On 23 May, the Southern Ukrainian Office of the European Business Association in partnership with Interlegal held a Business Talk on an urgent and extremely important for the Ukrainian business community topic – “Recovery Ukraine. Reconstruction projects in the South of Ukraine”.
The panel of speakers included CEOs of leading agricultural and logistics companies from the southern region of Ukraine, representatives of international corporations, legal and consulting firms and the government sector.
Our friends and colleagues share their experiences of finding opportunities for development and growth in the third year of a full-scale war. Ambitious government investment and reconstruction projects, flexibility and adaptation to changing conditions, the restoration of production capacity and remarkable cases of companies that have managed to rise from the ashes in the face of daily challenges and total losses remind us that progress and success are possible even in the face of the worst crisis.
Despite the ever-present war risks, business in the Southern Region, as the whole Ukraine, has no intention of giving up or wasting a single day for reflection. Here and now, Ukraine’s largest companies are working to rebuild and modernize. The key goal is to create a new, prosperous, modern economy in a new, modern country. An economy where every business can work and feel free and secure.
We would like to thank everyone who took the time and opportunity to attend our event and share their unique experiences. We’re sure that the stories presented at Business Talk will inspire many in Ukraine and beyond.
We look forward to the next opportunity to meet you. Follow Interlegal on social media to stay in touch!
The Estonian Parliament (the Riigikogu) adopted a law that allows using the frozen assets of Russian natural persons in order to reimburse losses caused to Ukraine by the war. 65 members of the Riigikogu voted in favour, while three members voted against, as reported on the website of the Estonian parliament.
Creation of a legal framework for use of the frozen assets – this is a complex task; a number of allied countries and international organizations are working thereon, while Estonia is playing a pioneering role here.
As reported, “Russia is an aggressor country; therefore, reimbursement of losses caused by hostilities cannot fall on the shoulders of Ukraine and its allies. Russia is responsible for causing damages, as well as shall bear this responsibility”.
In order to commence proceedings in Estonia for the use of property, Ukraine shall submit a corresponding request. Previously, Hanno Pevkur, the Minister of Defense of Estonia, announced that the idea of sending Western military personnel to Ukraine received no development either at the country level or at the EU level.
The European Union managed to reach a consensus regarding frozen Russian assets.
Funds will be remitted for the purpose of defense and restoration of Ukraine which suffered from the Russian hostilities and regular shelling, as reported by L’Echo with reference to notes by Valérie Ubren, CEO of the Belgian depository.
She highlighted that a decision on seizure of assets should be made in the next few weeks. Mrs. Urben explained: “The amount will be in the range between 87% and 89% of all after-tax income from Russian assets”.
Seizure of Russian assets: what is the difficulty? Valérie Ubren noted that seizure of Russian assets frozen in European banks could strike the financial markets.
In addition, the Belgian depository is proceeding over 100 lawsuits in Russian courts against Russian investors who demand to return funds blocked due to sanctions.
Frozen Russian assets Nearly 70% of all Russian Federation assets frozen in the West after the full-scale invasion into Ukraine are kept in the Central Belgian Securities Depository Euroclear. Their cost is equal to various securities and funds of the Russian central bank in the amount of €190 billion.
In early May 2024, the National Bank of Ukraine (NBU) announced a new wave of foreign currency liberalization measures, the most extensive since the commencement of full-scale invasion on 24 February 2024. The new package of amendments, introduced by the NBU Resolution No.56 dated 3 May 2024 (Resolution No.56), which entered into force on 4 May 2024, provides for the following liberalization measures.
1. PERMISSION FOR PARTIAL SERVICING OF LOANS OBTAINED BEFORE 20 JUNE 2023
Easing of restrictions on servicing “old” external loans obtained before 20 August 2023 is one of the most expected measures from the NBU. Pursuant to Resolution No.56, Ukrainian borrowers are now allowed to pay interest on the above-mentioned loans subject to the following conditions:
For the purpose of paying interest payments that were overdue as of 01 May 2024, under a single loan agreement, the transfer of funds may be made in an amount not exceeding EUR 1,000,000 (or the equivalent of this amount in another foreign currency) per calendar quarter (this limit will not apply to scheduled interest payments falling due after 30 April 2024)
The debt under the relevant loan agreement must not have been overdue as of 24 February 2022
The funds for such interest payments were not sourced from loans obtained from residents of Ukraine
The early repayment of interest is not permitted, as well as the postponement of maturity dates for outstanding interest payments to dates after 24 February 2022
The above-mentioned easing measures are aimed at minimizing the risk of defaults among Ukrainian borrowers and improving the environment for attracting new capital.
