EU pledges loans to Ukraine to help rebuild economy and power grid

The European Union has pledged to lend Ukraine up to 35 billion euro (£29 billion) as part of a loan package organised by the Group of Seven major industrial nations, as it seeks to help the country repair and reconnect its war-shattered power grid.

“You will decide how best to use your funds,” European Commission president Ursula von der Leyen told President Vlodymyr Zelensky in Kyiv.

The Ukrainian leader said that his priorities are to rebuild the energy network, build more bomb shelters, improve schools and buy more weapons.

G7 leaders agreed in June to engineer a 50 billion dollars loan to help Ukraine in its fight for survival.

Interest earned on profits from Russia’s frozen central bank assets would be used as collateral but progress has been slow in distributing the money.

“We should make Russia pay for the destruction it caused,” Ms von der Leyen told reporters at a news conference in Kyiv with Mr Zelensky.

She said that the EU has already provided Ukraine with more than 118 billion euros in military and economic assistance since the war began in February 2022 “but Russia’s relentless attacks mean further support is necessary”.

“Crucially, this loan will flow straight into your national budget. This will improve Ukraine’s macro-financial stability and it will provide you with significant and much-needed fiscal space. You will decide how best to use the funds, giving you maximum flexibility to meet your needs,” she said.

The loans would be underwritten by the windfall profits earned on almost 300 billion dollars in Russian assets, which have been frozen over its full-scale invasion of Ukraine. The vast majority of that money is held in EU nations, notably Belgium.

Ms Von der Leyen said that the EU is “confident that we can deliver this loan to Ukraine very quickly”. The 27-nation bloc hopes that other G7 countries will follow its lead and start providing loans too.

Around half of Ukraine’s energy infrastructure has been destroyed during the war with Russia, and rolling electricity blackouts leave parts of the east in darkness for four hours at a time.

Ms von der Leyden said it was the equivalent of all of Latvia, Lithuania and Estonia losing electricity.

Meanwhile, winter is approaching.

“Heating season starts in two weeks and Russia’s relentless attacks on Ukraine’s civilian energy infrastructure aims to inflict maximum damage,” Ms von der Leyen said as she arrived in Kyiv for talks with Mr Zelensky.

“We will help Ukraine in its brave efforts to overcome this.”

The main aim is to help Ukraine decentralise its power grid, and to become less reliant on the big power stations that make easier targets for Russian forces.

Around 260 missiles rained down in a major attack on energy infrastructure late last month.

The Europeans have already sent more 10,000 generators and transformers, and they are supplying small and more mobile gas turbines too.

These types of electricity-providing equipment are harder to hit and easier to repair.

Ukraine’s winter runs from late October through March, with January and February the toughest months. The Europeans hope to help supply around 25% of the 17 gigawatts of power that the country is likely to need this winter.

One aim of the EU assistance is to provide an incentive for people to stay in Ukraine. About four million people have fled since the war began on February 24, 2022, often to Poland and other neighbouring countries.

The EU is providing assistance, such as short-term help to find a place to stay, jobs or education. But recently the number of people leaving has climbed.

The European Commission, the EU’s powerful executive branch, estimates that 10,000 more people are applying for help each week.

On Thursday, the commission announced that it would provide an extra 160 million euro to help fortify Ukraine’s energy network. Of that, 100 million euro come from the windfall profits the EU has earned from interest on frozen Russian assets.

Ms von der Leyen said the plan is to make “Russia pay for it through the revenue generated by their frozen assets”.

Denmark is also leading the charge on using the money to place orders for weapons and military equipment directly with Ukraine’s defence industry.