EBRD bolsters Ukraine’s energy security with up to €300m for Naftogaz

The European Bank for Reconstruction and Development (EBRD) has said that it will lend up to €300 million to help Ukraine’s gas company Naftogas (NAK) compensate for the loss of natural gas production following the invasion of Ukraine. According to the Bank NAK will use the initial €50 million tranche disbursed by the EBRD for emergency gas purchases, which are urgently needed to prepare Ukraine’s gas system for the next heating season. The company aims to raise a total of €1 billion to buy up to one billion cubic metres of gas, which is critical to ensure there is enough gas in the system by autumn, and to safeguard access to services for people whose livelihoods and economic security are threatened by the war.

According to Alain Pilloux EBRD Vice-President, said “The urgency to act is clear. Gas is needed: for the next heating season, for electricity production, and more broadly for supporting the economy. The replenishing of gas stocks must start now to avoid serious consequences in the autumn. This operation is very simply about providing heating to the people and economy of Ukraine.” Yuriy Vitrenko, the Chief Executive Officer of Naftogaz, said: “Naftogaz highly appreciates its strategic partnership with the EBRD. That we can rely on the EBRD during the most difficult circumstances is confirmed by this project in conditions of war. This will definitely contribute to Ukraine’s resilience. We are thankful that together with the EBRD we can help modernise Ukraine by implementing best practices in both the purchase of gas and the sustainable development of the energy sector in Ukraine.”

The loan forms part of €1billion of activity that the ERBD intends to undertake this year in Ukraine, in cooperation with donors and other partners, to support the country’s real economy. All EBRD investments in Ukraine under this package involve risk-sharing. In Naftogaz’s case, EBRD shareholders will guarantee 66 per cent (€200 million) of the total EBRD loan, which also backed by Ukraine’s sovereign guarantee. After the initial payment, donor guarantees will cover all of the next €100 million paid and 66 per cent of the final €150 million. Beyond supporting energy security, the EBRD’s loan is designed to support NAK in tackling workforce challenges caused by the hostilities, which have forced millions of people in Ukraine to flee their homes and workplaces.

It will also continue to support the Ukrainian gas market’s closer integration with the European Union. In particular, NAK will be able to source natural gas, using a competitive procurement mechanism, from its existing pre-qualified EU-based gas traders. The EBRD requires NAK to use contracts based on the standards of the European Federation of Energy Traders. The EBRD was swift to condemn the Russian invasion of Ukraine on 24 February and pledged to stand by Ukraine. In early April, the EBRD’s Board of Governors voted to suspend open-endedly the access of Russia and Belarus to EBRD finance and expertise, and the Bank is closing its offices in Russia and Belarus. As well as a resilience package for Ukraine and neighbouring countries affected by the war, the EBRD has committed to help finance Ukraine’s reconstruction once conditions permit.