(Repeats with no changes to text)
* Proposals held up by disagreement between ministries,
* Plans must be submitted by June for funding
* Funds needed to modernise Ukraine's energy sector
* Two new coal plants could be among the projects
By Karin Strohecker and Pavel Polityuk
LONDON/KIEV, April 14 Ukraine could miss out on
energy sector funding from China worth up to $3.65 billion
because squabbles between ministries and the state-run energy
firm Naftogaz have held up project proposals, according to
interviews with officials.
Ukraine signed the 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.
The government says the proposal for at least one of the
projects will be ready by the deadline. It is not clear whether
CDB will allow Ukraine to access part of the funding if
proposals for the full amount are not ready.
Failure to secure all of it would deprive Ukraine of
much-needed funds to upgrade energy infrastructure. It would
also send a poor signal about efficiency and transparency to
foreign investors whose cash is vital for economic recovery
after conflict over Crimea and eastern Ukraine.
The head of Naftogaz coal and gas subsidiary, Uglesintezgaz,
does not expect all the proposals to be ready in time.
"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.
Spokespeople for the economy, energy and finance ministries
did not respond to requests for comment about the status of the
loan or reason for the delays. A spokeswoman for Naftogaz
referred queries on the loan to Suprun. CBD did not respond to
requests for a comment.
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 told Reuters.
"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."
Asked whether at least one project would be submitted before
the June deadline, he said: "I believe it will happen."
The loan agreement was first mapped out in 2012 under ousted
president Viktor Yanukovich. Many of the projects he had
earmarked for the money were in the east of Ukraine, his
heartland and a coal-mining area.
But with the east unstable and Ukraine run by President
Petro Poroshenko the plans under consideration have changed.
Suprun said they 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. They would replace
Soviet-era power production facilities, which run on mainly
expensively imported gas, with units that run on coal.
In March, the General Prosecutor's office asked the
government to explain the reasons for the delays, accusing
officials at Naftogaz and Uglesintezgaz of "official
negligence", according to a document seen by Reuters.
Suprun said his office and home had been searched by the
prosecutor's investigators. He denied any wrongdoing.
A spokesman for the prosecutor's office declined to comment
on questions from Reuters about the case. A spokeswoman for
Naftogaz declined immediate comment on the investigation.
Prime Minister Volodymyr Groysman at a meeting on March 17
had also demanded project plans be finalised as soon as possible
so he could present them to the Chinese side, Suprun said.
Groysman's office did not respond to a request for comment.
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
"This is expected to provoke a negative reaction for Chinese
partners," Dyomin wrote in a letter to Foreign Minister Pavlo
Klimkin last October, without spelling out what would happen if
the proposals did not arrive on time.
"We ask you to convey the concern of the Chinese side about
the situation to the Ukrainian agencies involved in order to
speed up the decision-making process and settling of the
The Ukrainian foreign ministry did not respond to requests
for a comment. The Chinese embassy did not immediately respond
to questions from Reuters.
The need for foreign investment is acute. According to
economy ministry estimates, Ukraine must attract at least $7
billion 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.
But Ukraine has a track record of not meeting its deadlines.
Disbursements under a $17.5 billion bailout programme from
the International Monetary Fund have been repeatedly delayed by
stop-start reform efforts which have raised concerns about the
government's commitment to eliminating graft.
($1 = 26.8400 hryvnias)
(Additional reporting by Natalia Zinets in Kiev and Matthew
Miller in Beijing; Writing by Alessandra Prentice; editing by
Matthias Williams and Anna Willard)