EBRD says reform of Ukraine's Naftogaz in danger of unravelling

KIEV, April 11 (Reuters) - Western-backed reforms at Ukraine’s state gas firm are in danger of unravelling, a development that would damage international confidence in the country, the European Bank for Reconstruction and Development (EBRD) said in documents seen by Reuters.

The authorities have taken steps to improve Naftogaz’s finances and boost transparency in the graft-ridden energy sector, but the EBRD, one of Ukraine’s main creditors, said there had been a string of “frustrating developments” that meant Naftogaz’s independent board were about resign.

It did not give details of those developments.

In a letter to President Petro Poroshenko and Prime Minister Volodymyr Groysman, EBRD President Suma Chakrabarti said the board’s resignation would “severely damage Naftogaz at a time when reforms were finally beginning to take hold.”

“It would also shatter the international confidence in your government’s commitment to reform and restructure Naftogaz and other state-owned enterprises,” he said.

The EBRD, whose loans help Naftogaz buy gas from Europe in winter, invested 581 million euros ($617 million) in Ukraine in 2016.

The EBRD and the International Monetary Fund, which has propped up Ukraine with a $17.5 billion bailout, have repeatedly urged Ukrainian authorities to speed up their promised drive to root out corruption and modernise the economy.

In the letter, Chakrabarti also said legislative delays were holding up Naftogaz reform and called for “resolute and rapid action” by the government and parliament to resolve the board issue.

In a separate letter to Groysman, Chakrabarti said the pace of reform of the gas sector and also of the judiciary and civil service appeared to have slowed in the past few months.

Asked to comment on the EBRD’s warnings, Groysman played down the risk posed to the reform process, but said keeping the independence of Naftogaz’s board was a priority.

“The process is ongoing, Naftogaz is not threatened by anything,” he told journalists. “I’d like Naftogaz reform to be faster.”

“I will hold a number of meetings in the coming days to find the necessary solutions,” he said.

The departure of Western-backed technocrats from public office and the watering down of landmark anti-corruption laws have also raised concerns about the commitment of Ukraine’s leaders to push for lasting change.

A reform to bring Naftogaz’s prices in line with the market helped the firm to post profit in 2016 for the first time in five years.

$1 = 0.9423 euros Writing by Alessandra Prentice; Editing by Mark Potter