Ukrainian infighting threatens Chinese power investment

Ukraine could miss out on a massive injection of Chinese investment into its power sector, including the development of two coal-fired power plants due to disagreements between government ministries and state-energy firm Naftogaz.

The country’s government signed a $3.65bn loan agreement with the China Development Bank (CDB) in 2012 and it must submit proposals for projects by June to receive funding. But with the deadline looming, Naftogaz and the relevant government departments have yet to sign off on any of the coal or gas projects that were due to be funded by the loan.
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The need for foreign investment in the Ukraine is acute. According to economy ministry estimates, the country must attract at least $7bn from abroad per year to spur fledgling economic growth after a separatist conflict in eastern industrial regions plunged the country into two years of recession in 2014.

The country’s power infrastructure is a central focus for that investment.

“The sum is huge and the loan is under (Ukrainian) state guarantee. A project of this size is political, due to this the issue needs a joint position of the economy, energy and finance ministries,” Uglesintezgaz chief Andriy Suprun told Reuters. “There is a certain lack of convergence in the positions of us (Uglesintezgaz) and the energy ministry,” he said, without elaborating on their differences.

Ukraine’s Deputy Finance Minister Yuriy Butsa also said the proposals would not all be ready by the deadline but he was confident that Ukraine would secure some of the funding.

“We have every intention to use those funds. I know there is some serious work going on at Naftogaz, so I believe in the nearest time we will see some progress,” he said. “The loan was signed under different conditions, in different times, for different purposes. Our intention is to use the opportunity to finance the projects which are needed at this point of time and the needs have changed much.”

Suprun said plans include building two new coal-fired power stations in Kiev and the western city of Lviv and an upgrade in drilling capacity at a Naftogaz subsidiary.

According to letters seen by Reuters, Ukraine’s Ambassador to China Oleh Dyomin wrote to Kiev at least twice in 2016 to warn of Chinese concern and doubt that the loan deadline would be met.

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