2. SIMPLIFIED CONDITIONS FOR REPAYMENT OF LOANS OBTAINED AFTER 20 JUNE 2023
The NBU has lifted some restrictions on the ability to purchase foreign currency funds for servicing loans from non-residents obtained after 20 June 2023. Henceforth, borrowers in Ukraine have the opportunity to freely acquire foreign currency funds for the purpose of paying interest, regardless of the term of use of such external loan. Regarding the principal amount, the requirement to repay it solely from their own foreign currency reserves applies only to short-term loans with a term of use not exceeding one year.
3. LIFTING RESTRICTIONS ON IMPORT OPERATIONS
Resolution No.56 enables the free purchase and transfer of foreign currency funds for the purpose of paying for imports of any goods, works, services, etc. Prior to these amendments, residents of Ukraine were only able to pay for goods included in the list approved by the Resolution of the Cabinet of Ministers of Ukraine dated 24 February 2022 No.153 “On Certain Issues Regarding Import”. Consequently, the respective resolution of the Cabinet of Ministers of Ukraine is anticipated to be annulled in this regard.
4. PERMISSION TO REPATRIATE DIVIDENDS
Since the commencement of the full-scale invasion, foreign investors have been unable to repatriate dividends earned in Ukraine on corporate rights of Ukrainian companies to their foreign bank accounts. However, the NBU has now allowed the transfer of funds abroad for the purpose of disbursing dividends based on operational results from 1 January 2024. This relaxation does not extend to the distribution of profits accumulated in prior periods and/or reserve capital.
In addition, the repatriation of dividends is possible only under the following conditions:
The transfer of foreign currency for the payment of dividends shall be made directly to the accounts of foreign investors abroad, including through the Depository System of Ukraine
During a calendar month, the amount of repatriated dividends cannot exceed EUR 1,000,000 (or the equivalent of this amount in another foreign currency)
This easing will come into effect on 13 May 2024.
5. LIFTING RESTRICTIONS ON FUNDS TRANSFERS FOR LEASING/RENT
Resolution No.56 enables legal entities and individual entrepreneurs to transfer funds abroad to make payments under leasing/rent agreements without any additional restrictions regarding the subject and the execution date. Prior to these amendments cross-border transfers were permitted solely for the purpose of paying for the leasing/rent of vehicles.
6. PERMISSION TO TRANSFER FUNDS TO THE PARENT COMPANIES
The NBU has allowed representative offices of foreign airlines and international payment systems to make transfers in favor of their parent companies in an amount not exceeding the equivalent of EUR 5,000,000 during a calendar month.
Thus, the package of easing measures introduced by the NBU is a signal indicating positive trends in the financial system of Ukraine. These amendments aim to enhance the business environment and attract foreign capital to the Ukrainian economy. However, a significant number of the currency restrictions still continues to be in force, and therefore, foreign currency transactions will continue to undergo meticulous scrutiny to ensure alignment with prevailing regulations.
The Cabinet of Ministers canceled the resolution on restrictions of import of business services. Previously, the National Bank of Ukraine adopted a similar decision, as announced by Prime Minister Denys Shmyhal during the government meeting.
He said: “We are canceling Resolution of the Cabinet of Ministers No. 153 which limited payments for the import of goods and services. This is very important for business”.
He also noted that such liberalization will open up new opportunities for Ukrainian entrepreneurs, namely to enter new markets and to strengthen Ukrainian exports.
Shmyhal declared that such decision of the government is included in the broader policy of deregulation being currently carried out.
He added: “Over a thousand permits, licenses, and certificates governing interaction of the state and business have been reviewed. Some will be completely canceled, some will be simplified, some will be digitized”. Previously, the NBU mitigated currency restrictions for business entities making payments abroad.
