IFC preparing to finance 4 energy projects in Ukraine, expects change in tariff policy

MOSCOW. April 19 (Interfax) - The International Finance Corporation (IFC), a World Bank member, is working in the short term with private companies on the development of additional renewable energy capacities in Ukraine and expects changes in the country's tariff policy to facilitate a significant increase of investments in this sector in the long term, Patrick Avato, head of the IFC European regional branch for infrastructure and natural resources, said.

The IFC had four projects, which are currently nearing the financing stage, Ukrainian media outlets cited him as saying at Ukraine's Future Summit in Brussels on April 18. These are projects in wind energy, batteries, and distributed generation, Avato said.

Speaking about the regulatory environment and conditions for investments in Ukraine's energy sector, Avato mentioned that before the crisis, the IFC did not invest in renewable energy sources due to concerns about the level of subsidies existing in the system, which, according to the corporation, were unstable and not profitable.

There has recently been progress in the introduction of amendments to the law on the public-private partnership and the law on green transformation and the improvement of the cost-recovery mechanism, which increases the market's transparency in the energy sector, he said.

The IFC has also heard that measures could be taken to lift some price restrictions in the sector, he said. Electricity tariffs are still far below the payback level, he said. It is a very sensitive issue from the social point of view, but it needs work, and the IFC believes subsidies could possibly be more targeted, Avato said.

State enterprises still play a huge role in the sector in Ukraine, but it is possible for the private sector to play a bigger role, he said.

On April 17, IFC Vice President for Europe, Latin America and the Caribbean Alfonso Garcia Mora spoke about a similar issue of investments in the energy sector at the U.S.-Ukrainian Partnership Forum in Washington with participation of Ukrainian Prime Minister Denis Shmygal.

The current tariff covers only 50% of the cost, Garcia Mora said. There is effectively a gap between the current market price and the price which would make investments acceptable for the private sector, he said. How to close this gap is a big question demanding changes in policy and regulation, auctions, agreements on market conditions, Garcia Mora said.

The IFC vice president said that these hopefully upcoming reforms would be crucial for boosting renewable energy in Ukraine.

Avato said that the potential of private investments in the energy sectors stands around $9 billion under the current laws and regulations, however, it could possibly be increased to $130 billion, if reforms happen, as the research presented jointly by the IFC, the World Bank, and the government last year found.