European Union Seeks To Avert Another Ukraine-Russia Crisis

September 2009 Vol. 236 No. 9

A deal has been reported between the European Union, international financial institutions, and Ukraine on a series of loans to ensure that cash-strapped Naftogaz Ukrainy can make its payments to Russia for gas imports, leading to stable supplies of Russian gas to Europe.

Under the agreement, Ukraine will receive loans in exchange for a commitment to implement gas sector reforms. The deal should help Naftogaz pay for sufficient gas to pump into its underground storage facilities to prepare for the 2009–10 winter heating season, as well as meet its monthly deadline to pay Gazprom for gas supplies.

The key to the deal is Ukraine’s commitment to follow through on reforms. Ukraine will receive up to US$450 million for long-term investments in the renovation and modernization of its gas system. Ukraine will undertake gas market reforms, including greater transparency as well as liberalizing the domestic gas market to bring domestic gas prices into line with European prices. Ukraine must also recapitalize Naftogaz at a cost of US$2 billion.