The Procedure for Using Funds from the State Budget to provide State Support for the Implementation of Investment Projects involving Significant Investments was adopted at the session of the Cabinet of Ministers of Ukraine on 26 April 2024.
Conditions for receiving State Support
The total amount of state support can be up to 30% of the investment. Such support is available to investors planning to implement a project in Ukraine with an investment volume of at least EUR 12 million and a duration of up to 5 years in the following sectors: processing industry, extraction for further processing and/or enrichment of minerals, transport and logistics, education, scientific activities, healthcare, waste management, arts, culture, tourism, sports, and electronic communications.
Investors may receive several types of state support, subject to the above requirements, including:
Preemptive rights to use state-owned or municipally owned land plots;
Compensation for the costs of constructing engineering and transport infrastructure facilities, as well as costs associated with connecting to engineering and transport networks;
Tax benefits;
Duty-free importation of necessary equipment;
Exemptions from compensation for forestry production losses.
Projects must involve the development, renovation, technical or technological upgrading of the relevant investment objects, as well as the creation of new jobs. The investor must ensure the creation of at least:
10 new jobs with salaries at least 50% higher than the average salary in the region for the same type of activity;
Or 30 new jobs with salaries at least 30% higher than the average salary in the region for the same type of activity;
Or 50 new jobs with salaries at least 15% higher than the average salary in the region for the same type of activity.
The state budget has earmarked UAH 3 billion this year to support such investment projects.
Control over Investors’ Activities
The government will monitor investors’ compliance with the terms of the agreement. If the Ministry of Economy finds that the amount of funds invested is less than EUR 12 million, the investor must return the entire amount of state support received to a special account of the Ministry within one month.
If state financial control authorities establish that an investor has illegally received compensation or partial compensation, the investor must also return the entire amount of compensation received within one month.
On April 24, President Biden signed the Rebuilding Economic Prosperity and Opportunity for Ukrainians (REPO) Act, which allows the President to seize Russian sovereign assets in the United States and use them for Ukrainian reconstruction. Not surprisingly, the Russian government reacted immediately, promising to challenge REPO in court and threatening to retaliate against US assets in Russia. How realistic are these threats?
With respect to legal challenges in the U.S., the REPO Act provides that “any action that is taken under this section shall not be subject to judicial review.” Although the Act makes an exception for Constitutional challenges, it is not clear on what rights foreign governments have under the Constitution. For example, in the case of Republic of Argentina v. Weltover, 504 U.S. 607, 619 (1992), the Supreme Court “assum[ed] without deciding” that a foreign state is a “person” for purposes of the Due Process Clause, but simultaneously cited a Supreme Court decision holding that states of the United States are not “persons” for purposes of the Due Process clause. Moreover, even if the Russian government does have due process rights, as legal scholar Ingrid Brunk has explained, it is not clear that those due process rights are as extensive as the due process rights afforded to individuals before having their property confiscated. As Brunk points out, based on existing precedent, Russia’s property interests might be more similar to social security benefits, the deprivation of which does not require a prior judicial hearing.[1] In short, any legal challenge that the Russian government brings in U.S. court will likely get very complicated very quickly.
The prospects for retaliation under Russian law are also not clear. There are no U.S. sovereign assets in Russia, so an exact symmetrical response is not possible. But there are private U.S. assets in Russia. Even without the REPO Act, the Russian government has used new legislation to nationalize several foreign companies. Therefore, it is not surprising that it has threatened that private U.S. assets in Russia may be the first targets of retaliation. But there is some ambiguity in the official position, presumably the result of a desire to avoid scaring off what little Western investment remains. As former President and current Deputy Head of the Security Council Dmitry Medvedev wrote on his Telegram channel, “this is a complicated story…foreigners came to invest in the Russian economy. And we guaranteed the immunity of their private property rights. But then something unexpected happened – their government declared a hybrid war on us, which includes both legal and judicial aspects.”
