EBRD letters of credit to Naftogaz to help European majors diversify Ukraine gas supply

The European Bank for Reconstruction & Development (EBRD) is planning to offer letters of credit of €60mn to Ukraine’s gas major Naftogaz, helping it buy gas for the upcoming winter season through private facilities with reputable traders, without drawing on sovereign guarantees, writes Keith Nuthall. The letters of credit will last one year and can be issued in multiple units up to the €60mn cap.

The EBRD added that it can back-up a minor portion of Naftogaz's payment obligations under annual gas import contracts with reputable gas suppliers, covering up to 20–30% of Naftogaz’ payment risk from gas trade finance. It added, the letters of credit ‘will contribute to Ukraine's energy security, ensuring efficiency of the markets, the development of direct business relationships with the Ukrainian gas network and storage operators…’

The move will help attract new large international traders into Ukraine’s gas market, giving direct access to a network and storage dominated by the state-owned incumbent. New ways of handling cross-border gas trades and new winter and summer business models, linked to European hub pricing, will be developed and demonstrated, said the EBRD