You're reading: EU lends $186 million to reconstruct Ukraine’s major gas pipeline, more to come

European Investment Bank, the European Union's lending arm, is providing a $186 million loan to Ukraine's government for modernizing the Ukrainian part of Urengoy - Pomary - Uzhgorod pipeline that delivers Russian gas to the EU.

An
agreement was inked on Dec. 1 in Kyiv.

Money
will be passed to state-run pipeline operator Ukrtransgaz at a 2 percent
interest rate, which is in the range of rates of development loans, while
market loans for Ukraine come at a much higher interest.

Moreover,
European Bank for Reconstruction and Development is expected to issue a $200
million loan for the same purpose. The final decision will come on Dec. 10
after the bank’s board approves it.

Prime
Minister Arseniy Yatsenyuk said the deal will include a purchase of 120 kilometers
of new pipes from the “Ukrainian producers.”

“A new pipeline will
be laid, which will give us a chance to call a tender to buy pipes, from
Ukrainian producers, I hope,” Yatsenyuk mentioned on Dec. 1. “This
will additionally contribute to the Ukrainian economy.”

Dnipropetrovsk-based
Interpipe, country’s major pipemaker, might be one of the options. A heavily indebted
entity, it belongs to billionaire Viktor Pinchuk, whose fortune is estimated at
$1.9 billion by Novoe Vremya, a weekly.

Previously, Interpipe was selling 44 percent of
its output to Russia, while it is more than problematic now since bilateral relations
between the two countries are at an all-time low due to Russian annexation of
Crimea and an attempt to do the same with Donetsk and Luhansk Oblasts.

“I hope that Ukraine
won’t be bypassed through South Stream (another pipeline in the stage of construction
that may deliver gas from Russia to the EU),” Yatsenyuk added. “South
Stream is an unnecessary political project of Russia, and Ukraine once again
calls on all the European and U.S. partners to invest in the Ukrainian gas
transportation system.”

Previously he said
Cabinet is interested in selling a stake in the country’s gas system to foreign
investors.

Andriy Kobolev, head of
Naftogaz, a state-controlled energy monopolist, estimated the
value of Ukraine’s system for storing and transporting the blue fuel at $25-35
billion in July. Global audit firms Deloitte and EY have been hired to conduct its
evaluation. The cost of the contract is $2.5 million.

Yet in June of 2013,
German industrial plants developer Ferrostall Industrienlagen assessed the technical
condition of the Ukrainian gas transportation system and found it rather good.
“The system has been taken care of very diligently,” said Kay
Ewaldsen, company’s chief executive officer. “An answer to the question whether
it’s better to build a new gas transportation system or fix and modernize the
current one is obvious – the latter option is the best.”

Naftogaz,
a sole supplier of gas to the local industrial companies, owns a system of
trunk pipelines and 12 underground storage facilities in Ukraine. As of Nov.
29, it had 14.1 billion cubic meters of blue fuel stored which is 44 percent of
overall storage capacity.

The
capacity of Ukraine’s gas transportation system is 288 billion cubic meters at
the entrance and 178.5 billion cubic meters at the exit. EU countries receive as
much as 142.5 billion cubic meters of gas annually through this channel, which is 30 percent of what it needs.

Kyiv Post associate business editor Ivan Verstyuk can
be reached at [email protected].