Ukraine and the United Nations Industrial Development Organization (UNIDO) have started implementation of the Program for the Green Recovery of Ukraine’s Industry for 2024-2028. The solemn ceremony of signing the Program took place in Vienna on June 28, 2024. Nadiya Bighun, the Deputy Minister of Economy of Ukraine, signed the program on behalf of Ukraine, while Yuko Yasunaga, the Deputy Director General and Managing Director of the Directorate of Corporate Services and Operations, signed it on behalf of UNIDO.
The program determines a strategic vision for transformational and sustainable recovery of Ukraine’s industry, guided by the Sustainable Development Agenda till 2030, adopted by the UN General Assembly on September 25, 2015, in particular. Sustainable Development Goal 9 “Industry, Innovation and Infrastructure”. In addition, the program is aligned with the Government of Ukraine’s early recovery priorities, policy reform vision and national sectoral strategies.
Nadiya Bigun reported at the signing ceremony, “Ukraine has a great potential for industrial development. We are grateful to UNIDO for such an opportunity to realize this potential and to develop a greener and more sustainable industrialization. We highly appreciate the constant support by UNIDO and welcome the further strengthening of our cooperation in the framework of the new program, as well as initiation of new joint activities to support Ukraine in these difficult times”.
In order to fulfill UNIDO’s mandate under unique circumstances for Ukraine, the Organization has developed a special program for the green recovery of industry, which covers three key areas of activity:
Creating opportunities for people
Business support and investment attraction
Promotion of the green economy.
Yuko Yasunaga reported at the signing ceremony, “We are very happy to have such a strong partnership with the Ministry of Economy of Ukraine. We are confident that this collaboration will bring about truly transformative changes in the country’s industry, promoting growth and prosperity as it recovers from the devastating effects of the ongoing war”.
During the last year, UNIDO intensified its efforts in Ukraine and achieved important results, which allowed to expand joint activities quickly and effectively. In particular, UNIDO carried out a comprehensive diagnostic study of the Ukrainian industry which provides important output data and unique analysis at the micro, meso and macro levels. With the support of various development and funding partners, UNIDO has launched new activities in the following areas:
production of prostheses by means of 3D printing;
expansion of economic opportunities of women and youth;
development of institutional capacity, including at the municipal level;
quality infrastructure;
power supply;
circular economy;
food industry;
robotics and artificial intelligence.
Now UNIDO, in cooperation with the Ministry of Economy of Ukraine and the Ministry of Economy, Trade and Industry of Japan, has been drafting a large-scale project that will facilitate transfer of technologies in a series of important industries. The Government of Ukraine and UNIDO are aimed at further cooperation in order to build partnerships and to mobilize resources for achieving the goals of the Green Industry Recovery Program of Ukraine for 2024-2028.
Bilateral investment treaties with the Russian Federation, in particular, the Bilateral Investment Treaty between Ukraine and the Russian Federation, dated 27 November 1998, and international law.
Type of damage to be compensated and assessment of damage Direct and indirect losses, i.e.:
the full market value of assets affected by the actions of the Russian Federation;
lost profits that would have been accrued in the ordinary course of business but for the irregularity
Furthermore, moral damage caused to the investor’s person, including compensating damage that led to mental suffering, insults to feelings, humiliation, shame, degradation, loss of social standing or damage to credit or reputation.
Damage is assessed according to international standards, which means a more comprehensive amount of compensation is awarded.
Decision perspectives
Since 2014, the practice of considering investor cases against the Russian Federation related to the occupation of the Crimean Peninsula has been formed on the basis of the international legal concept of “effective control”.
Arbitral tribunals that have heard cases involving Crimean assets have developed an approach to the application of investment treaties outside the territory over which a state exercises its legitimate sovereignty. The “Crimean cases” can be extrapolated to the East and South of Ukraine, over which Russia currently exercises de facto control, or which have recently been formally annexed by Russia.
Given this practice of investment arbitration, the development of public international law and its application, the prospect exists of positive decisions in favour of Ukrainian investors.
Recognition and enforcement of a decision
Investment arbitral awards are recognised and enforced without hindrance in virtually any jurisdiction on the basis of the New York Convention, to which almost all the world’s nation states are a party.
It is also possible to “sell” an arbitral award at a discount to specialised funds, which means that the arbitral award can be monetised quickly.
Term – from 3 to 5 years
Mechanism: Ukrainian courts
Grounds
Ukrainian legislation.
Type of damage to be compensated and assessment of damage
Direct and indirect losses, as well as non-pecuniary damage.
An assessment of damage is carried out according to national standards, which are based on more conservative methods of damage assessment, which means a lower amount of compensation awarded
Decision perspectives
Since 2022, Ukraine has been developing a practice where courts satisfy claims for damages from the Russian Federation, arguing against the Russian Federation’s judicial immunity on the grounds of its gross violation of international law.
Recognition and enforcement of a decision
A significant drawback of Ukrainian court decisions is the lack of a practical mechanism for their recognition and enforcement, and therefore for the recovery of compensation due to the apparent judicial immunity of the Russian Federation.
Term – several months
Mechanism: International Register of Damage Caused by the Armed Aggression of the Russian Federation (Register)
Grounds
The Register was established pursuant to Resolution CM/Res (2023)3 “On the Establishment of an Enlarged Partial Agreement on the Register of Damage Caused by the Aggression of the Russian Federation against Ukraine” at the Summit of Heads of State and Government of the Council of Europe, held on 16-17 May 2023 in Reykjavik, Iceland.
The Register is part of the International Compensation Mechanism, which provides for the establishment of a Claims Commission and a Compensation Fund.
The Register does not review the merits of the claims received, does not assess their value, and does not make any payments. These will be the functions of the Commission and the Compensation Fund.
