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Eastern Europe
April 13, 2017 www.intellinews.com I Page 14
EBRD warns Ukrainian leadership of collapse of energy sector reform
bne IntelliNews
The European Bank for Reconstruction and Development (EBRD) has emphatically warned Ukraine’s leadership about the possible collapse of the country’s energy sector reform, which the multinational lender fears could “shatter interna- tional confidence” in the current government in Kyiv.
According to a confidential letter sent by EBRD head Sir Suma Chakrabarti to Prime Minister Volodymyr Groysman on April 10 seen by bne IntelliNews, the country has made progress in public procurement, financial sector and monetary policy reforms. However, progress on oil and gas sector reform, the commercialisation and privatisation of state- owned enterprises, and the reform of the judiciary and public administration “has not been so visible”.
Chakrabarti urged the government “to persevere in maintaining the reform momentum and accel- erating the delivery of concrete results” in order to unlock further donor support, according to the letter.
The letter followed a new $1bn tranche released by the International Monetary Fund (IMF) in
April under its $17.5bn support programme for Ukraine, and a second €600mn tranche of mac- ro-financial assistance from the EU. The IMF, Ukraine’s main creditor, also called upon the country to speed up the pace of reforms and step up the fight against corruption.
Meanwhile, in another confidential letter sent to both Groysman and President Petro Poroshenko, the EBRD chief underlined that “the reform of Naftogaz, which is just recognised as one of the
A worker at the Kolodnytsya gas field in the Stryi district of Ukraine's Lviv region.
most meaningful reforms undertaken under your leadership, is at risk of collapsing within the next few days”. This letter, also seen by a bne Intel- liNews correspondent in Kyiv, was dated April 7.
According to the IMF, low tariffs for residential gas and district heating have encouraged excessive energy consumption and led to large quasi-fiscal losses, pushed up gas imports, and discouraged investment in domestic production in Ukraine until recently.
Gas and heating tariffs reached full cost recovery levels in July 2016. Naftogaz’s deficit has now al- most been eliminated, the IMF wrote in comments published on April 4. “The large tariff increases to full cost recovery have provided incentives to con- serve energy and supported an improvement in energy efficiency and a dramatic decline in house- hold gas consumption and corresponding reduc- tion in macro imbalances,” the IMF added.
Chakrabarti also warned of negative effects from the anticipated resignation of the independent board members of Naftogaz. This move might not only “severely damage” the company at a time when its transformation is finally beginning to take hold, but could also “shatter the international confidence in your government’s commitment” to reform and restructure Naftogaz and other state- owned enterprises in Ukraine, according to the letter dated April 7.
The previous day, four of the independent board members – Paul Warwick, Markus Richards, Charles Proctor and Yulia Kovaliv – sent a letter to