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    UkrTransgaz Lowers Sights on Pipeline Loan

Summary

The pipeline operator says it looks increasingly likely that Russia will halt the routing of gas exports to Europe via Ukraine.

by: Tim Gosling

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UkrTransgaz Lowers Sights on Pipeline Loan

Ukrainian gas network operator UkrTransgaz announced June 21 that it has asked the European Bank for Reconstruction and Development and the European Investment Bank to revise a credit agreement for up €300mn for investment in the country’s main pipeline carrying Russian gas to Europe. 

The state-owned company says it wants to reduce the volume of the loan, agreed in 2015, to €125mn. Ukrtransgaz says its financial condition will not allow it to accept the credit programme, while the growing likelihood that Russia will halt the use of its pipelines to send gas exports to Europe means less investment in upgrading the Urengoy-Pomari-Uzhhorod (UPU) pipeline is needed.

“Due to the significant  increase in the probability of Gazprom's implementation of the "zero transit" scenario  after January 1, 2020, the company is taking the necessary preparatory and optimisation measures, including determining the most efficient way of using the loan,” Ukrtransgaz said in a statement.

“Increasing the reliability and efficiency of the use of the UPU gas pipeline could be realized at a considerably lower level of funding,” it added. “Therefore, the company asks the EBRD to reduce its loan amount, as €125mn of investments will be sufficient to reach its main goals.”

Stuck in negotiations with Russia over a new transit deal, Ukraine recently warned Europe that it could face gas shortages next year. Disagreements between the pair in 2006 and 2009 saw some eastern EU states cut off from supplies during winter.

“Ukraine is warning European nations to prepare for a gas crisis amid scepticism it will agree on a new transit contract with Russia before the current deal expires,” deputy foreign minister Olena Zerkal said this week.

Gazprom is facing delays on Nord Stream 2, the 55bn m3/yr pipeline it is building beneath the Baltic Sea to Germany, which it says will replace the Ukrainian route, and looks unlikely to launch it by the end of the year.

Ukrtransgaz also referenced ongoing issues with the Ukrainian government. The company said that a decision late last year by the regulator to lower tariffs means it cannot fulfil the EBRD’s criteria for financial stability. In addition, it complains that plans for unbundling leave it uncertain which entities will be responsible for the loan afterwards.

Summing up, the company said it does not consider it possible to use funds under a loan agreement with the EBRD and the EIB in 2019 .