Type of damage to be compensated
The application to the Register may be submitted by legal entities (including foreign entities), individuals, and the state of Ukraine (including state authorities and state-owned enterprises).
The initial launch of the Register is focused on only one category – damage or destruction of residential real estate of individuals, so only individuals can apply for it.
Subsequently, redress will be available in respect of:
deprivation of health and life, torture
economic losses, loss of property and income
the forced displacement of persons.
Legal entities may file claims for damage or destruction of property and other assets, claims for compensation for other economic losses, such as loss of control over property in the temporarily occupied territories, relocation (evacuation) of business, and humanitarian aid costs.
Damage caused after 24 February 2022 on the territory of Ukraine within its internationally recognised borders, which also extend to its territorial waters, is compensated.
Application procedure
An application is submitted through the Diia portal at no cost.
Applicants will be required to provide information identifying them along with evidence to prove the respective loss, damage or injury. The Register will cooperate with the Government of Ukraine to provide support to claimants in submitting their claims.
There are no time limits for submitting an application to the Register. It is presently unclear when the next stages of the mechanism will be created.
Mechanism: National programme “eRestoration” (eVidnovlennia)
Grounds
The Law of Ukraine “On Compensation for Damage and Destruction of Certain Categories of Real Estate as a Result of Hostilities, Terrorist Attacks, Sabotage Caused by the Armed Aggression of the Russian Federation against Ukraine and the State Register of Property Damaged and Destroyed as a Result of Hostilities, Terrorist Attacks, Sabotage Caused by the Armed Aggression of the Russian Federation against Ukraine”.
Types of property for which compensation is provided and assessment of the amount of compensation
The programme provides compensation for property destroyed or damaged after 24 February 2022, located on the territory of Ukraine, where no active hostilities are taking place and not in the temporarily occupied territories.
Single-family houses,
Manor houses, summer houses, cottages
Blocked houses with separate apartments with their own entrance
Apartments in apartment buildings, but only if the common areas are not damaged.
The amount of compensation is determined by the Commission for consideration of issues related to compensation for destroyed real estate separately for each damaged object in accordance with a special checklist for determining the amount of compensation for the restoration of a damaged real estate object, which is filled in based on the results of the inspection of such an object. The amount of compensation will not exceed UAH 500,000.
Application procedure
The application is submitted through the Diia portal at no cost.
Submission of the application is preceded by the submission of an information notice on damaged and destroyed real estate through Diia, or through an administrative service centre. The procedure for submitting such a notification is established by the CMU’s Resolution of 26 March 2022, No. 380.
It is important that the damaged object is registered in the State Register of Property Rights to real estate.
Term of obtaining compensation – up to 1 year
Conclusions and practical aspects
Investment arbitration
Text possibility of obtaining the fullest amount of compensation for the damage caused
a high probability of recognition and enforcement of a judgment based on international conventions
the possibility of attracting investment funds (TPFs) that finance participation in investment arbitration, covering the costs of such arbitrations in exchange for a share of the proceeds of future arbitration awards
terms of 3 to 5 years
the cost ranges from EUR 3.5 to 6.5 million
Ukrainian courts
a claim for compensation for damage caused by the Russia’s armed aggression is filed with a Ukrainian court free of charge
since 2022, a practice has been established to satisfy claims for compensation for damage caused by the war
the lack of a practical mechanism for the recognition and enforcement of Ukrainian court decisions, given the apparent judicial immunity of the Russian Federation
International Register of Damage Caused by Russia’s Armed Aggression Against Ukraine
submitting an application is cost-free through the Diia portal
when submitting an application to the Register, applicants must submit evidence that identifies them and evidence that confirms the existence of the given harm
this represents only the first step in the creation of the International Compensation Mechanism; accordingly, it will take some time before the mechanism is fully operational
damage caused only after 24 February 2022 on the internationally recognised territories of Ukraine is compensated
at present, only individuals can file claims for the destruction of residential property; however, later it will be possible to file claims for compensation for economic losses, income and other property
when deciding on the admissibility of an application, the Register Board may take into account decisions by national or international courts, but is not obliged to do so.1 This means that the submission of an application and participation in investment arbitration do not interfere with each other and are parallel processes
National programme “eRestoration” (eVidnovlennia)
submitting an application is cost-free through the Diia portal
when submitting an application to the Register, applicants must submit evidence that identifies them and evidence that confirms the existence of the given harm
this represents only the first step in the creation of the International Compensation Mechanism; accordingly, it will take some time before the mechanism is fully operational
damage caused only after 24 February 2022 on the internationally recognised territories of Ukraine is compensated
at present, only individuals can file claims for the destruction of residential property; however, later it will be possible to file claims for compensation for economic losses, income and other property
when deciding on the admissibility of an application, the Register Board may take into account decisions by national or international courts, but is not obliged to do so.1 This means that the submission of an application and participation in investment arbitration do not interfere with each other and are parallel processes
Conclusion
When assessing the above mechanisms, investment arbitration claims appear to be the most effective way to compensate for damage, as there are virtually no restrictions on the damage for which compensation can be obtained, and a high probability exists of the recognition and enforcement of this decision in a foreign country where the assets of the aggressor state are located. Despite the significant costs of investment arbitration and the lengthy timeframes, an investment arbitral award can be enforced in almost any jurisdiction. The high cost of investment arbitration can be covered by TPFs, which have recently shown an increasing interest in financing investment claims. Ultimately, the aggressor state (the Russian Federation) will almost certainly seek to return to a civilised framework of global relations. Therefore, in order to restore international relations and the country’s position in the international community, Russia will need to comply with the decisions of international arbitration tribunals.
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According to the Decree of the Cabinet of Ministers of Ukraine No. 388 dated April 19, 2024, the Export Credit Agency (ECA) is entitled to carry out insurance and reinsurance of military and political risks arising in the process of business activities provided by law.
