-million-euro EBRD loan to rehabilitate the M06 section between Chop and Striy [a city south of Lviv], and which led to significant improvements in road sector financing,” the EBRD said in a statement at the time of the loan.
The EBRD also said that the $100 million loan was its first credit line to the new administration of President Viktor Yushchenko, who had been sworn in just weeks earlier.
“This project shows EBRD’s clear commitment to supporting Ukraine, and to reforms in the transport sector in particular,” said Olivier Deschamps, EBRD Business Group Director for Ukraine and South East Europe.
“We hope to build on this positive example of cooperation with the new government and to implement similar infrastructure projects in the near future,” he added.
However, according to an EBRD project summary document published on the Bank’s website May 8, 2006, the EBRD said that “auditors of [Ukraine’s] Audit Chamber revealed that, in violation of legislation and state construction standards, Ukravtodor was reconstructing the Kyiv-Odessa motor road during 2003-2004 without having one general reconstruction project and design estimates approved in keeping with procedures provided for by the law.”
The EBRD said that instead of one work plan, through its orders, Ukravtodor approved 136 contractor designs for separate sections of the road from 0.5 km to 4.6 km in length. According to the bank, Ukravtodor did so in order to take the road reconstruction process out of the government’s control and avoid examinations by state authorities.
As a result, the bank said, Ukravtodor was able to approve the maximum estimated cost of the work and increase that cost continuously, resulting in the estimated cost of the work increasing from an initial Hr 2.5 billion ($500 million) by an additional Hr 1 billion ($200 million).The EBRD declined to comment further on its May 8, 2006 statement upon requests from the Post. Ukravtodor’s Hlynskiy said he was not familiar with the project summary document.
