EU: Ukraine set for up to $1.7 b in loans

BRUSSELS: International lenders are ready to give Ukraine up to $1.7 billion in loans to help it pay a massive natural gas bill to Russia and reform its energy sector, the European Commission said Friday.

Ukraine sought up to $4.2 billion to pay Russia for gas supplies as it struggles with a severe economic downturn. A payment dispute between the two nations halted European gas deliveries in January, cutting off heating to thousands of homes during the winter.

The EU has sought more transparent and commercial terms for how gas is traded between Russia and Ukraine. Both Russia's Gazprom OAO and Ukraine's Naftogaz are owned by their governments, leading to charges that the trade is more about politics than commerce.

Russia is Europe's biggest foreign supplier of gas. Most of it reaches Europe through pipelines across the Ukraine.

The European Commission said Ukraine has now promised to make changes to the way it runs that gas business which "should provide the stability needed to significantly reduce the risk of a further gas crisis."

In return, government-owned lenders will give the country a hefty loan package. The European Bank for Reconstruction and Development will lend Naftogaz up to euro300 million to help it restock Ukraine's gas storage for next winter. Next year, it could lend up to $450 million for the company to upgrade the gas transit system.

The World Bank is prepared to give the Ukrainian government up to $500 million for fiscal and structural reforms to pay for reforming the gas sector, social welfare payments and other government spending.

The European Investment Bank will also ready long-term loans of up to $450 million to help pay for upgrading the gas transit system.

Ukraine is already getting a $16.4 billion rescue loan from the International Monetary Fund. Government finances have been badly affected by a severe downturn that has slashed tax revenue and investment.

The EU executive said the Ukraine reforms would increase transparency and the long-term viability of the gas markets within a strict time frame. It did not give details.

Until January 2009, the transport trade was handled by RosUkrEnergo, a Swiss-based intermediary half-owned by Russia's Gazprom and half by CentraGas Holding AG, a Vienna-based company controlled by two Ukrainian businessmen.

Under a Russian-Ukrainian deal to resolve last winter's dispute, Naftogaz now receives Russian gas directly from Gazprom.