Ukraine’s Naftogaz to Boost Energy Independence, Efficiency with EU Help

Ukraine’s state oil and gas company Naftogaz and the Finance Ministry have concluded a loan agreement with Ukraine’s biggest international financial investor, the European Bank for Reconstruction and Development (EBRD), raising €51.9 million to develop gas production and improve energy efficiency.

According to Naftogaz, Ukrgasvydobuvannya JSC, which is part of Naftogaz Group, will receive €51.9 million from the EBRD for activities aimed at decreasing Ukraine’s dependence on imported energy.

Despite the current economic crisis, Naftogaz said on July 31 the company continues to increase international investment to maintain domestic gas production and improve energy efficiency.

“We are actively changing Naftogaz’s internal processes to mitigate the crisis within the industry,” Naftogaz CEO Andriy Kobolyev said, stressing that international investments have a crucial role to play in achieving energy independence, especially under the current unfavorable price climate. “Signing this agreement with the EBRD is another step towards strengthening the country and further evidence of successful corporate governance reform at Naftogaz. We are open and efficient, which is why international partners trust us. This cooperation is a powerful sign to other foreign investors that they can and should invest in Ukraine, even in today’s trying times,” Kobolyev added.

Naftogaz and the Ministry of Finance of Ukraine agreed terms and conditions of the loan agreement to maximise the benefits for all parties.

“We are grateful to our partners from the EBRD for their consistent support for Ukraine as the country seeks infrastructural modernisation and better performance of our production facilities,” Ukraine’s Finance Minister Serhii Marchenko said, adding that the project we are launching today will provide funds to enhance natural gas production and, at the same time, will contribute to Ukraine’s energy independence.

Ukrgasvydobuvannya will use this new funding to upgrade its fleet of workover rigs for operations at gas wells deeper than five kilometres and to introduce energy-saving technology at the Lokachyn field in the Volyn region, Naftogaz said.

“Our mission is to move the country closer to energy independence,” Ukrgasvydobuvannya CEO Olena Kobets said. “Additional workover rigs will improve our efficiency and performance at depleted fields. The new equipment will enable us to perform complex deep operations, maintaining production and increasing hydrocarbon reserves. The energy efficiency project will help use the energy from produced hydrocarbons efficiently and decrease any negative impact on the environment, which is one of our priorities,” she added.

The loan will be provided in two tranches of €36.4 million and €15.45 million. The first tranche is to be repaid within nine years and the second within 15 years. The effective interest rate is almost 2.5% per annum under the current conditions in the international interbank market.

The loan will be secured by the state of Ukraine. The sovereign guarantee costs 1% of the amount used and not repaid.

Procurement within both projects will be made through the EBRD bidding platform according to the Law of Ukraine on public procurement and the bank’s procurement principles and rules for public sector projects.