Finance Minister Natalie Jaresko is on track to win Ukraine an additional $3.8 billion in international aid by the end of the year.
This week, during her second trip to Kyiv since
July, U.S. Secretary of Commerce Penny Pritzker promised a third $1 billion
guaranteed bond for Kyiv if Ukraine makes further progress in fighting
corruption, carrying out austerity measures under the International Monetary
Fund’s program and overhauling the economy.
Ukraine also expects $1.7 billion from the IMF
next month, $700 million of macro-financial assistance from the European Union
and smaller financing with only about $800 million in foreign currency debt to
be repaid by year-end, according to Kyiv-based Dragon Capital. This should
leave the central bank with about $15.5 billion in foreign reserves once the
New Year arrives, good for almost four months of imports.
Speaking of her talks with President Petro
Poroshenko and Prime Minister Arseniy Yatsenyuk accompanied by executives from
DuPont, Citibank, Westinghouse, NCH
Capital, Honeywell, and Cargill, the commerce secretary said: “Our
dialogue focused on measures Ukraine can take to more effectively fight
corruption; to make its infrastructure more efficient and attractive for investors,
to reduce excessive regulations; to raise the professionalism of its judiciary;
to better protect intellectual property; and to improve its tax
administration.”
She said the details of America’s conditional
loan guarantee would be “finalized…over the coming weeks.”
While touting the government’s implementation
of an electronic value-added tax system for businesses, Pritzker cited there
being “more work to be done with respect to paying arrears.”
Ukraine had about Hr 24 billion ($1 billion) in
VAT arrears last month, according to State Fiscal Service head Roman Nasirov.
The U.S. backed a $1 billion Ukrainian Eurobond
earlier in the spring and the second one is scheduled for issuance at the end
of the year. The third U.S.-backed Eurobond will be issued in December “after
debt restructuring is finalized and Ukraine is in accordance with the IMF
program,” Kyiv-based Investment Capital Ukraine said in an emailed note.
Conditional Western
loans-for-gas
Ukraine’s most important company, state-owned
oil and gas giant Naftogaz, will have to drastically improve corporate
governance to get a conditional $300 million loan from the European Bank for
Reconstruction and Development to purchase gas from European suppliers.
Signed in Berlin on Oct. 23, the loan agreement
stipulates the “creation of a supervisory board of independent and qualified
directors, the introduction of internal audit, compliance, anti-corruption and
risk management functions and an ownership and governance structure in line
with best international practice,” according to an EBRD news release.
The Cabinet of Ministers formally gave the
go-ahead to meet the requirements on Oct. 16, which includes the appointment of
independent directors to the supervisory board. Based on the government
decision, shares of Naftogaz would be transferred from the Energy Ministry to
the Cabinet for management.
A conflict of interest existed under the
previous arraignment, according to Sevki Acuner, head of EBRD in Ukraine,
because, as the shareholder, the Energy Ministry was also the policy maker.
“You cannot be…the referee and play in one of
the teams in what should be a competitive match,” Acuner told the Kyiv Post in
his office on Oct. 26. “The referee is the Energy Minister, which it should be,
but it should not be playing and touching the ball determining the policies.”
Measures to appoint an independent board
ensures Naftogaz would be insulated from political interference and influence.
Thus, “no political authority will be able to,
going forward, say ‘do this, buy that, deliver here versus here, buy from Mr.
X’…the company will be managed to maximize the value for its shareholders which
are the people of Ukraine,” the banker said.
However, the measures stop short of
“unbundling” the state-owned behemoth, particularly in separating gas
transmission activities from production, storage and the supply of gas in line
with Ukraine’s commitments to international treaties that it signed with the
European Union.
Although parliament passed an unbundling plan
on April 9 with the adoption of new gas market bill, it has moved slowly
because what “everybody wants is the government to have a very informed and
thorough decision,” Acuner said.
Other provisions of the reform is to introduce
non-discriminatory access to Ukraine’s gas infrastructure and to allow all
customers to choose their gas supplier freely.
Combined with a $500 million loan that Naftogaz
is discussing with the World Bank, Kyiv should have enough to buy 3.5 billion
cubic meters of gas, according to Dragon Capital. Ukraine will have more than
17.2 billion cubic meters of gas in storage by the end of October, Energy
Minister Volodymyr Demchyshyn said at a briefing in Kyiv on Oct. 27.
In particular, the three-year EBRD loan is a
revolving credit, meaning Ukraine can borrow again once it pays down the loan
during its cash-flow cycle. Under the loan provisions, Kyiv will have to apply
EBRD’s rigid tender procedures when communicating with European suppliers, and
once a bidder is chosen, the London-based bank will pay the supplier directly,
bypassing Ukraine.
An additional $200 million is also being sought
from other international financial institutions to purchase gas, Naftogaz
spokeswoman Aliona Osmolovska told the Kyiv Post, declining to name the potential lenders.
Kyiv Post editor Mark Rachkevych can be reached
at [email protected].
