Kyiv rejects EBRD's requirements for loan to complete two reactors (12/09/01)

Kyiv rejects EBRD's requirements for loan to complete two reactors

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine on November 29 rejected requirements put forward by the European Bank for Reconstruction and Development for the extension of a long-awaited $1.5 billion line of credit for completion of two Ukrainian nuclear reactors and said it would obtain the needed financing from Russia.

Then on December 4 Ukraine's Prime Minister Anatolii Kinakh announced that he and Russian Prime Minister Mykhailo Kasianov had come to a preliminary agreement on an overall Russian loan for the project of more than $200 million, with an installment of $60 million for 2002.

President Leonid Kuchma set the tone for the about-face on November 29 in Moscow, where he was attending celebrations of the 10th anniversary of the founding of the Commonwealth of Independent States, when he said Ukraine may have to complete the two atomic power units - one located in a complex located outside the city of Khmelnytskyi, the other near Rivne - utilizing its own financing with material support from Russia.

He explained that he was dissatisfied with ever-changing demands placed before the country by the EBRD and the European Union's Euroatom agency during the six-year period Ukraine has waited for a ruling on its aid request. During a press conference President Kuchma called the final terms offered by the EBRD unacceptable.

Interfax reported that Mr. Kuchma said, "Ukraine will never agree to these conditions, as they would be eternal servitude for the country," and added that he is inviting Moscow to take part in the project "on any terms it likes."

Two days later the president was a bit more diplomatic in Kyiv, where he explained that Ukraine simply cannot afford the terms and demands that are being put forward by the two European agencies but would like to continue cooperation.

"At the very beginning there was only one condition," closure of the Chornobyl Nuclear Power Plant. But now there are additional requirements, including an increase in energy tariffs," explained Mr. Kuchma.

It is this last item, a demand by the EBRD that Ukraine institute a threefold hike in electricity rates for its citizens to a level that would make the energy sector profitable, that has derailed the agreement. The president said he is concerned that increased electric charges could bring to a grinding halt an expansion of the fragile Ukrainian economy, which has grown by 9 percent this year.

Mr. Kuchma also explained that he believes the European estimate on the cost to complete "K2R4," as the project is generally called, is overblown. He said Ukrainian experts had assured him the Khmelnytskyi and Rivne reactors could be finished for no more than $600 million.

While he underscored that Ukraine is still "ready for negotiations" with the West, he also said that it is increasingly apparent to him that the country would have to complete the two reactors on its own.

The EBRD said the same day in Kyiv that it was willing to reconsider the conditions for crediting the second power unit of the Khmelnytskyi nuclear power plant and the fourth power unit of the Rivne NPP, but did not specify which conditions. The statement was a change in stance for the European financial organization, which, according to RFE/RL, had answered Mr. Kuchma's original assertion made in Moscow by stating that it believes "many [EBRD] members would not be willing to reopen a discussion, and in particular would not want to relax the condition on [electricity rate] increases."

The political maneuvering comes just as the EBRD and Euroatom were preparing to sign a loan agreement package with the Ukrainian government worth a total of $1.48 billion, with the EBRD contributing $215 million, Euroatom $585 million and a host of other credit export agencies as well as Russia making up the balance. The EBRD loan was to be extended for a period of 18.5 years at 8 percent interest, the Euroatom loan for 15 years at 6 percent and the credit-export loans for 12 to 15 years at 10 percent.

On December 5 the EBRD informed Ukraine that if it did not sign the agreement on the credit program for the two reactors by December 6, the originally scheduled deadline, the project would be considered dead.

The negotiations for the loan package took several years, initially over how much money it would take to complete the two reactors and then on how to assure that they would be profitable and safe. On November 8 Jean Lemierre, the president of the EBRD, said that the four main conditions - the closure of the Chornobyl NPP, which occurred last December; issuance of a report by international nuclear regulators that Ukraine had implemented Western nuclear safety standards and a commitment by the European Commission to provide technical assistance; resumption of the Extended Fund Facility program to Ukraine by the International Monetary Fund; and, finally, financial contributions from Euroatom and other export credit agencies - had been fulfilled.

The current disagreement over what to charge electricity consumers is one of the 30 lesser conditions that the EBRD has put forward (others include the need to adopt a privatization plan for Ukrainian energy distribution companies and to plan for the decommissioning of old Ukrainian nuclear facilities). The EBRD has said these conditions are required to assure that Ukraine can raise the needed cash to repay its loans.

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