EBRD, Italy lend €200 million to Ukraine’s hydropower entity

Rome: The European Bank for Reconstruction and Development (EBRD) has signed a €200 million loan package to Ukraine’s main hydropower generation company, Ukrhydrenergo, to strengthen Ukraine’s energy security at a time of repeated attacks on civil power infrastructure by Russia. The EBRD loan of €100 million, backed by a concessional parallel loan of €100 million from Italy, will provide emergency support to restore and maintain the company’s electricity production needs.

The EBRD, which has now deployed €4 billion in Ukraine since the start of the war, works closely with partners on its lending there. The proceeds of this loan will finance the procurement of critical equipment for two of the state-owned company’s hydropower plants, Dnipro HPP and Seredniodnipro HPP as well as addressing Ukrhydroenergo’s liquidity needs.

Ukrhydroenergo is one of Ukraine’s main suppliers of renewable energy, and power generation is key for maintaining the stability of the power grid during emergencies in Ukraine. It also plays a crucial role in balancing the energy system, essential to support the operations of intermittent renewable energy generators which are required to grow their capacities to maintain the country’s energy security as well as gradually achieve Ukraine’s carbon neutrality goal.

However, since the Russian invasion in February 2022, Ukrhydroenergo assets have suffered more than 50 military strikes, significantly damaging some hydropower plants and racking up around half a billion euros of costs – on top of the extensive cost of destruction caused to the Nova Kakhovska dam and Kakhovska HPP in southern Ukraine on 6 June 2023.

“Supporting Ukraine’s electricity production and the repairs and maintenance of its vital infrastructure in wartime is a key investment priority for the EBRD. This loan package will support stable, uninterrupted and reliable electricity generation, which is a cornerstone for the entire Ukrainian economy,” said EBRD President Odile Renaud-Basso.

“Italy has been a staunch supporter of Ukraine since the beginning of the Russian aggression. Now, we are proudly providing a €100 million loan to support the energy sector. In our capacity as G7 Presidency, we will keep mobilising international support to Kyiv, also in this key area,” said Italian Deputy Prime Minister and Minister of Foreign Affairs and International Cooperation Antonio Tajani.

“This agreement is an important step towards modernising and developing Ukrainian hydropower facilities. It demonstrates the international community’s recognition of the importance of our projects for ensuring a stable energy supply in Ukraine. We are grateful to the government of Italy and the EBRD for their trust and the opportunity to implement ambitious plans to improve the efficiency of our hydropower plants. This will allow us to achieve our strategic goals of developing sustainable and efficient energy in Ukraine,” said Ihor Syrota, Chief Executive Officer of Ukrhydroenergo.

Before the Russian invasion in February 2022, Ukrhydroenergo operated nine hydropower plants on the Dnipro and Dniester rivers, with a total installed capacity of 6.1 GW. But due to the destruction of the Kakhovska hydropower plant and the reduction in production capacities of other hydropower plants, the company’s total operating capacity is currently limited to 5.8 GW.

The EBRD finance will support the replacement of four hydropower generation units at the Dnipro hydropower plant that were worn out due to extensive exploitation and damage caused by missile strikes, as well as of two gantry cranes at the Seredniodnipro hydropower plant, which are crucial for maintaining the hydropower plants efficiently.

The EBRD’s Board of Directors has granted a derogation from the Bank’s Environmental and Social Policy as the war makes it hard to carry out environmental and social due diligence; an independent environmental and social audit will be undertaken within 12 months of the lifting of martial law.

The EBRD, which increased its investments in Ukraine in response to the war, deployed €3.8 billion in the country in 2022-23. A €4 billion capital increase approved at the end of 2023 by the Bank’s Board of Governors will allow further investment at similar levels in wartime with possible increases in the post-war reconstruction period.

Energy security is one of the EBRD’s five investment priorities in Ukraine (along with vital infrastructure, food security, trade and support for the private sector), and the Bank has provided significant finance for electricity transmission company Ukrenergo and gas company Naftogaz. The EBRD has been working with Ukrhydroenergo since before the war on rehabilitating hydro-units on the Dnipro cascade.