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    EBRD Backs Ukrainian Gas Production


Naftogaz's production arm has so far fallen short of growth targets.

by: Joseph Murphy

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EBRD Backs Ukrainian Gas Production

The European Bank for Reconstruction and Development (EBRD) has issued a €51.9mn ($60.8mn) loan to Ukrgasvydobuvannya (UGV), the upstream arm of Ukraine's state-owned Naftogaz, to help it expand its gas output.

The funds will be provided in two tranches of €36.4mn and €15.5mn, with repayment terms of nine years and 15 years respectively, Naftogaz and the EBRD said in separate statements on July 31 and August 3. UGV will use the first tranche to procure workover rigs, in order to increase extraction at existing fields, and the second to install waste-heat recovery systems at the Lokachi field in northwestern Ukraine, boosting efficiency.

All contracts for the projects will be awarded via open tenders that follow EBRD rules, so all bidders have equal opportunities.

Ukraine's government had set UGV a target of producing 20bn m3 in 2020, but the company is expected to fall far short of this goal, having lifted only 14.9bn m3 in 2019. UGV has blamed its failings on the government's delay in reforming legislation and awarding new subsoil licences. Kyiv finally held licensing rounds over the course of last year, with UGV acquiring the majority of the new permits.

Output this year is expected to slump because of the Covid-19 pandemic and the resulting gas price crash in Europe.

"We are actively changing Naftogaz's internal processes to mitigate the crisis within the industry," Naftogaz CEO Andriy Kobolyev said. "International investments have a crucial role to play in achieving energy independence, especially under the current unfavourable price climate."

The deal with the EBRD was "further evidence of the successful corporate governance reform at Naftogaz," he said. "We are open and efficient, which is why international partners trust us."

Ukraine produces enough gas domestically to meet the bulk of its needs, but it also buys some volumes from its EU neighbours Hungary, Poland and Slovakia. It has not purchased any gas from Russia in nearly five years.