Ukraine to halve gas imports in September; Decline in industrial output slows; Cabinet pledges guarantees for Naftogaz; Government plans to raise Hr 500 million; World Bank approves $400 million loan.
Ukraine to halve gas imports in September
Ukraine plans to import 1.5-1.8 billion cubic meters (bcm) of natural gas from Russia in September, down from 3.4 bcm purchased in August, Fuel and Energy Minister Yuriy Prodan said. The state oil and gas monopoly Naftogaz Ukrainy’s September gas bill is set to decline correspondingly, to $300-350 million from $667 million paid to Russia’s Gazprom in August. The planned cut in gas imports signals Ukraine has pumped enough gas in its underground reservoirs for the upcoming heating season. According to Prodan, Naftogaz currently has 26.1 bcm of gas in storage. The announcement bodes well for the hryvnia as demand for foreign currency from Naftogaz will be substantially lower this month.
Decline in industrial output slows
Ukraine’s industrial output dipped by 0.9 percent in August compared to July and was down 23.3 percent compared to August 2008, slowing its annualized pace of decline from 26.7 percent recorded in July. Last month’s production dynamics in major industries was very uneven. Output in the chemical, iron ore and oil refining industries rose by 3 percent to 30 percent compared to July, partly offsetting declines in food processing (-4.6 percent), machine-building (-3.1 percent), electricity production (-2.2 percent) and metallurgy (-0.3 percent). The pace of decline in total industrial output is set to slow further in annualized terms in the coming months due to a statistical effect (domestic industrial production started to decelerate sharply starting in September 2008, which will provide a lower comparison base for September-December this year).
Cabinet pledges guarantees for Naftogaz
The government authorized the Finance Ministry to provide “absolute and unconditional guarantees” on the foreign debt owed by state oil and gas monopoly Naftogaz Ukraine, including $500 million of Eurobonds maturing on September 30, as soon as the company agreed with creditors on restructuring its external liabilities. The government approved the decision pursuant to a provision in the 2009 budget law that allows it to guarantee up to $2 billion of Naftogaz’s debts attracted before Jan. 1, 2009. The Finance Ministry noted it considered a five-year restructuring term optimal for Naftogaz. In a separate resolution, the government instructed Naftogaz to complete debt restructuring talks with its lenders by Oct. 20. Given that Naftogaz’s Eurobonds mature in less than a week, the company will most likely have to ask its bondholders to sign a so called stand-still agreement, i.e. a formal deal under which Naftogaz’s lenders agree not to demand the repayment of the bonds until new redemption terms are negotiated.
Government plans to raise Hr 500 million
The Finance Ministry plans to attract Hr 500 million from households by issuing one-year bonds maturing in September 2010 and paying an annual coupon of 16 percent. The bonds are to be sold through the state-owned savings bank Oshchadbank. The Finance Ministry may offer the debt at a discount to par value so as to bring its effective yield higher and thus encourage demand. The government planned to sell the same bonds back in April, offering a coupon of 8 percent, but expectedly attracted no buyers.
World Bank approves $400 million loan
The World Bank approved a $400 million loan for Ukraine, the first tranche of its $750 million financial sector rehabilitation program for the country. The program is designed to help the government recapitalize troubled banks, compensate depositors and cover fiscal costs associated with bank liquidation and restructuring. As part of the program, the World Bank earlier assisted Ukrainian authorities in the creation of a special unit at the Ministry of Finance to deal with bank recapitalization. Provided that the government continues to meet the Bank’s lending requirements, it may qualify for the second tranche of $350 million as well as for a $500 million Fourth Development Policy Loan by the end 2009.
