The European Bank for Reconstruction and Development (EBRD) and the European Investment Bank plan to grant $300 million to Ukraine's national oil and gas company Naftogaz to modernize the Ukrainian gas transportation system, following memorandums signed on Tuesday.
Under the memorandums, the banks will grant $154 million each this year.
The EBRD loan will be granted against sovereign guarantees for a period of 15 years, EBRD Director for Ukraine Andre Kuusvek said. Consulting firm Mott MacDonald will submit a report on the modernization project to the bank in September, after which the bank will hold a meeting to decide on the loan disbursement.
"We hope to sign the project this year," Kuusvek said, adding that further reconstruction of the country's gas-transportation system could also be backed by the EBRD.
Ukraine plans to invest a total of $5.3 billion within seven years to modernize its Soviet-era gas transportation system.
The first stage of the upgrade was launched on Tuesday with the reconstruction of the Urengoi-Pomary-Uzhgorod pipeline. The first stage will require $538.87 million in investment, of which $230.87 million will be provided by Ukraine and the remainder by investors.
Ukraine accounts for 80 percent of Russian gas transit to EU nations. Kiev has long been trying to persuade Moscow to abandon the idea of building the Nord Stream and South Stream gas pipelines, which will significantly reduce gas transit volumes through Ukrainian territory.
Ukraine's gas network, which includes more than 37,500 kilometers of pipe plus 71 compressed air plants and 13 underground gas storage facilities, pumps 141 billion cubic meters of gas to Europe a year.
Kiev has proposed joint modernization of its gas network to Russia and the EU on many occasions, saying the effort will be much cheaper than the construction of the South Stream pipeline bypassing Ukraine. Russia has said it is maintaining interest in the Ukrainian gas pipe network but will not abandon the construction of new gas pipelines.