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EU close to gas loan deal with Ukraine

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by Staff Writers
Brussels (UPI) Jul 27, 2009
The European Union says it is close to handing Ukraine a loan package to reform the country's run-down gas sector.

Ukraine and the potential lenders are "close to agreement regarding the necessary short- and medium-term commitments by the Ukrainian authorities on reform of the Ukrainian gas sector which would make it possible for (international lenders) to prepare a package of support for Ukraine," the European Commission said in a statement after talks in Kiev on July 24.

Brussels has urged Ukraine to modernize its four-decade-old gas grid, through which most of Europe's gas imports from Russia are delivered. But the near-bankrupt country needs money to do so and has asked the West for loans.

The EU in March agreed to help out if Kiev manages to slash corruption; the decision was made after a major row over gas prices with Russia led to severe gas shortages in Eastern Europe. Talks on the deal have been advancing over the past weeks; an agreement would feature World Bank and other loans to modernize the country's pipelines and help Naftogaz, the state-owned energy company, pay its debt to Gazprom. Ukraine says it needs $4 billion in loans.

The Ukraine-Russia crisis has been simmering for the past weeks, and observers in Europe fear it will flare up anytime.

Ukraine is an important gas hub for Europe, but domestic political conflicts are delaying political and economic progress. As a result of the global financial crisis, investors have been pulling their money out of Ukraine. The country's economy contracted by 21 percent in the first quarter of 2009 and its currency is in a freefall.

No wonder Kiev is looking for cash, no matter where it may come from. Recently, it also asked the United States for financial support.

U.S. Vice President Joe Biden said last week that Ukraine's President Viktor Yushchenko told him that Kiev was seeking also U.S. investors to boost European energy security.

"We discussed ways in which the U.S. can help Ukraine undertake tough reform needed to build this democracy and economy and strengthen its energy sector," Biden said after talks with the Ukrainian leader.

The West hopes for a more stable Ukraine to boost Europe's energy security. Around 80 percent of Russia's gas for Europe is pumped through Ukrainian transit pipelines.

Relations between Kiev and Moscow first turned sour in early 2006, when Russia temporarily shut down Ukraine's gas supply until Kiev agreed to pay higher prices. The crisis lifted the issue of energy security near the top of the European agenda, with Western leaders scrambling to diversify energy import sources.

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