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EU, Ukraine set to agree to modernize gas pipelines

  The European Union plans to seal on Monday a $2.5 billion loan for Ukraine to modernize its natural gas pipeline network if the system is made more open and transparent, a Russian business daily said.

The decision to give the loan to national oil and gas company Naftogaz could be made at a meeting in Brussels later on Monday, Kommersant reported, adding that President Viktor Yushchenko said late last week in Brussels the deal had been reached and would be announced after the meeting.

Russia, which transits about 80% of its Europe-bound gas via Ukraine and earlier urged Europe to contribute to the reconstruction of Ukraine’s pipelines, will not attend the meeting, Kommersant said. An unidentified European Commission official was quoted as saying that the talks with Ukraine had been difficult, with the Commission insisting on reform of Naftogaz as a condition for the loan.

Kiev agreed to make Ukrtransgaz, an affiliate that runs the country’s pipelines, an independent company and give access to the pipelines and underground gas storages to other companies on transparent commercial conditions, the daily said.

The seven-year loan - to be issued by the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank - would go to modernize pipelines, compressor stations and underground storage facilities, the paper said. It added that the statement to be released after the meeting will welcome other investors to participate.

EU fears over energy security were pushed to the fore by the dispute between Ukraine and Russia at the turn of the year, which left much of Europe short of gas and fueled concerns in Europe about the suppliers’ reliability.

Moscow has since stepped up rhetoric in favor of the two ambitious projects to pump gas to the EU bypassing Ukraine.

The Nord Stream pipeline, being built jointly by Gazprom, Germany’s E.ON and BASF, and Dutch Gasunie, will pump up to 55 billion cubic meters of gas a year from Siberia to Europe under the Baltic Sea. The South Stream pipeline is intended to annually pump 31 bcm of Central Asian and Russian gas to the Balkans and on to other European countries.

Ukraine has also asked Europe for grants to finance two other gas projects, to build gas metering stations and two more pipelines to increase supplies to Europe, worth $448 million and $5.5 billion respectively, the daily said.

“Let Europe think whether to support the Nord Stream estimated at over $20 billion and the South Stream, requiring $30 billion in investment, or invest $5 billion in our project and increase supplies by 60 bcm,” Ukraine’s deputy energy minister, Serhiy Pavlusha, told the paper. (rian.ru)