Old Debts Obstruct Ukrainian-German Economic Cooperation

The issue of repaying the Oriana Co. debt to German creditors could resurface at the talks between Ukraine and the Paris Club of creditors to be held in March. Quoting a source close to those to whom Oriana owes money, UNIAN says the Germans believe that the Oriana debt for loans secured by Ukrainian government guarantees fall into the category of Paris Club debts. The arguments of these creditors, the UNIAN source maintains, are based on the fact that part of Oriana’s overdue debt to the Bavarian United Bank (Bayrische Vereinsbank), had been compensated from the German budget. The total German loan issued in 1992 under Ukrainian government guarantees was for 212 million marks. The money was earmarked to pay for the construction of a polyethylene plant at the Oriana Chemical Concern. Of this sum, the Ukrainian government paid DEM 71 million to the Bavarian United Bank in 1999. Oriana is supposed to reimburse the state.

As stressed by the UNIAN source, the Russian owner of Oriana, Lukoil Naftokhim, has time to settle the debt issue with the Germans before the Paris talks get underway. Lukoil Naftokhim became Oriana’s strategic investor on October 24, 2000, with the commitment to restructure the debt to the Bavarian United Bank by January 4, 2001.

The loan to Oriana was insured by Germany’s Hermes Insurance Company. Hermes, which has stopped insuring German investments in Ukraine, believes that until Ukraine settles the Oriana debt ongoing and new German projects in Ukraine should not be further insured. This decision by Hermes has virtually suspended funding for priority investment projects in Ukraine, not least because in 1999 the German government was forced to compensate to the Bavarian United Bank DEM 21.8 million due to Ukraine’s failure to pay on time.

UNIAN says Ukraine’s Ambassador to Germany Anatoly Ponomarenko has voiced concern over the issue. In a letter to the Ukrainian government he stressed that six months ago during the third round of bilateral consultations in Leipzig the Germans had agreed to free up funding for existing joint projects and release a DEM 300 million tranche. One of the conditions the Germans insisted upon was repayment of the Oriana debt. Of utmost concern, the ambassador continued, was that the Russians have not met their debt repayment commitments so far. Talks between Oriana and Lukoil representatives with the Bavarian United Bank were held on December 15 last year in Munich.

With all possible deadlines missed, there is hope, however, that the debt repayment issue and the entire economic cooperation between Ukraine and Germany could still get off the ground. Several days ago Lukoil Naftokhim requested the Ukrainian government postpone the deadline for paying the Oriana debt to the Bavarian United Bank, UNIAN quotes its source in the Cabinet as saying. The Russian firm confirmed to the Ukrainian government that the Germans had agreed to reschedule the debt settlement.