Special attention should be drawn to investment insurance, an important tool for defense of investors against unforeseen events.
Insurance amount
Insurance amount shall be based on risk assessment and the investment project cost. In accordance with conditions specified in the Decree, maximum insurance amount may be restricted by certain ECA limits, in order to facilitate balance between the agency’s risks and opportunities. In addition, insurance amount can be increased depending on project specifications and additional guarantees provided by the investor.
Insurance conditions
Insurance conditions include the following:
1. Risk assessment: Before entry into insurance contract, a detailed assessment of risks associated with the investment project shall be carried out, including analysis of political and economic situation in the country where investment is made, as well as possible military threats. Risk assessment shall be based on the data received from state authorities, independent experts and international organizations.
2. Insurance premiums: The amount of insurance premiums shall be fixed on the basis of risk assessment and investment value. Premiums can be either paid once or spread over a certain period. NB: premiums may vary depending on risk degree and insurance contract validity contract.
3. Payment of insurance indemnity: In case of an insured event, insurance indemnity shall be payable in accordance with terms of the contract. It may include reimbursement of losses related to nationalization, seizure, hostilities or other political risks. The aforesaid process also includes procedure for submitting and reviewing insurance claims, to be detailed in the contract.
4. Reinsurance: To reduce risks, ECA may enter into reinsurance contracts with other insurance companies, in order to distribute risks and to secure stability of insurance payments. Reinsurance also facilitates reducing financial burden on the ECA and securing reliability of obligations to insurants.
5. Additional conditions and specifications: Insurance contracts may include additional terms, such as requirements for insurant regarding precautionary measures, risk monitoring and regular reporting. Special conditions may also be prescribed for certain types of investments, such as infrastructure projects or innovative enterprises.
Therefore, investment insurance provided by the Export Credit Agency is an important tool for protecting investors from military and political risks.
This is a new institute for Ukraine, which promotes attraction of investments and economy development in Ukraine, having facilitated reliable protection of capital investments.
It should be noted that at each stage of insurance conditions the investor will need legal assistance from local lawyers – experts in insurance and investment issues.
For legal advice upon the raised issue, we encourage all the parties concerned to contact Dmytro Ochkolias, Interlegal associate attorney.
Among the countries of the G7, Japan stands out as a very generous partner of Ukraine, with a discreet style of communication regarding its investment projects in the country tormented by the Russian invasion.
The important thing about the Japanese approach is an accurate preliminary study of the territory being invested in and the medium-long term strategic vision. An example of this style of work is represented by the project illustrated by the Japan-based consulting and engineering firm PADECO, during the online seminar at the end of May 2024, organised by the law firm Interlegal of Odessa and the EBA European Business Association – Southern Ukrainian Office, dedicated to investments and projects of development in southern Ukraine.
Among the speakers, Yoshi Nakagawa, Director for Infrastructure Development Division of PADECO, who worked on several infrastructure projects in Ukraine since 2004, illustrated a large project to enhance logistics between Ukraine and the European Union, investing in the trade route via Romania.
The Odessa region is strategic for Ukrainian exports to Europe, Asia and Africa, thanks to a system of 7 ports, of which the 3 largest are around Odessa, and another 3 are located on the Danube. The invasion of Ukraine with the naval blockade of the Russian Black Sea fleet has endangered maritime traffic, revealing a critical factor of weakness in Ukraine’s trade routes. In fact, the blockade of Ukrainian ports has highlighted the difficulty of alternative transport of food and mineral commodities, due to the obsolete railway network and the insufficient number of bridges over large rivers. This problem is overcome by the Japanese plan drawn up by the consultancy firm PADECO, which envisages implementation through mixed partnerships between Japanese and Ukrainian companies.
In February 2024, the Government of Japan held the Japan-Ukraine Conference for Promotion of Economic Growth and Reconstruction in Tokyo. More than 50 cooperation documents between Japanese companies, including startups, and their Ukrainian partners were exchanged as an outcome of the conference. Over 30 Japanese companies and groups, including PADECO, opened a booth for their technologies and products applicable for Ukraine. The Japanese consulting firm is dealing with 3 projects of the 50 presented:
Project 1: Connectivity Improvement between Ukraine and Romania through M15.
Project 2: Power Transmission Resiliency Solution with drone application on power transmission inspection (funding by World Bank, beneficiary UkrEnergo).
Project 3: Debris Management technology for waste treatment. An Urban Rig which was used for Tsunami disaster.
The Project 1 – M15 Connectivity Improvement, which is worth to be described with more details, is structured into two phases:
Urgent repair of the Bridge in Mayaky City (Portable Panel Bridge in construction). Currently the Mayaky Bridge on the M15 national road has been damaged by bombing and it is necessary to build a new bridge on another stretch of the Dniester River.
Improvement of National Road M15, including the project of a new bridge over Danube on the Romania-Ukraine border and a large-scale bridge across Dniester. This second bridge over the same river, but further towards the coast, would enhance wheel transport.
The period of works is: November 2023 – March 2024. The funding is provided by the Ministry of Economy, Trade and Industry (METI) of Japan.
The strategic value of this infrastructure to be built is the possibility of increasing Ukrainian exports by using the Port of Constanta (Romania) as an alternative for goods arriving from Asia and Turkey. This new communication route would guarantee a safe outlet for those commodities on which the food security of many countries depends. Furthermore, in view of the accession process to the European Union, this new route would improve Ukrainian access to the Schengen area. From Odessa, alternative routes to access the EU are to Poland or Romania via Moldova. Both are longer and with transport that is still too obsolete. Furthermore, Moldova remains a country of high political risk, due to the illegal Republic of Transnistria with the presence of Russian troops.
