Naftogaz has submitted to the Ministry of Economic Development and Trade of Ukraine (MEDT) four investment proposals to be financed by USD 3.65 billion credit facility from the China Development Bank (CDB) signed by Naftogaz in 2012 and guaranteed by the state. No funds have been drawn down under the loan so far.
MEDT will analyse the proposals and register qualified projects with the corresponding state register. An official letter will then be sent by MEDT to the CDB outlining qualified projects. Given a pre-approval of these projects by the CDB, Naftogaz will proceed by confirming the state guarantees and applying to the CDB with individual loan requests for each of the projects.
Proposed investment projects
It is planned that the loan will cover five investment projects aiming to reduce the consumption of imported gas and boost gas production in Ukraine.
Naftogaz proposes that the major share of the funds is to be used to upgrade individual heating systems in private houses for low-income consumers (approximately USD 1.7 billion is expected to be borrowed under the loan).
Two more projects involve the construction of modern heat and power plants in the city of Kyiv and in Lviv region. These projects are aimed at reducing demand for imported gas. The new plants are expected to use coal currently exported from Ukraine as their primary source of fuel. The projects are designed to meet EU environmental standards. Nearly USD 1.3 billion of the loan amount is proposed for allocation to these two projects.
Naftogaz has also proposed to allocate approximately USD 0.4 billion of the loan amount to finance purchase of drilling rigs and auxiliary equipment for the company’s upstream subsidiary Ukrgazvydobuvannya (UGV).
It is proposed that the balance of the loan is used to finance the installation of district heating substations in multi-apartment buildings across Ukraine. The equipment regulates heat supply depending on the weather conditions, prevents overheating and thus reduces demand for gas by heat generating companies. This investment proposal is developed by the Ministry of Regional Development, Construction and Housing and Communal Services of Ukraine.
About the CDB credit facility
The loan agreement signed by Naftogaz with the CDB is at present the largest source available to Ukraine to fund projects enhancing energy efficiency and reducing consumption of imported energy. The borrowing costs under the loan agreement are also the most competitive compared to other potential financing sources of the same scale.
The loan agreement requires Naftogaz to apply to the CDB with individual loan requests until 24 June 2016. The drawdown of funds for at least one of the projects should then start by 25 December this year.