International Organizations Fund the Purchase of Gas by Ukraine

International financial institutions, including the World Bank, have gathered a financing package of $1 billion to assist Ukraine and its energy giant Naftogaz in replenishing its funds for the purchase of natural gas for storage and to prevent a shortage of 'blue fuel' in the country and for transit to European countries during the winter.

The allocated funds, which consist of a combination of loans and guarantees, will remove one of the central barriers to reaching an agreement between Ukraine and Russia and prevent a recurrence of the gas shutdowns of 2009, which resulted in shortages in several European Union countries.

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Officials in Brussels hope that the energy ministers of Ukraine and Russia, as well as representatives of Naftogaz and their Russian colleagues, Gazprom, can agree on a new gas deal at a gas meeting in Brussels on Friday. Such an agreement is likely to regulate the price of gas and the minimum volumes that Naftogaz will buy from Gazprom until the end of March, according to European officials.

About half of the gas imports from Russia, slightly over 80 billion cubic meters, are supplied to the EU via Ukraine. The $1 billion funding will enable Naftogaz to acquire about 5 billion cubic meters of gas in the near future, resulting in storage volumes reaching 19 billion cubic meters. According to the European Commission, this amount of gas should be sufficient for Ukraine and the EU to get through the winter.

The comprehensive financing, including loans and guarantees from four international public organizations, is the result of several months of discussions among officials in Kyiv, Brussels, Berlin, and Washington.

The majority of the funds will come from the World Bank, which has prepared $500 million in guarantees for Ukraine for gas purchases by Naftogaz. 'This is currently under development, and we are discussing technical aspects with Ukrainian authorities', confirmed a World Bank spokesperson.

This initiative, in turn, has been made possible by $520 million in guarantees from the European Investment Bank based in Luxembourg for other World Bank infrastructure projects in Ukraine.

The guarantees from the European Investment Bank were approved by the bank's board of directors on Tuesday; they are 'part of an emergency initiative by the EU and international financial institutions aimed at preventing a potentially serious crisis in Ukraine,' said EU officials.

The European Bank for Reconstruction and Development has already announced in July that it will provide Naftogaz with $300 million for financing gas purchases. The loan is to be approved by the EBRD board on September 30.

The final tranche of the package is the most convoluted and consists of a €200 million ($224 million) loan agreement that was signed by the KfW Development Bank of Germany and Ukraine's Finance Minister Natalia Yaresko earlier this month.

The loan has been officially structured to support the Ukraine Guarantee Fund's deposits and is intended to help pay compensation to depositors who lost their savings in currently bankrupt Ukrainian banks.

The Finance Ministry of Ukraine confirmed that the funds, part of the overall budget, will be used to 'finance Naftogaz.'