But the most ambitious work of this project is the construction of a suspension bridge to cross the Danube, of the same type as the Braila Bridge inaugurated in Romania in 2023.
The EU TEN-T Network Revision (2022 July) designated the M15 road as “Comprehensive”, and supposed to be completed by the year 2050.
With the help of the Japanese Government, Ukraine strengthens and protects export routes, moving closer to the European Union.
nterfax-Ukraine writes that the German company Notus Energy plans to build a wind power plant with a total capacity of 300 MW in Odesa region, as reported Knud Rissel, the company’s commercial director.
Knud Rissel noted that Notus Energy has been working on this project since the spring of 2022 and now it is in the process of building a wind power plant with step-by-step launch. First stage of 120 MW should appear soon.
“We already have all the permits, in particular related to land. Banks support us, although they also take risks by supporting us. But we are all ready to work even under martial law.” Knud Rissel said.
He assumed that first stage of a wind power plant will not be launched in the coming winter, but the company is doing its best to launch the project as soon as possible.
Even a child in Ukraine can nowadays quickly identify the air alert sound, showing you the shortest way to the shelter in the neighbourhood. This is the new “normality” since the beginning of Russia’s brutal war against Ukraine. A war against Ukraine’s state and nation, its people’s independence, democracy, and liberty.
Living in the war reality, under constant shelling, missile attacks and other threats, Ukrainians understand the value of “safety and security”. That’s why the civil security agencies of Ukraine put all their efforts into making people’s lives safer.
Being on the ground, the EU Advisory Mission (EUAM) Ukraine sees the unprecedented challenges their national partners face daily throughout Ukraine, including the liberated areas.
EUAM Ukraine’s Head of Mission (HoM), Rolf Holmboe, visited the Ukrainian South to meet counterparts from Odesa, Mykolaiv, and Kherson regions and get the latest update on challenges and developments in the area, on 9-11 January 2024.
Support in restoring Policing and Rule of Law in the Liberated Areas
When in the South, Rolf Holmboe, met partners from Mykolaiv and Kherson regions involved in restoring policing and the rule of law in the liberated territories, which is among the Mission’s priorities, including the senior management of the regional police, and the Prosecution Office and authorities.
The Head of the National Police in Kherson region, Ihor Korol, explained to the Head of Mission how difficult it is to operate in liberated Kherson city. “The police officers are heavily overloaded with work. Operating under constant shelling, they usually have no adequate rest or recuperation”. The high-risk environment in Kherson made the National Police and other civil security agencies move many facilities down to the basements of the buildings. The extremely high mine contamination of the area, considering the limited number of specialised personnel and equipment, is currently also a huge risk. Despite it all, Kherson and Mykolaiv police officers and prosecutors deal with international crimes daily and, thus, require special equipment and armoured vehicles while working at the scene.
Rolf Holmboe conveyed to the Ukrainian partners about the EU’s commitment to further support for overcoming the many challenges they face while investigating and prosecuting war crimes, and ensuring a safe environment in liberated territories. The Mission, said Holmboe, will continue providing strategic advice, specialised training, necessary equipment and engaging more international partners for the purpose.
Solidarity lanes and Integrated Border Management
The regular Russia’s attacks on the Odesa region, particularly the ports, have the effect of depleting resources and harm infrastructures as aimed at hitting Ukraine’s export potential. During a meeting, with Rear-Admiral Oleh Kostur, the Head of the Regional Marine Guard Directorate, and Oleh Kiper, the Head of the Odesa Military Administration, on 10 January, Rolf Holmboe discussed the possibilities of cooperation, as well as urgent needs to improve the counterpart’s capacity to ensure sustainable operation of Ukrainian ports in Odesa and Danube Delta.
Support for Ukrainian security future: working with police universities.
On the last day of his visit to the South, EUAM Ukraine’s Head discussed challenges and prospects of police education in Ukraine at the Odesa State University of Internal Affairs with rector, the colonel Dmytro Schvets. The сolonel highlighted how much attention is paid to creating practical skill sets for future police officers. They visited the specialised classrooms for the training on domestic violence cases, interviewing children, court hearings, tactical medicine, shooting range, mediation centre, and also the University Museum.
Rolf Holmboe and Dmytro Schvets shared their views on ongoing joint activities and plans in a friendly atmosphere. “The University professors and the students appreciate the constant support of EUAM Ukraine’s Odesa Field Office. We can see your representatives almost every day in the corridors of our University,” underlined the police colonel.
EUAM Ukraine strives to support Ukraine in raising its capacity to ensure a safe and secure state for its citizens, despite the war realities.
Flags of Ukraine fly in front of the EU Parliament building on the first anniversary of the Russian invasion, in Brussels, Belgium February 24, 2023. REUTERS/Yves Herman/File Photo Purchase Licensing Rights
BRUSSELS, June 6 (Reuters) – The Group of Seven countries and the European Union are considering how to use profits generated by Russian assets immobilised in the West to provide Ukraine with a large up-front loan now and secure Kyiv’s financing for 2025.
BASIC CONCEPT
Around 260 billion euros of Russian central bank funds are frozen worldwide, most of it in the EU. The funds generate 2.5 billion-3.5 billion euros a year in profit, which the EU says is not contractually owed to Russia and therefore represents a windfall. The idea, championed by the United States, is to use this profit as a steady revenue stream to service a large loan of $50 billion that could be raised on the market. Russia says any diversion of the profits from its frozen funds would amount to theft.
TIMING
Senior European officials say an agreement to go ahead with such a loan at a June 13-15 summit of the G7 — the U.S., Canada, Japan, Britain, France, Germany and Italy — would send a powerful signal of unity behind Kyiv on the eve of an international conference on Ukraine in Switzerland. It would also ensure Kyiv has financing for all of 2025 no matter who wins the U.S. presidential election on Nov 5th.
