UKRAINE WITHDRAWS EBRD LOAN APPLICATION FOR K2/R4

In an unexpected development and major victory November 29, Ukraine asked the European Bank for Reconstruction and Development to hold further consultations on some conditions of a proposed loan for completion of the Khmelnitsky-2 and Rivne-4 reactors. The Bank had been widely expected to approve the loan, but instead the Bank’s Board did not even discuss or consider the question whether the project fully met the conditions. U.S. EBRD representative Karen Shepherd said "K2R4 is no longer an EBRD project."

Instead, Ukraine president Kuchma said he would negotiate with Russia's president Vladimir Putin on Russian participation in the completion of the two nuclear reactors. However, few believe Russia could provide the entire amount necessary to complete the reactors, estimated at some $1.5 Billion.

Kuchma said the conditions imposed by the EBRD were "unacceptable. It amounts to eternal slavery for Ukraine." He was referring primarily to one condition that requires Ukraine to raise its electricity rates in order to make it more likely it could repay the loan. A few days later, however, Kuchma commented on his own earlier statements by saying Ukraine was "ready to get around the negotiating table with the EBRD in order to resolve all problems." At Monitor presstime, Ukraine was said to be in negotiations with the bank, and Kuchma had given a speech in which he agreed electricity rates need to be raised. However, it was not clear that EBRD would be able, under its own rules, to provide the loan without going through a new review process from scratch.

"Ukrainian NGOs welcome the fact that the EBRD is not going to finance those reactors, but we know that it is not the end of this bitter tale," said Yury Urbansky, from the National Ecological Center of Ukraine. "President Kuchma is trying to increase Ukrainian dependence on Russia."

CEE Bankwatch Network, one of a coalition of groups campaigning for years on this issue, said it was "happy to see this move, as taxpayers' money should not be used to support unsafe and uneconomic nuclear power plants." Bankwatch believes that the Ukrainian withdrawal of the project creates a need to intensify the EBRD's and other financial institutions' investment into the Ukrainian Energy sector. "We urge the EBRD and the World Bank to fulfill their joint Energy Efficiency Plan for Ukraine prepared in 1998 that has thus far been ignored by those institutions," added Petr Hlobil, spokesman for Bankwatch.

The completion of the reactors got preliminary approval by EBRD in December of last year, in reaction to the blackmailing of the international community by the Ukrainian President Kuchma, who threatened them with continued operation of the Chernobyl nuclear power plant.

Being aware of the problems associated with the project, the EBRD Board had difficulty approving the loan. Eighteen countries represented on the Board voted against the project or abstained.

Finally, the project was approved with a number of conditions attached. This 2000 decision was followed by the approval of a Euratom loan of $585 million, and cleared the way for the rest of the donors to collect the $1.48 billion needed for K2/R4. Funds for the completion of the K2/R4 units were supposed to come from Energoatom, the EBRD, Euratom, the Russian government, the Export Credit Agencies of the UK, Czech Republic, France, Spain and Switzerland and the U.S. Export-Import Bank.

The EBRD Board minutes of the December 2000 meeting report that one of the conditions to the effectiveness of K2/R4 loan approval is "commitment by other co-financiers to provide funds for the project." It is only the Czech ECA that has committed itself to provide funding. Other ECAs promised no more than to "consider the project favorably."

This in itself may cause problems for the U.S. Export-Import Bank, which was the last institution to provide a letter—on November 5, 2001--promising to consider the project "favorably." ExIm has a Board of Directors, which must approve all loans, and has numerous procedures loans must go through before being approved.

In a November 19 letter to Congressmembers, NIRS, Environmental Defense, Friends of the Earth, Pacific Environment, Greenpeace and Critical Mass pointed out that despite ExIm President John Robson’s November 5 letter to the EBRD, Ukraine currently is ineligible to receive funds from ExIm, that ExIm has not yet received an application from any company wishing to pursue the K2/R4 project and that ExIm had not yet assigned a single staff member to work on the project. "If ExIm has not even begun its work on this potential project, how can it be considered that it has committed funding for this project," the letter said.

The issue of ExIm’s involvement in the K2/R4 project may have become moot if the EBRD does not provide a loan; however, if it appears that ExIm will be asked to provide funds for K2/R4, ExIm’s actions surely will receive Congressional attention.