Ukraine to take out two loans for the reconstruction of GTS

Ukraine will spend billions, but would not part with the "hated" Gazprom

Photo: UNIAN

The Ukrainian government has signed an agreement with the European Investment Bank (EIB) to attract EUR 150 mn for the modernization of a stretch of the Ukrainian gas transport system (on the stretch of the Urengoy-Pomary-Uzhgorod pipeline). The European Bank for Reconstruction and Development may give another US $200 mn for this project, which will allow for reducing the technical consumption of gas and improve the reliability of the GTS and its attractiveness for potential investors.

Give us millions!

Yesterday, Premier of Ukraine Arseniy Yatsenyuk and EIB President Werner Hoyer signed an agreement on financing the modernization of the country’s main pipeline Urengoy-Pomary-Uzhgorod in amount of EUR 150 mn. Reconstruction of the pipeline will improve its reliability and the Ukrainian premier expressed hope that it would reduce the attractiveness of another pipeline – South Stream, which Russia is trying to build around Ukraine for the supply of gas to Europe. “I hope that Ukraine won’t be circumvented by South Stream. It is an unnecessary political project of Russia. Ukraine is once again calling on all its European and American partners to invest in Ukraine’s gas transport system,” said Yatsenyuk.

The money from the EIB is not the only a loan for the reconstruction of the gas pipeline. At the end of October, the Cabinet of Ministers agreed to attract a loan of US $200 mn from the European Bank for Reconstruction and Development.

The EBRD Council of Directors is planning to consider the allocation of the loan on December 10, according to information published on the EBRD’s website. At that, the total amount of reconstruction is estimated at around US $600 mn (international financial organizations will provide US $400 mn).

Ukrtransgaz will receive the loan at an interest rate of 2% per annum. The money will be used to replace 120 km of pipes and modernize two compressor stations over the period of 4 years.

Not the first loan, but a hefty one

The current loan for the modernization of Ukraine’s GTS is not the first, says Co-Chair of the Energy Strategy Fund Dmytro Marunych. At the end of April of last year, Ukrtransgaz signed an agreement with German Ferrostaal Industrieanlagen GmbH for the reconstruction of compressor stations in Bar of the Soyuz pipeline.

However, the amount of the loan provided for this project by Deutsche Bank AG was only EUR 51.37 mn. Marunych says the allocation of the current loan of the EIB was discussed back in 2009, but Ukraine never saw the money. That is why in the summer of 2011 the Ukrainian government announced the beginning of major modernization of its GTS at its own expense.

According to preliminary estimates, the total cost of modernization will amount to US $5.3 bn over 5-7 years. At that, it must be taken into account that the length of main gas pipelines on the territory of Ukraine is more than 22,000 km. The Urengoy-Pomary-Uzhgorod gas pipeline with the length of 1,160 km was put into operation back in 1984. There are nine gas compressor stations with the total capacity of 675 MW functioning on the pipeline that can pump 27.9 bn cu m of gas a year in the western direction.

What will be improved?

The press service of Ukrtransgaz told Capital that the major goal of modernization is improving the performance of the two turbo-compressor units from 27.5% to 35.7%. This will allow for reducing consumption of gas, which is being used as fuel for the operation of the compressors per unit from 9,000 to 7,000 cu m per hour.

A source well versed in the gas pipeline reconstruction project calculated the economic effect from its modernization at the request of Capital. He said each of the two units operates 3,000-4,000 hours per year, which is why the reduction of consumption of each unit will be 12-16 mn cu m of fuel per year. At a price of US $350 per 1,000 cu m for gas, US $4.2 mn to US $5.6 mn per year will be saved.

The reconstruction of the pipeline will begin in 2015 after all the tenders for the purchase of services and equipment are held.

The other day Yatsenyuk expressed his hope that Ukrainian companies, in particular suppliers of pipes, will be able to participate in the modernization of the GTS. The Khartsyzsk Pipe Plant owned by Metinvest is the only plant in Ukraine capable of producing pipes with a diameter of 1,420 mm (used in the Urengoy-Pomary-Uzhgorod pipeline). The group did not respond to Capital’s question about whether KhPP is planning to participate in the tenders and how many pipes it will be able to supply.

At the same time, according to the calculations of Capital, 120 km of pipeline is equivalent to only 58,000-76,000 t of pipes (depending on the thickness of the wall – 14-18 mm), while the capacities of KhPP are much higher as the plant can produce over 1.4 mn t of such pipes. Be that as it may, the fact that KhPP is located on the territory controlled by the authorities of the unrecognized DPR should also be taken into account, as it may not be able to supply even this small amount of product under the current circumstances.