MAIN OPTIONS
Senior European officials say discussions are increasingly focusing on two options depending on who would borrow the money for Ukraine, with different details to be sorted out depending on the choice.
U.S. BORROWS TO LEND TO UKRAINE
Under one scenario, supported by a majority of EU countries, the United States would raise the money on the market and the European Union would give Washington assurances the windfall profits would be available to service the U.S. borrowing.
The advantage of this option is that it is quick and that it would not create any new obligations for European countries in terms of joint debt — an important consideration for a group of EU countries led by Germany.
The main problem is the extent and form of the assurances needed by Washington, and who would guarantee, and in what part, the repayment of such borrowing, especially if there is a Ukrainian debt restructuring or changes in interest rates that could upset initial calculations.
Many EU governments want G7 countries to participate in the risk-sharing, possibly proportionately to the size of their GDP.
Because the Russian assets are frozen in Europe under a sanctions regime that has to be unanimously renewed by all 27 EU governments every six months, Washington is concerned a veto from Hungary, which is close to the Kremlin, could cut off the money. It wants to see the sanctions regime changed accordingly.
Diplomats said Hungary wants the issue of the leveraging of the profits to be discussed by EU leaders on June 27-28.
EU BORROWS TO LEND TO UKRAINE
The other general option is that the EU borrows the money for Ukraine on its own, guaranteeing the repayment of bonds with money from the EU budget.
The main advantage is that the whole process stays in-house: the EU can use the windfall profits as it wants and there is no need to change the sanctions regime to bypass Hungary because a loan under the EU’s Macro Financial Assistance framework is agreed by qualified majority, not unanimity.
The downside is that the process would be long because it would need the consent of the European Parliament. A new European Parliament will only be elected on June 9th and constitute itself in July before a summer break for all of August. Getting parliamentary consent would therefore take many months.
The other drawback in the eyes of some EU countries is that this option would place all the risk associated with the borrowing on EU countries, making them jointly responsible for repayment, an idea particularly disliked in Berlin.
Speaker Penny Pritzker U.S. Special Representative for Ukraine’s Economic Recovery; Former U.S. Secretary of Commerce; CFR Member
U.S. Special Representative Penny Pritzker discusses ongoing Ukraine recovery and reconstruction efforts, having just returned from three trips to Ukraine in six weeks, including joining the Secretary of State in mid-May. She will also outline U.S. priorities for supporting Ukraine in advance of the Ukraine Recovery Conference on June 11-12 in Berlin.
FROMAN: Well, welcome, everybody. My name is Mike Froman. I’m president of the Council. And it’s really a great honor to convene this meeting, both because of the importance of the issue—reconstruction of Ukraine—but even more so because of our guest, Penny Pritzker, who I had the pleasure of working with, well, for years, actually, in the Obama administration and even before.
She is the president’s special representative for Ukraine’s economic recovery. It’s a position she brings an immense amount of experience to, both from having been in government but, very importantly, being a very successful businessperson and entrepreneur as well. Having set up really dozens of businesses and invested in them over the years and brings a real private sector eye to the challenges of rebuilding Ukraine’s economy and society, as well. I had the pleasure of working most closely with Penny when she was the secretary of commerce. And I saw from a ringside seat just how she elevated that role to a whole new—a whole new level, in terms of both the span of work, its effectiveness, and the importance to the U.S. government.
So it’s a pleasure to welcome my friend Penny Pritzker. She’s going to give remarks for a few minutes, and then we’re going to have a conversation and open it up to questions. Please welcome Penny Pritzker. (Applause.)
PRITZKER: So I’m really honored to be here today. Thank you. Mike, thank you very much. First, thanks for the warm introduction and, frankly, for being such a great partner. We worked for years together and your tireless efforts to find solutions for many of our global challenges is really something that I always appreciated. I really felt like we had a true partnership working in government. And thank you for your friendship as well.
I want to thank also the Council community for hosting me today. I’ve been a proud member of the Council on Foreign Relations for years. And I was a former board member. And it’s a real privilege to have the opportunity to speak with you all today. You’re really a group of doers and committed to our planet’s collective peace and economic security. So it’s a pleasure to be able to come and talk about a subject near and dear to my heart. I’m also particularly grateful to the European brain trust here at CFR—Charlie Kupchan, Liana Fix, Thomas Graham, and, of course, Ambassador Stephen Sestanovich, whose work on behalf of the United States regarding the newly independent states of the former Soviet Union back in the ’90s still bears huge influence today.
Let me start by talking about the situation on the ground in Ukraine today. On the battlefield, there is no doubt that the past months have been difficult, with the delays in our security and economic assistance leading to a situation in which Ukraine has lost ground in the war. That’s really undeniable. Since March 22 of this year, Vladimir Putin really doubled down on his cruelty, stepping up his attacks on Ukraine’s energy infrastructure; laying siege to Ukraine’s beautiful second city, Kharkiv; and seeking to break the psyche of the Ukrainian people. He has intensified his shelling of hospitals, schools, homes, around the towns of Chasiv Yar and of Vovchansk, which are near Kharkiv.
And he has positioned 30,000 troops just over the Russian border—in Russia, but right over the border from Kharkiv, in an apparent preparation for a further assault. These attacks have forced more than 10,000 residents from the oblast to flee their homes and created an eight-gigawatt energy generation gap this summer. He depends upon his dark alliances for these attacks, with Iranian drones, North Korean artillery, and Chinese satellite imagery all contributing to the death, destruction, and needless suffering that we are witnessing. So without a doubt, these are sobering facts.
And yet, amid the dark headlines, I’m here today to talk about why there is real reason for optimism towards Ukraine due to the facts and trends that we see, and which the media does not often capture. As we head towards Ukraine reconstruction conference in Berlin, which will occur in about three weeks, it’s important that we not just take advantage of these trends, but that we take heart from them. They show our belief in Ukraine’s future is not only based on a—it’s not based on a Pollyannish fantasy, but based on the reality as we see it at play.
