Ukraine may borrow up to $3.7bn from China for gas-to-coal substitution projects

July 17, 2012
Ukraine’s Energy and Coal Ministry has signed a $3.7bn loan agreement with the State Development Bank of China to finance energy projects intended to decrease Ukraine’s dependence on imported natural gas.

Dragon Capital view: The agreement envisages financing for the construction of two coal gasification plants with combined annual capacity of 6 bcm and reconstruction of a number of municipal heating companies to enable them to use coal-water slurry fuel instead of gas. Both measures would allow for decreasing Ukraine’s dependence on imported gas while stimulating the consumption of locally produced hard and brown coals, even of relatively low quality. 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 allow for accelerating phasing out of gas imports in the medium term. Directly substituting coal-water slurry fuel for gas is a more complicated project given its environmental impact as well as associated coal and ash logistics needs, which may be significant in scale in large and densely populated areas.

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