In addition to the economic concern, there is also a (nominal) legal obstacle. Article 1194 of the Russian Civil Code currently allows the Russian government to impose “responsive restrictions” on the property of individuals and legal entities from countries that have imposed similar restrictions on Russian property. However, Article 1194 does not allow for complete confiscation. While the Russian government is frequently unconstrained by its own laws, Article 1194 is still worth watching because what the Russian government does with it may provide an indication of its future intentions. For example, Medvedev has proposed expanding Article 1194 to allow for confiscation of assets of “foreign legal subjects” from “unfriendly countries” a long list which, of course, includes the United States. As Medvedev wrote on Telegram, “America and Americans should pay for their criminal decisions.” Therefore, U.S. and other foreign companies with assets in Russia would be well advised to track Russian legislation for proposals and amendments which would allow for complete confiscation.
Draft law “On the basic principles of the recovery of Ukraine” has been presented. It is a broad legislative framework that will govern all aspects of reconstruction and recovery. It enshrines 14 key points of the state reconstruction policy and outlines the executors at each level, objects and forms of restoration are clearly recorded, as well as the project financing sources and the system of accountability and control based on the principle of everyone sees everything.
Olena Shulyak, head of the Servant of the People party, chairwoman of the Supreme Council Committee on State Power Organization, Local Self-Government, Regional Development and Urban Planning, reports that such draft law is an important part of fulfilling the terms of the Ukraine Facility plan, whereunder Ukraine will receive aid in the amount of 50 billion euros from the EU. It sets out mandatory compliance with the principles of a green, inclusive and digital economy, the use of better solutions and the approach to build better than it was before.
She notes, 14 key points are fixed as the main principles of the state recovery policy: people-centeredness, legality, the principles of the New European Bauhaus (NEB), the approach to build better than it was before, integration, decentralization and subsidiarity, cooperation and coordination, planning and prioritization of recovery, financial stability , integrity, responsibility, the principle of everyone sees everything, digitalization, non-discrimination and equal rights and opportunities both for women and men.
Mrs. Shulyak emphasizes, “The purpose of the legislative framework is to secure effective, transparent and accountable recovery of Ukraine, reducing damages caused by armed aggression of the Russian Federation, sustainable growth of the economy, as well as facilitating security, social and financial and economic conditions for the citizens of Ukraine. Launching this legislative instrument will allow us to overcome the consequences of the war and create conditions for socio-economic growth, improve the life of the population and business”.
Draft law clearly fixes objects and forms of recovery. Objects include damaged, destroyed and lost property, as well as other movable and immovable property, the restoration whereof will contribute to facilitating conditions for improving life of the population and the activities of business entities. Forms of restoration provide object-by-object and comprehensive restoration of destroyed/significantly damaged settlements. A special form of recovery shall be reimbursement for damaged and destroyed real estate objects. The parliamentarian adds,
State policy on recovery will be carried out by the Cabinet of Ministers of Ukraine, the Ministry of Recovery, the Agency for Recovery (the Council of Integrity), special regional centers (Ministry of Education, Ministry of Health, Ministry of Education, Ministry of Culture and Information Policy etc.), local state authorities and local self-government bodies.
“We also provided creating the Integrity Council at the Recovery Agency aimed to secure transparency and public control. Council will be formed on the grounds of open and transparent competition consisting of 15 people”.
A crucial aspect of the draft law shall be mandatory use of the DREAM digital reconstruction system for objects that are restored with the funds of the state budget or by order of the state, local self-government, state enterprises and communal property. Shulyak notes that it will secure automation of project management processes and will allow you to see every step of their implementation.
It will be a mandatory term to enter information about the objects, the customers of the current repair or construction whereof are state bodies, local government/municipal enterprises, institutions or organizations, subjects owning over 50% decisive share in the authorized capital of the state. In addition, information to be entered into the system shall concern objects financed from budget funds, as well as purchase of goods and services to be financed from the state budget.
The parliamentarian emphasizes, “The DREAM system plays a huge role in the reconstruction process. Its use is not only effective recovery planning. This is a unified approach to restoration project management, constant monitoring, an opportunity for prioritization in view of the needs of communities. The most important aspect is to secure transparency and availability of all information concerning the recovery process. In addition, the draft law also prescribed a transparent mechanism for selecting urban settlements for priority restoration at the expense of the state budget. In such cases, the decision will be made by the Cabinet of Ministers of Ukraine at the request of the Ministry of Reconstruction. It will be initiated either by the village/settlement/city council or by the military/military-civilian administration of the village, settlement or city”.