I’ve traveled to Ukraine five times since being named President Biden’s special representative for Ukraine’s economic recovery in September, and most recently I was there two weeks ago. And I’ve seen the trends with my own eyes. What we see is that with our help, Ukraine can and will win this war. And today, I’d like to explain why we believe it will, and describe a few key things that must happen on the economic side for that victory to take place.
First, militarily. Though the supplemental was delayed, Ukraine is now getting what it needs. In the last thirty-one days since President Biden signed the supplemental legislation, the United States has flooded the zone with weapons and equipment, including couple billion dollars in munitions, including air defense systems, ammunition, armored vehicles, small arms, and other equipment. The democratic world is also there with us. The Czechs are leading a European effort to rush 500,000 artillery rounds to Ukraine. The U.K. has just announced a new multiyear military package. Germany is supplying a new Patriot system. Australia is providing a new air defense system of its own. And Ukrainian-manned F-16s will be flying over the airspace within months, provided by the Europeans.
Ukraine is wasting no time that putting this wave of support into action. And its difficult, but absolutely necessary, new conscription law which just went into force will help it ensure it has troops necessary to defend itself. This is, of course, on top of the huge success Ukraine has seen in the Black Sea, where it pinned back Russia’s fleet, and its overall success in the battlefield, where it has by and large held a much larger force at bay along front lines that are over 600 miles long.
Economically, we’re also seeing Ukraine take important strides forward. Take Ukraine’s defense industrial base. The number of drone manufacturers has grown from nine to over 200. Cyber, robotic systems, and demining expertise are skyrocketing. And data from the battlefield is helping Ukraine’s defense industries reduce the time for development of new technologies from years to weeks, with concrete impacts on the battlefield effectiveness. As the drone manufacturer Brave1 says, Ukraine is, and I quote, “where the technologies of victories are born.”
American defense CEOs would agree. They literally marvel at the innovation of Ukraine’s defense production, sometimes combining different technologies, precision missiles, drones, armored vehicles, with American, Soviet, and European parts, to create whole new systems. It is this kind of creativity that is putting Ukraine’s defense companies at the leading edge of modern warfare technology. In fact, three American defense companies are working right now with their Ukrainian counterparts, and us, to coproduce low- and medium-caliber munitions made in and for Ukraine. Another is working on the very first joint venture between an American and Ukrainian defense company. The United States wants to unleash more joint Ukrainian-American defense production on Ukraine’s soil. That’s why we just announced a $2 billion first of its kind Ukrainian defense enterprise fund that will provide more financing for production, repair, and maintenance.
The bigger economic picture is also encouraging. Despite Russia’s war and having 17 percent of its territory occupied, Ukraine’s GDP grew 5 percent in 2023 and is on track to grow another 4 ½ percent this year. Investment is up 17 percent, tax revenues surged 25 percent in January, and more than 37,000 new businesses were registered in Ukraine in 2023—more than the number in 2021 before the war. American companies beyond the defense sector are helping coauthor this recovery. McDonald’s added more stores in Ukraine and served over 100 million Ukrainians just last year, sourcing 70 percent of its beef, dairy, vegetables, and sunflower oil from inside Ukraine. ADM and Cargill are investing in agricultural projects and reinvesting profits back into Ukraine’s rich, black soil. So things are happening. That’s why there are over fifty American companies that are going to be in Berlin for the recovery conference to talk about their investments and even expansions in Ukraine.
While all this is important and it’s positive, we cannot be naïve about the challenges Ukraine faces. And these are not just challenges on the battlefield. We do believe Ukraine can and will win, with support of a huge coalition on Ukraine’s side. But we have to be clear eyed about what it will take for the country to win not just the war, but also set itself up for the future. So let me describe what I think it will take. To win for the long term, there are five essential elements the Ukrainians, together with the international community, must tackle head on. Elements that must be at the center of our discussions at the Ukraine recovery conference in Berlin.
They include air defense systems needed to protect the border and over major population centers. A culture that embraces rule of law and rejects corruption. A government that has the capacity to define bankable projects for investment and provide cohesive cross-ministry planning. A global marketplace offering risk management tools that will make investment decisions easier. And, finally, sufficient capital, especially the use of Russian sovereign assets, to finance this vision. Taken together, these five elements can be rocket fuel that powers not just Ukraine’s true economic recovery, but also its journey to become a prosperous, democratic, independent country integrated into the EU and NATO, which is exactly what its people crave.
So let me lay out each of these a little—in a little bit greater detail, as each are key U.S. priorities as we head to Berlin. First, air defense. Just look at Kyiv. When you look at Kyiv, you can see what the future can hold for Ukraine. So you get off the train from Poland and you find a bustling European city that has thriving industry, kids going to school, parents going to work, folks going shopping, a bustling nightlife, and even regular traffic jams. It’s become—(laughs)—it’s become Ukraine’s economic beacon, made possible by the protective umbrella of air defense. The same is starting to happen in Odesa. In order to generate breakout economic activity, create jobs that draw back the Ukrainian diaspora, and attract private sector investment, it’s essential that we and our allies figure out how to provide sufficient air protection to Ukraine’s centers of commercial activity, like Kharkiv, Dnipro, Lviv, and beyond. Security is essential to attracting large-scale investment. We all know that, but it is—takes a lot of work to make it a reality.
Second, Ukraine’s defenses against corruption must be just as strong as its military defenses. Eight in ten Ukrainian say they believe more must be done about corruption. And we must help them. This means a judiciary protected from outside interference. This means a press free from political influence or pressure. This means digital customs and other tax collection systems. This means an independent, empowered, well-resourced anticorruption investigators, prosecutors, and judges. This means strengthening the rule of law for everyone. So when I speak to American CEOs, particularly those in the most crucial sectors like defense and energy, the first point they raise with me, after asking about the war, is always the need to fast track reforms and address corruption. American taxpayers and Congress also justifiably demand reform.
