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Political crisis slows EBRD lending in Ukraine - Chakrabarti

Published: 04:51 EST, 27 May 2016 | Updated: 04:51 EST, 27 May 2016

By Olzhas Auyezov

ASTANA, May 27 (Reuters) - Ukraine's political impasse paralysed decision-making in the first quarter so the European Bank for Reconstruction and Development (EBRD) will invest less there this year, EBRD President Suma Chakrabarti told Reuters.

The EBRD is one the biggest foreign investors in Ukraine and its projects in the former Soviet republic were worth about 2.2 billion euros in 2014 and 2015 combined, Chakrabarti said in an interview on Friday in the Kazakh capital Astana.

"This year, I don't think we'll get anywhere near 1 billion euros because, frankly, the political situation in the first quarter of the year meant that no decisions were being taken and we're only now getting going," he said.

Ukraine's parliament approved presidential ally Volodymyr Groysman as prime minister in mid-April, ending months of political deadlock.

RUSSIA, KAZAKHSTAN

In neighbouring Russia, the bank stopped making new investments in 2014 in response to European Union sanctions on the country because of its annexation of Crimea. But Chakrabarti said the EBRD had no plans to close any of its Russian offices.

"We've been maintaining our operational capacity in Russia," he said, adding that some staff members there have been working on projects in other countries including Kazakhstan.

"And we've also been working with the government on a number of issues, policy issues and so on. We must engage in Russia and we will continue to do that."

EBRD investments in oil-rich Kazakhstan, Central Asia's biggest economy, have grown rapidly over the past few years as the country initiated a new wave of reforms.

"In the case of Kazakhstan, that started two years ago. They started before the oil price fell but obviously accelerated afterwards," Chakrabarti said.

The bank has invested about $1.4 billion in nearly 50 Kazakh projects over the last two years, he said, calling it "a really good engagement".

The EBRD is issuing a small Kazakh tenge-denominated bond worth 2.4 billion tenge (about $7 million) and may follow up with a larger bond in the second half of this year, said Agris Preimanis, the EBRD's regional lead economist who accompanied Chakrabarti.

One major upcoming project is a $900 million, 66-kilometre road that will divert traffic from the busy streets of the country's commercial hub Almaty. EBRD officials declined to say how much of that the bank would provide.

AZERBAIJAN, TURKMENISTAN

"In the case of Azerbaijan, I think they started (reforms) 6-9 months ago really, in quite a big way," Chakrabarti said. "And in the case of Turkmenistan, much more recently."

"I think Azerbaijan is beginning to show some of the same (positive) signs," he added. "It's very interesting, having been there, to see civil society telling us that things are improving in terms of rights and also in terms of corruption."

He said corruption has dropped significantly after the reforms of the customs administration, licensing, permits and inspections.

"There is a real wind of reform," Chakrabarti said.

Traditionally closed Turkmenistan, in the meantime, "is just really taking the first steps", he said, and EBRD investments there have so far been very limited.

"But the agreement with our board is that we can go now into gas flaring projects and also municipal infrastructure projects," Chakrabarti said. "We are, I think, going to move ahead of with one or two projects in the next 12 months."

Asked if the lender has given up on Uzbekistan, where its operations have also been minimal, Chakrabarti said the bank would continue trying to engage Tashkent.

"I never give up," he said. "The question really is how to engage with Uzbekistan. We have tried through a variety of means, through some of our other shareholders, Japan and the United States, as well as directly. And we want to continue trying to engage." (Editing by Tom Heneghan)