Naftogaz Gas Purchase Facility 2

Project Description

Provision of up to US$ 100 million debt funding as part of a natural gas purchase revolving loan facility of up to US$ 250 million to the National Joint Stock Company “Naftogaz of Ukraine (“Naftogaz”). The gas purchase facility would be arranged by Goldman Sachs and supported by the US Overseas Private Investment Corporation (“OPIC”). The facility is currently under negotiation and will be subject to approval by the parties.

Project Objectives

Support for Naftogaz to purchase natural gas to ensure its availability in the country during the peak consumption winter season.

Transition Impact

Good.

It is expected that the Project will make Ukraine’s gas sector more competitive and Naftogaz better governed:

i) Competitive: the Project is the first private international working capital transaction for Naftogaz.

The Project offers competitive procurement, transparent pricing and is in line with the best EU practices. Naftogaz will support the EBRD and the Energy Community Secretariat in a policy dialogue engagement with the aim to establish a natural gas exchange in Ukraine. The Bank is aslo considering to provide technical support and to engage in policy dialogue with Naftogaz and other the key stakeholders to launch a Methane Emissions Reduction Program in Ukraine.

ii) Well-governed: the Project will require compliance of the entire Naftogaz group including the assets, functions, contracts, and infrastructure for the function of a TSO in line with gas transmission unbundling, with applicable legislation, OECD Principles of Corporate Governance for State-Owned Enterprises and best practices. Naftogaz undertakes to further improve internal controls and enhance the compliance function for the whole group.

Client Information

NAFTOGAZ OF UKRAINE PJSC

Naftogaz is a 100% State-owned company with Cabinet of Ministers of Ukraine acting as nominated shareholders of behalf of the state. Naftogaz is the holding of a vertically integrated group of entities with activities including oil and natural gas production, transportation and storage, refining and supply.

EBRD Finance Summary

USD 100,000,000.00

Up to US$ 100,000,000 senior secured loan.

Total Project Cost

USD 250,000,000.00

Up to US$ 250,000,000 to be fully funded by a revolving working capital facility arranged by Goldman Sachs. The facility will be supported by OPIC.

Environmental and Social Summary

Categorised B (2014) The Environmental and Social (E&S) risks and impacts associated with the natural gas purchase can be readily assessed and are expected to be site specific and be avoided or mitigated through good management practices and targeted E&S actions.

Environmental and Social Due Diligence (ESDD) was carried out on Naftogaz by Independent E&S Consultants in 2015 included a corporate E&S review of Naftogaz and its subsidiaries. During ESDD documents from Naftogaz were reviewed, these included the EBRD ESDD documents from a previous completed EBRD project carried out in 2015, E&S management systems, copies of environmental permits, ISO certificates. The Bank also reviewed the contents and status of an existing Naftogaz Environmental and Social Action Plan (ESAP).

The ESDD demonstrated that Naftogaz generally has a good awareness of risks associated with their activities. Naftogaz has an integrated management system (Environmental, Occupational Health and Safety and Quality) although none of these systems are certified. Naftogaz has the required environmental permits and licences to operate.  During site visits on selected locations it was confirmed that a formal permit to work safe system of work is in place for high risk activities such as hot works, confined space entry etc. A review of contractor management arrangements confirmed the existing systems are also adequate. Welfare facilities provided for workers across all sites were generally good.

The previous ESDD identified opportunities for Naftogaz to improve their E&S performance. An existing ESAP project approved in 2016 intends to bring Naftogaz in line with international good practice and includes further development of existing E&S management systems, implement a Road Safety improvement plan, update and implement HR polices and environmental auditing procedures. The Bank will monitor Naftogaz E&S on an annual basis through review of reports on the ESAP implementation. The project summary document (PSD) will be updated as required.

Technical Cooperation

The Project is associated with technical cooperation in the following areas:

(a) Development of a Ukrainian natural gas exchange. The technical cooperation, subject to separate approval and funding, will support the development of a Memorandum of Understanding among key stakeholders on the conceptual design and plan for the implementation of a natural gas exchange. The technical cooperation is expected to be funded jointly by Ukraine Multi Donor Account and Energy Community Secretariat.

(b) Development of a Methane Emissions Reduction Programme in Ukraine. The technical cooperation, subject to separate approval and funding, will support introducing improved standards and practices for measurement and reporting of methane emissions along the gas supply chain as well as the development of a roadmap to reduce them.

(c) An additional TC will be developed to verify/certify the compliance of NAK with the corporate governance covenants.

(d) Capacity building to enhance Naftogaz’s compliance function is also under consideration.

Company Contact Information

Sergiy Konovets, Deputy Chairman of the Board
SKonovets@naftogaz.com
+380 (44) 586-32-83
http://www.naftogaz.com
B. Khmelnytskogo str, 6 Kyiv, 01001, Ukraine

Business opportunities

For business opportunities or procurement, contact the client company.

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Text of the PIP

Project Complaint Mechanism (PCM)

The Project Complaint Mechanism (PCM) is the EBRD’s accountability mechanism. It provides an opportunity for an independent review of complaints from individuals and organisations concerning EBRD-financed projects which are alleged to have caused, or are likely to cause, environmental and/or social harm.

Please visit the Project Complaint Mechanism page to find information about how to submit a complaint. The PCM Officer (pcm@ebrd.com) is available to answer any questions you may have regarding the submission of a complaint and criteria for registration and eligibility, in accordance with the PCM Rules of Procedure.