I’m pleased to report that Ukraine’s made progress on its reform agenda, including making some very tough decisions. In just the last six months, for example, Ukraine has passed legislation regarding asset declaration—so, think of its politicians declaring the assets they own—antimonopoly regulation, judicial discipline reform, and corporate governance. I truly believe these efforts, and more, are essential to change the culture in Ukraine. But they will ultimately be just as much a part of the Zelensky government’s legacy as winning the war itself. He understands fighting corruption is linked to Ukraine’s secure, prosperous, Western future. So this requires not just changes in laws, but a fundamental systems and cultural change.
Meanwhile, even as we support Ukraine to strengthen its defenses and deepen its reforms, we need to help Ukraine set up the ability to prioritize and prepare projects for investment and reconstruction. The estimates to rebuild Ukraine by the World Bank are around $500 billion. There has never in history been such a significant need. To do this successfully and efficiently, coordination will be essential. So just think, unlike the Marshall Plan where one actor, the United States, was driving the reconstruction of many countries across Western Europe, this is a case where many countries, businesses, people, are driving reconstruction of one nation—Ukraine. Obviously, that makes coordination more challenging, though it allows us to bring to bear unprecedented amounts of funding, creativity, expertise, and experience to the challenge.
What we need now is to lash Ukraine’s ingenuity to a cross-ministerial process that will prioritize and prepare the country for reconstruction. It’s essential to power the country into the future. It’s essential to attract investors and significant capital. It’s essential to having sufficient resources, labor, raw materials, and more to actually build the Ukraine of the future. This mechanism needs to be several things at once—Ukrainian led, community driven, and nationally coordinated. At the same time, it must also be internationally backed, grounded in data, and supported by the best global engineering and planning prowess the world has to offer.
It’s a tall order, but creating this capability is essential. If we can get these pieces in place and ensure cross-ministerial political consensus around the right structure, plan, and people, then Ukraine can realize a robust recovery. The mechanism can do many things—establish reconstruction goals, identify and prioritize investments, determine financing, ensure the availability of sufficient inputs and resources, set standards, and guarantee Euro-Atlantic level of openness and transparency. These are all things both Ukrainians and the international community are going to want and need for sufficient investment to occur.
Critical to Ukraine realizing its forward-looking economy and its dream of being part of the EU is how it develops its overall energy, transportation, and communication infrastructure. For the country to have decentralized energy generation and storage, utilizing gas, nuclear power, and renewables, for it to have rail, roads, ports, shipping, and air transportation, as well as for to have digital and ICT communication systems, all seamlessly linked to the EU, to the single market, and the global economy, will require the kind of coordinating effort that I am describing here.
Without a cross-ministerial mechanism to coordinate the planning, engineering, resource management, and financing of these foundational investments, it’s not going to be possible for Ukraine to achieve its vision outlined in the Ukraine plan and elsewhere. We, governments and the private sector, must work together with Ukraine to broaden its private sector and, frankly, its public sector absorptive capacity. This is going to take hard work, feasibility studies, technical engineering, and business plans. But it will help ideas and concepts become realizable projects that can and will draw investment. Helping Ukraine build out this absorptive capacity is essential and will increase the number of bankable projects—something that is sorely needed.
Fourth, Ukraine’s full-scale recovery will also require that we help the private sector manage risk. And, yes, this too is already happening. The U.S. Development Finance Corporation, DFC, is active and expanding its political risk portfolio for Ukraine. The European Bank for Reconstruction and Development, EBRD, is leading the development of a facility to provide coverage against war-related risks. The private sector is also involved. Marsh McLennan’s unity facility, for example, is a $50 million war risk insurance program covering ships transporting grain through the Black Sea. It’s one of the main reasons Ukraine’s Black Sea export routes have now expanded to prewar levels, hitting 13 million tons of exports in April alone.
But more must be done. Ukraine’s insurance premium market is just 3 percent—just 3 percent—of Poland’s. We are pushing for new lines of war risk insurance, for energy, cargo, land transportation, and elsewhere. In fact, in Berlin we plan to announce ways to put new capital to work to provide war risk insurance for small- and medium-sized businesses. We all know that without a robust insurance market, robust investment is not possible.
Finally, we have to tap into new sources of capital that can finance the public and private sector reconstruction. On the private sector side, we must find ways to unlock more catalytic and working capital. The thirst is there. One major American bank has added seventy-five new business clients, a 15 percent increase in its client base, since February of 2022. But Ukraine needs so much more. To meet the needs, there needs to be more lending through banks, through the international financial institutions, and elsewhere at interest rates that recognize the risk but yet also make investment profitable.
In addition, for Ukraine’s reconstruction there’s one crucial step that must be taken as a moral, legal, and practical matter. Russia must be made to pay. Our Congress has given us the power to seize Russian assets in the United States, understanding what Putin—understanding that what Putin has destroyed, Russia should and must pay for the rebuilding. And we intend to use this power, working with the G-7 by pulling forward profits and interest on frozen assets, which is a first step. This can and will unlock billions of dollars and send a powerful message to Putin that time is not on his side. So taken together, these five efforts can provide the basis for Ukraine’s economic recovery and its economy of the future. These are workstreams on which we must focus in Berlin. They are essential to fortify Ukraine’s remarkable and underappreciated un-breakability.
