China's Planned Loan to Naftogaz Fails

China’s plan to lend Naftogaz almost $265mn to expand gas production has reached a dead end, the Ukrainian state-owned entity said August 2, following the failure of Ukraine's energy and coal ministry to approve the paperwork. 

“This decision makes further work impossible, with regard to the credit agreement with the State Development Bank of China,” it said in a statement.

Naftogaz said it was yet to receive an official response from the ministry, which has been reviewing the matter since February. However the August 1 deadline passed, which the bank had set for receipt of a full set of documents to borrow money for a major drilling rig modernisation project that would have increased gas production in Ukraine. 

The bank had been prepared to approve the project, if the ministry had okayed it; in June, the project had the seal of approval from the Ukrainian ministry of economic development and trade, as it met its financial criteria.

Naftogaz would have used the loan to buy 15 rigs and the equipment needed to run them, and also five rigs for workovers. This could have produced an extra 45.9bn m³ over 15 years, according to expert analysis, the company said. The government plans to raise gas production to 20bn m³/yr by 2020.

Now Naftogaz and its subsidiary Ukrgazvydobuvannya are thinking about borrowing this money directly from the Chinese state banks and rig manufacturers without state guarantees; other means of finance are also being considered, it said.

William Powell