KYIV, Ukraine -- Ukraine landed a 150 million euro ($187 million) loan on Monday to modernize its section of the pipeline used to deliver natural gas from Russia to Europe.
In a separate development, Russian President Vladimir Putin later in the day announced that Moscow would stop pursuing construction of a Black Sea gas pipeline widely viewed as an attempt to circumvent Ukraine.
Speaking after a loan signature ceremony in Kyiv, Ukrainian Prime Minister Arseniy Yatsenyuk said optimization of his country's gas pipelines would lower the cost of transporting the fuel by 20 per cent.
The loan is being provided to state-owned pipeline operator Ukrtransgaz by the EU's lender, the European Investment Bank.
Yatsenyuk says refurbishment of Ukraine's section of the Urengoy-Pomary-Uzhgorod pipeline will boost energy efficiency and reduce harmful emissions.
Almost 120 kilometres of pipelines will be replaced and two compressor stations modernized under the project. The European Bank for Reconstruction and Development is expected to contribute another $200 million in loans for the same planned four-year reconstruction effort.
Yatsenyuk said he hopes a Ukrainian company will carry out the project, which he said could boost the economy.
The pipeline system has the capacity to supply Europe with 142.5 billion cubic meters of gas annually.
Russia has for years been pursuing pipeline projects intended to reduce its reliance on transit through Ukraine. Commercial and political disputes have led to the suspension of gas supplies to Europe in the past.
One is Nord Stream, a recently completed pipeline under the Baltic Sea, directly linking Germany with Siberia's vast natural gas reserves with a capacity to transit 55 billion cubic meters annually.
Moscow has lobbied hard to also build South Stream, which would have seen gas transported from Russia through the Black Sea to Bulgaria and other European countries, bypassing Ukraine.
Yatsenyuk said recent elections in Bulgaria and Moldova had signalled a turn away from a pro-Russian line and, accordingly, initiatives like South Stream.
"I hope Ukraine will not be bypassed by South Stream," he said Monday. "South Stream is a Russian political project."
Yatsenyuk instead urged more European and U.S. investment in the Ukrainian gas transit system.
Putin appeared to definitively quash speculation over the possible fortunes of South Stream during a visit to the Turkish capital, Ankara, by announcing that Moscow would scrap the project because of EU opposition.
Moscow will boost gas supplies to Turkey and may co-operate with it in creating a hub for natural gas supplies on the border with Greece, he said.