So as I close, I want to talk about the story of a company called Esper Bionics that makes artificial limbs. And I visited them two weeks ago and Kyiv. There’s a Ukrainian soldier named Valera Kucherenko, who came for Esper’s help after he lost both of his hands to a grenade attack last October. They gave him two bionic hands. And Valera has said that he was glad the prosthetics were made in a way that would allow him to return to the army to continue fighting for his country. When Ukrainians lose their hands, they build new ones and return to fight. And that is what is happening all over the country across the economy at this very moment. It’s just incredible.
That is what I have seen personally over and over again. So when we say that Ukraine can and will win with our help, it’s Valera that I think about. The country is literally full of Valeras, not grabbing headlines but using every ounce of their determination and ingenuity to fight and to win. And we must help them. Thank you very much.
During Paris Arbitration Week, HKA hosted a panel that considered the options for compensation for damages loss or injury open to victims of Russia’s invasion of Ukraine.
The panel was timely as the Register for Damage for Ukraine (“the Register” or “RD4U”) was on the point of opening (and now has opened) for the receipt of certain claims. The Register which sits in the Hague was established within the framework of the Council of Europe (and with support of others including the USA and Canada) to provide a structure for recording claims for compensation arising from the invasion. The Register is precisely that: a register to provide a permanent record of the loss and injury suffered. Its mandate does not extend to assessing the validity or value of claims or order any compensation payments.
This will therefore necessarily be part of a wider compensation mechanism the form of which has yet to be decided – although one could contemplate some form of compensation commission and fund perhaps not dissimilar to the United Nations Compensation Commission (“UNCC”) process following the First Gulf War. Under that process, 6 categories of claim were established labelled A (individual harm) to F (government). Claims were submitted to the UNCC in Geneva and assessed by them with payments made from a fund established using a percentage of Iraq’s oil revenues, The UNCC’s work was substantially concluded by 2005 – some 14 years after the war- with awards totalling over $52bn to over 1.5million successful claimants. This was of course only possible with the agreement of Iraq to the funding process.
The UNCC process was also a paper heavy exercise. Thanks in part to changes in technology, the Register will record claims solely in digital form. There will also be a direct interface between the register and the Ukrainian mobile application “Diia”. To date the Register is open for one category of claim: Category A3.1 – Damage or destruction of residential immovable property. To date over 1000 claims have already been registered.
In addition, understanding the role and scope of the Register the panel also discussed the other options through which potential claimants could seek compensation. It was noted that Russia is party to more than 60 bilateral investment treaties which remain in force. Clearly these provide protections through the guarantee of fair and equitable treatment and from unlawful expropriation. Discussion of these other options is beyond the scope of this article, other than to note that a number of claims have been filed both in relation to the full invasion in 2022 but also in relation to the earlier occupation and annexation of the Crimea. Many of these latter claims are well advanced – and have found in favour of the claimants – although Russia failed to participate in them for much of the past several years. Naturally the ability to enforce any successful claims was a topic of interest (and uncertainty).
HKA contributed to the panel by undertaking a top down assessment of the economic impact of the conflict on the Ukrainian economy. To do this, requires an understanding of the evolution of Ukrainian Gross Domestic Product (GDP) but for the conflict. Given that this counterfactual scenario cannot be observed, it has to be estimated.
The synthetic control method is used extensively in economic literature to assess the causal impact of events and policy interventions. In the past, synthetic controls have been used to estimate the impact of German unification in 1990 on the German economy, and the impact on the UK economy of leaving the EU.
The synthetic control method uses data on a group of comparator countries to construct a counterfactual Ukraine GDP that evolves in a similar manner to Ukraine GDP prior to the conflict. Information on these comparator countries is then used to estimate GDP for Ukraine in absence of the conflict. The set of comparator countries we used were Eastern European countries other than post-Soviet states. Information on inflation, trade activity, and the proportion of children in secondary education is also used to improve the predictive accuracy of the estimated counterfactual. Looking backwards, the model maps Ukrainian GDP before 2014 to within 5% of the actual outturn.
Figure 1 below shows the results of the analysis both before and after 2014. The figure shows Ukrainian GDP from 2003 to 2022 and counterfactual Ukraine (labelled Synthetic Ukraine) from the same period. The decline of the Ukrainian GDP in 2014 coincides with the annexation of Crimea and the war between pro-Russian separatists and Ukraine in the Donbas region of Ukraine in the same year. The model also demonstrates that but for the annexation and subsequent invasion the Ukrainian economy will have continued to grow broadly in line with economies in Central and Eastern Europe.
Figure 1: Ukrainian GDP in absence of the Russia-Ukraine conflict
Notes: The series labelled ‘Synthetic Ukraine’ is an estimate of the counterfactual Ukrainian GDP in absence of the Russia-Ukraine conflict. This estimate is obtained using the synthetic control method. The vertical line indicates the start of the Russia-Ukraine conflict in 2014. Source: HKA calculations
The results show that from 2014 to 2022, Ukraine lost $1.46 trillion in GDP as a result of the conflict. In 2022, itself (the year Russia invaded) the results show a loss of $323 billion. In 2023, the results show a loss of $116 billion. That lost output is lower in 2023 reflects slower growth, and, in some cases, a contraction in economic activity across comparator European countries.
Conclusion
As of today, the war shows little sign of ending. Critical questions of course remain as to how any reparations process might develop. These include the scope of claims, the measurement of damage inflicted and how compensation is to be sourced and paid.
However, the Register now exists with a Board and operational secretariat – and claims are beginning to be recorded. ISDS claims are also advancing. Claims are of course developed on an accounting based approach based on lost profits of individual companies and individuals, i.e. a “bottom up” approach.
In contrast, the analysis presented above assesses the total of lost economic activity and not just lost assets and profits. The reconciliation of these two approaches appears to be central to the quantum of any post war restitution damages. However, it is perhaps instructive that through our analysis we estimate that to date, lost economic activity is already in the order of $1.57 trillion. Evidently, this is increasing daily.
