Questions Surround Gas Deal Brokered By E.U. For Ukraine

BRUSSELS, Belgium -- International banks have agreed to lend Ukraine about $1.7 billion to pay its gas bills to Russia and, at the same time, to drastically overhaul the country’s murky energy sector, the European Commission said Monday.

José Manuel Barroso

But it was unclear whether the agreement — full of caveats and politically sensitive conditions for Kiev — would hold together long enough to avert another natural gas crisis in Europe this winter.

As a consequence of the political agreement, Naftogaz, Ukraine’s state-run energy company, probably will have to pass along steep increases in the cost of natural gas to its customers, perhaps beginning as soon as next month, so that it can afford to pay its own bills in the future. That could pose problems for Ukrainian leaders, particularly with a presidential election looming early next year.

The overall amount of loans also falls far short of the $4 billion originally sought by Ukraine. Under the agreement, Ukraine would get up to $300 million this year. Meanwhile, the debt-laden Naftogaz faces a deadline of Friday to make a payment of approximately $600 million to Gazprom, the Russian natural gas giant, for its imports in July.

José Manuel Barroso, the president of the commission, noted that the agreement with international lenders, which was announced late Friday, was based on commitments made by the Ukrainian prime minister, Yulia V. Tymoshenko.

“I very much hope that the strict time frames set out in the reform agenda are fully respected,” he said in a statement.

The agreement is intended to head off a crisis similar to what happened in January, when gas flows from Russia through Ukraine were halted. It was the biggest supply cut of its kind for the E.U.

Around 80 percent of Russian gas bound for Europe passes through Ukraine, which was formerly part of the Soviet Union.

Ukraine and Russia reached a settlement that brought an end to the stoppage, which was the second in three years. But by late spring, Gazprom was warning its E.U. customers about weak finances at Naftogaz, and said there was the prospect of a new dispute if Naftogaz fell behind on its payments and took natural gas that was meant for E.U. countries to meet its own needs.

Officials at the commission, the executive body of the E.U., oversaw delicate talks during the past few weeks aimed at resolving the dispute. On top of demanding that Naftogaz raise domestic prices, the lenders also asked Ukraine to take concrete steps to make the way that natural gas was sold and shipped much more transparent.

Under the plan, the European Bank for Reconstruction and Development would give Ukraine up to $300 million loan for its “immediate gas storage requirements.”

Naftogaz also could apply to the E.B.R.D. from 2010 for up to $450 million for investments to upgrade Ukraine’s natural gas transit system.

The World Bank offered up to $500 million in loans for measures including helping vulnerable Ukranians pay their heating bills, but only “upon satisfactory completion of all the reform measures,” a statement from the lenders said.

The European Investment Bank could offer up to $450 million in long-term loans for updating Ukraine’s natural gas transit system. “Our aim is to improve the sustainability, accountability and above all, the transparency of the Ukrainian gas market to the benefit of both Ukraine and of energy security in all of Europe,” Thomas Mirow, the E.B.R.D. president, said.

Source: The New York Times