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2014-10-29 18:45:00

EU BUYS UKRAINE: $2.7 BLN

EU BUYS UKRAINE: $2.7 BLN

The European Union's executive body is close to signing off on two disbursement of loans promised to Ukraine that would give Kiev about EUR760 million ($965 million) in additional funding by the end of the year, two senior officials said Tuesday.

The move comes as the EU confirmed Tuesday it was keeping in place its current sanctions regime against Russia over Moscow's actions in Ukraine.

The EU funds would go some way toward settling coming gas bills and international debt payments, the officials say. However, it won't be enough for Ukraine to get natural gas flowing again from Russian state-owned energy giant Gazprom OAO before the end of the year.

German Chancellor Angela Merkel said last week that Kiev may need a bridge loan to help it raise funding to pay Gazprom.

The EU will host talks on Wednesday that officials hope will pave the way for a deal that lets Ukraine pay off gas debts to Gazprom and make prepayments for energy to ensure renewed shipments.

The EUR760 million in EU funding is the remainder of two European Commission balance-of-payments loans to Ukraine that were agreed to by member states earlier this year.

At a meeting with member-state officials on Tuesday, the European Commission said Ukraine had met the conditions, entailing various economic reforms, for the EUR260 million tranche, which would likely be disbursed in the first half of November.

The commission also said Kiev is very close to completing the conditions for a EUR500 million loan tranche that would be disbursed by the end of December.

Final approval of the EUR500 million should come next week after the International Monetary Fund sends a letter confirming it has no concerns about the late presentation of Ukraine's 2015 draft budget bill. Ukrainian officials argued there was no point presenting the budget bill by the deadline in September since the country's parliamentary elections last weekend would result in a new government.

EU experts also need to give final approval to a draft Ukrainian bill that would increase the powers of Kiev's accounting chamber to audit state-run enterprises.

The EU has already handed out some EUR850 million in loans and grants to Ukraine since a pro-Western government took office at the end of February. The bloc has promised loans, grants and investments of more than EUR11 billion in coming years if Kiev presses ahead with deep economic reforms.

However, the EU money will only partially address Ukraine's funding needs in coming months.

Under a preliminary understanding reached between Ukraine and Russia, Kiev would face a bill of $3.1 billion by the end of the year to settle its outstanding debts to Gazprom. Ukraine must also pay $1.6 billion in advance for 4 billion cubic meters at $385 per 1,000 cubic meters for gas for November and December, although it isn't yet clear when that would be paid.

Ukraine has indicated it can pay some of these bills itself.

However, the European Commission is seeking ways of delivering funds quickly to Kiev, including a bridge loan.

Three EU officials said Brussels has approached the World Bank and the European Bank for Reconstruction and Development on providing quick assistance and is also floating the issue with member states. No solution has been found yet, they said.

Meanwhile, there were fresh doubts Tuesday over when Ukraine would receive its next tranche of IMF aid, valued at some $2.7 billion.

The IMF was planning on sending its team to Kiev in mid-November, assuming a new cabinet had been formed, but officials indicated it was a tight time frame for a December disbursement.

If Kiev failed to form a new government in a timely manner, it could easily push the next bailout tranche into January. The last portion issued in late August was also long delayed by negotiations.

While the EU worked with Kiev to drum up more assistance, senior officials from member states discussed the situation in eastern Ukraine and the implementation of last month's cease-fire deal and decided there was too little progress to ease their sanctions against Russia.

Member states had promised to review their economic sanctions against Russia by Tuesday although no change was expected. The measures target Russia's financial, defense, dual-use-goods and energy sectors.

The EU said in a statement "that there are currently no grounds for changing the EU restrictive measures against Russia."

"The EU will continue to monitor the situation in eastern Ukraine" and the implementation of last month's cease-fire agreement, the statement said.

wsj.com

Tags: GAS, GAZPROM, RUSSIA, EU, UKRAINE,