Naftogaz of Ukraine NJSC Approved Gas Transportation System of Ukraine Investment Development Program for 2007-2010

Kyiv, September 12, 2006

Upon the results of a meeting at the office of Naftogaz of Ukraine Chairman of the Board Volodymyr Sheludchenko, Company approved the investment Program of Modernization and Reconstruction of the Gas Transportation System of Ukraine for 2007-2010 totaling UAH 23.1 billion. The Program has been developed on the instruction of the Minister of Fuel and Power, Yuriy Boyko.

The Program identifies seven priority objects in Ukraine’s gas transportation system, which are to be modernized during 2007-2010. Investments in this reconstruction and modernization are expected to total UAH 1.3 billion in 2007, and starting from 2008 through 2010 – UAH 7.3 billion annually.

1. The program’s priority tasks are the modernization of gas compressor units (GCU) of the Soyuz pipeline (32 units) and the Urengoy-Pamary-Uzhhorod pipeline (21 units), a project costing UAH 1.089 billion.

1.1. After the completion of the Soyuz pipeline GCUs modernization, their efficiency is expected to increase up to 35 percent, overhaul period to come to 25 000 moto-hours, emission of NOx to equal 80 mg/m3, of СО - 100 mg/m3, gas fuel consumption to decrease by 30 percent, transported gas volumes to increase by 1,5 percent, and the payback period to near 5 years.

1.2. The modernization of GCUs of the Urengoy-Pamary-Uzhhorod pipeline is expected to increase the efficiency of the system up to 36 percent, the overhaul period to 32 000 moto-hours, emission of NOx to equal 80 mg/m3 and of СО - 100 mg/m3, volumes of consumed gas fuel to decrease by 30 percent, transported gas volumes to increase by 1.0 percent, and the payback period to near 8 years.

2. When completed, the program of reconstruction of the linear part of the pipelines Soyuz (built in 1978, spans 1 567 km) and Dashava-Uzhhorod-Derzhkordon (built in 1967, spans 180 km) and the pipeline systems Shebelinka-Dnipropetrovsk-Kryvyi Rih-Izmail (Shebelinka- Dnipropetrovsk-Odesa) (built in 1957-1975) will increase the trouble-free operation of Ukraine’s gas transportation system and boost the volumes of transported gas.

2.1. In order to ensure reliable transit services provided and satisfy the needs of Ukrainian consumers for natural gas, the reconstruction of the Soyuz pipeline is currently under consideration. The gas pipeline has already been subjected to inline and electrometric inspection. The inspection results call for an array of works to be performed to replace the pipe insulation along with some pipe sections. For this purpose, a looping is to be built in stages without increasing the pipeline overall throughput. The project requires UAH 18.75 billion.

2.2. To ensure reliable transit via the Dolyna-Uzhhorod-Derzhkordon-1 corridor, it is planned to reconstruct this pipeline by replacing Ø820 mm pipes for Ø1400 mm pipes with the operating pressure of 75 kg/cm2. The project costs UAH 2.25 billion.

2.3. To ensure reliable supply of natural gas to the industrial regions of Ukraine’s south and reliable gas transit to the Balkan countries, the gas pipeline systems Shebelinka-Dnipropetrovsk-Kryvyi Rih-Izmail (Shebelinka-Dnipropetrovsk-Odesa) are planned for reconstruction. Specifically, two lines of Ø700 mm and Ø800 mm of Shebelinka- Dnipropetrovsk-Odesa are to be replaced with a Ø1000 mm pipeline with a capacity of 9.2 billion cu m of gas a year. The cost of the project is UAH 700 million.

3. The reconstruction of technological structures of the Uherske (Lviv oblast) underground gas storage facility (UGSF) will increase its capacity to 1.9 billion cu m (currently, its capacity equals 1.23 billion cu m), improve its technical and economic indicators, and increase the daily volume of gas withdrawal at the outset of the withdrawal season to 23 million cu m. The cost of this project equals UAH 320 million.

The Program of Modernization and Reconstruction of the Gas Transportation System of Ukraine for 2007-2010 will allow an increase in natural gas transit to European countries, to improve the reliability and effectiveness and of the gas transpiration system, make it environment-friendlier. The program also aims to bring gas accounting in the country into compliance with international and European norms and rules.

“As a complex engineering structure, the gas transportation system of Ukraine requires continual modernization and investment to increase its potential, which is quite natural,” Naftogaz of Ukraine Chairman of the Board Volodymyr Sheludchenko said during the meeting and continued, “As reliable partners, we will ensure stable gas transit to Europe where gas consumption is on the rise.”

For the record: During 2000-2005, 34 highly effective gas compressor units were put into operation, having replaced outdated technologies, which failed to meet modern efficiency and environment standards. The installed units cost a total of UAH 1 115 million. In addition, UAH 567 million was spent on the repair of 391 km of gas pipelines and UAH 747 million on the reconstruction of 281 km of gas pipelines.

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Naftogaz of Ukraine NJSC

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