Funding sources will be funds from the state and local budgets, in particular, the State Fund for Regional Development, the Fund for Restoration of Property and Destroyed Infrastructure, and the Fund for Elimination of the Consequences of Armed Aggression.
In addition, the draft law provides using funds from international financial organizations and investors, international technical and returnable or non-returnable financial assistance, as well as reparations from the Russian Federation and other sources not prohibited by the legislation of Ukraine.
Finally, Mrs. Shulyak adds, “The draft law prescribes clear requirements for creating high-quality project documentation for construction in the framework of reconstruction process and its examination. All these processes should be exclusively digitized and should be entered and passed through the Unified State Electronic System in Construction. Speaking about restoration of Ukraine, it is not just about rebuilding all that was destroyed. The recovery of Ukraine is a much broader context. It will include facilitating conditions for comprehensive development and positive changes. Therefore, this law will become a kind of Constitution for restoration, with regards to the best global practices, aimed to create digital mechanisms mitigating corruption risks, as well as to provide restoration based on the approach to build better than it was before”.
Prime Minister of Poland Donald Tusk signed an Order on foundation of the Council for Cooperation with Ukraine. It will be a public authority engaged in strengthening bilateral relations and promoting restoration of Ukraine.
Pavel Koval, the Polish Government Commissioner for the Restoration of Ukraine, reported thereon within interview with the Polish Press Agency.
Koval noted, he will become head of the newly created Council for Cooperation with Ukraine. The Council will be a public authority, while its members will include representatives of the government, local authorities, business and science.
Working groups will function in the framework of the Council. Cooperation with Polish analytical centers has already been launched, while regional representative offices have also been incorporated. He added that structure and functions of the body will be determined in more detail in future.
Koval explained, the idea is to create an institute “which will apply a comprehensive approach to Polish-Ukrainian relations”.
The Polish Government Commissioner highlighted, “We assume that they are unique, not only because of historical issues, but also because of Poland’s participation in helping Ukraine and Poland’s role in the process of its recovery”.
15 clauses for Ukraine. The German government agreed on a plan for restoration of our country. What do the Germans offer and where do they plan to get money for reconstruction? Reported by Tetiana Logunova.
At least 486 billion USD. According to the World Bank latest estimates, that will be the cost of post-war reconstruction of Ukraine. Partner States will not be able to allocate so much funds from their budgets. Therefore, they are already starting to look for other ways of funding for restoration of our country.
Germany already has a plan. Official Berlin, which is one of the largest donors to Ukraine, approved a program of taking measures aimed at restoration of Ukraine. It was approved this week at the special meeting of the Government led by Chancellor Olaf Scholz.
The approved document was developed by the Ministry of Economic Cooperation and Development. It consists of 15 clauses which prescribe in detail the need to involve all potential sources of funding in restoration of Ukraine, namely: private investments, funds of philanthropists and charitable foundations.
Svenja Schulze, Minister of Economic Cooperation and Development of Germany:
State funds will not be enough. We need private investors. That is why we have agreed on 15 clauses by which we are planning to attract them. One of them is support of German companies that are already operating in Ukraine.
There are nearly two thousand such companies. But there may be much more. Even now, when the war is going on.
Svenja Schulze, Minister of Economic Cooperation and Development of Germany:
Ukraine is eager to join Europe and the EU single market, so it makes sense to invest right now, at least in those regions where it is possible. We are concerned in more private capital coming in. This is extremely important both for Ukraine and for us. After all, we want Ukraine to get back on its feet after the war.
There are plans to create a special financial structure in Ukraine. It will work on the model of the Credit Institution for Reconstruction, which appeared in Germany after the World War II and served as prerequisites for the German economic miracle. This fund will provide investment loans at preferential rates, first of all, for support of small and medium businesses.
Svenja Schulze, Minister of Economic Cooperation and Development of Germany:
Support of small and medium businesses is extremely important for Ukraine. These enterprises are the backbone of economy, and now it is very difficult for them to get loans. Germany, for example, already supports agricultural companies so that they could clear the fields and work on them, as well as could build warehouses for harvest storage. These are very important investments that we want to expand.
Furthermore, Germany and Ukraine are preparing to hold a major international recovery conference. A two-day forum will take place in Berlin in June 2024.
