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Jul 27, 2012

China $3.7 billion loan far from done deal

Kyiv Post

Contrary to recent reports, Ukraine has not yet finalized a record $3.7 billion loan deal with China for coal gasification, an informed source said.

Local media outlets Interfax-Ukraine and Kommersant, as well as Bloomberg news service reported on July 16 that Ukraine and China already agreed on the deal. But so far, the two nations have merely discussed such a possible loan. If signed, the deal would be the latest in a flurry of multibillion-dollar deals under discussion.

No agreement has been sealed, said a Chinese government source who spoke to Kyiv Post on condition of anonymity. If Ukraine lands the loan, the funds could be used for upgrades and modernization energy infrastructure to decrease the national economy’s dependence on increasingly costly Russian gas.

Ukraine’s Energy Ministry, which triggered speculation about the deal through a press release issued early this week, would not clarify the issue. In a vague statement, the ministry said that a protocol of the meeting had been signed involving the loan.

The negotiated deal includes building coal gasification plants and switching utilities from burning gas to coal slurry, a mix of water, coal and about 1 per cent of additives. Experts say the deal would decrease dependency on Russian gas and stimulate consumption of locally produced coal.

“We think this deal has no immediate short-term impact on Ukraine’s fuel supply balance as coal gasification plants will take three to five years to build. However, their launch could enable the phasing out of gas imports in the medium term,” investment bank Dragon Capital wrote.

The deal is likely to be realized, predicted Dmytro Marunych, director of the Kyiv-based Energy Studies Institute, a think tank. China is interested in selling its technologies to Ukraine for the loaned money, he added, particularly in the field of coal slurry.

The Chinese appear eager to give loans to modernize Ukrainian state-owned coal mines. A pilot project deal was signed in 2010 and includes financing the modernization of a coal mine in Lysychansk for $85 million. China already transferred the first $16 million in June.

A total of $1 billion in Chinese loans will be used on modernizing Soviet-era mines, most of which are in desperate need of investment.

China also appears to be eyeing Ukraine’s agriculture promise. Ukrainian officials earlier this year announced plans to lure $3 billion in loans from China to support agricultural projects in areas including trade, fertilizer and cultivation. Major areas of investment are said to include procuring pesticide, seeds and equipment from China, and selling Ukrainian agricultural products to China.

Weeks ago, China revealed that it had inked a central bank currency swap with the National Bank of Ukraine valued at $2.4 billion.

Activity between private sector Ukrainian companies and China also appears to be on the rise.

Citing a Ukrainian agricultural tycoon, Reuters reported on July 19 that Ukraine expects to sign a corn quarantine agreement with Beijing, paving the way for exports to China.

“Ukraine is expecting the agreement to be signed by the end of the year and soon after that, we can start to load corn to China,” Oleg Bakhmatyuk, chairman of the board of UkrLandFarming, was quoted by Reuters as saying.

According to Reuters, the corn deal marks a move by China, the world’s second largest corn consumer and a big importer of this crop, to “strengthen food security” by diversifying supplies.

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