28th Oct 2021

Ukraine failing to meet EU conditions for gas loan

  • Gas meter: The 20 percent hike has fallen victim to Ukraine's political scene (Photo: eastpole)

There is no risk of a fresh gas supply crisis in the coming winter despite Ukraine's inability to meet the conditions of an EU-brokered loan for its ailing national gas company, a senior Ukrainian official has said.

"Right now, Ukraine is ready to pump gas to European customers. We have enough gas in our underground storage tanks to ensure supplies for the winter of 2009 and 2010," Ukraine's top official in charge of energy security, Bohdan Sokolovsky, told EUobserver in a phone interview on Tuesday (6 October).

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"But if the financial situation of Naftogaz does not improve, there could be a problem in 2010 and 2011," he added.

Mr Sokolovsky's remarks come after an EU-led delegation to Kiev last week said international banks will not pay out a €1.2 billion loan designed to prop up the gas company's finances until the country moves forward on agreed reforms.

The EU in July helped put together the financial assistance from the European Bank for Reconstruction and Development, the European Investment Bank and the World Bank.

But European Commission official Hugues Mingarelli in Kiev last Friday told Mr Sokolovsky that the funds will not be released unless Naftogaz first raises domestic consumer prices by 20 percent and takes steps to separate its transit and domestic distribution businesses.

The Ukrainian official blamed the impasse on Ukraine Prime Minister Yulia Tymoshenko's unwillingness to raise prices ahead of her bid in the January 2010 presidential elections.

Ms Tymoshenko needs to put forward a social package to help impoverished consumers shoulder the price hikes in order for Ukrainian courts to approve the 20 percent increase. But the prime minister has refused to do so, he explained.

"These gas price increases would not help her in the elections," said Mr Sokolovsky, a loyalist of Ukrainian President Viktor Yushchenko. "Yulia Tymoshenko is blocking the price reforms."

Naftogaz' perilous financial situation is linked to its "take-or-pay" contract with Russian supplier Gazprom under which the Ukrainian firm has agreed to buy set volumes per month despite a sharp dip in demand due to the economic crisis.

Gazprom chief Alexey Miller at a gas industry congress in Buenos Aires on Tuesday defended take-or-pay deals, saying "this system guarantees the sustainability of gas supply for importers and consumers, and is a crucial element of energy security."

He also said that the Russian firm will start up two pipelines, Nord Stream and South Stream, designed to reduce Ukraine's importance as an EU transit country, in 2011 and 2015, respectively.

Ukraine currently transits 80 percent of Russia's gas shipments to Europe. A Russia-Ukraine gas price dispute last winter caused mass-scale interruptions to EU supplies costing hundreds of millions of euros in unrecoverable economic damage.


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