In Ukraine, a list of the most active funds investing in Ukrainian startups has been compiled. Some of the most active ones were launched after the start of the full-scale Russian invasion.
The list, compiled by Forbes Ukraine, is led by the fund u.ventures. In the first half of the year, the u.ventures portfolio expanded with eight Ukrainian startups. The average investment by the fund was $500,000— the same amount it invested in the first two years of the full-scale war.
‘Since July 2023, the top five most active venture players in Ukraine have completely changed. Three of them—ZAS Ventures, Angel One, and the angel club United Angels Network (UAN)—were launched during the full-scale Russian invasion,’ notes Forbes.
The top ten funds are as follows:
u.ventures — 8 Ukrainian startups in the portfolio.
ZAS Ventures — 7 Ukrainian startups.
Angel One — 6 Ukrainian startups.
United Angels Network — 5 Ukrainian startups in the portfolio.
ICLUB — 3 Ukrainian startups in the portfolio.
TA Ventures — 3 Ukrainian startups in the portfolio.
Inovo VC — 3 Ukrainian startups in the portfolio.
SID VP — 2 Ukrainian startups in the portfolio.
Vesna Capital 3 — 2 Ukrainian startups in the portfolio.
SMRK — 2 Ukrainian startups in the portfolio.
On average, most participants in the study plan to close 5–10 deals by the end of the year.
‘As worldwide, AI startups are currently attracting the most attention from venture funds in the Ukrainian venture capital market,’ says Bogdan Svyrydov, Investment Director at Horizon Capital and u.ventures.
According to Vadym Rohovskyi, partner at GEEK Ventures, the market fell significantly in 2023 and is expected to decline further in 2024.
“New funds, if they appear, will need to adjust their trajectory, expand their geographical focus, invest more broadly, or at later stages,” he says.
Under the Ukraine Facility, a financial support program from the European Union, Ukraine is implementing a series of strategic economic reforms and sectoral development measures. These measures are expected to boost export volumes and strengthen the country’s position in the international market as a leading supplier of critical materials and high-quality products. We have decided to analyze the current state of Ukraine’s foreign trade, its export potential, and the possible risks that could threaten economic recovery.
To ensure stable financial support from the EU, Ukraine must implement a specific set of measures and reforms, achieve certain benchmarks, and undergo evaluation by its partners. Fulfilling these commitments is expected to help build a strong and resilient economy, bringing the country closer to the socio-economic development level of EU countries. One of the outcomes of the plan’s implementation should be an increase in exports, which will contribute to economic growth and post-war recovery.
Progress should be achieved through the development of relevant institutions, attainment of comprehensive digital transformation goals, inclusive development, and the implementation of the “green transition,” as well as the support of key economic sectors:
Sectoral development: Ukraine will focus on developing specific economic sectors with high export potential, such as agriculture, energy, transportation, critical raw materials (including processing), and information technology. By investing in these sectors and enhancing their competitiveness, the government aims to increase exports.
Infrastructure development: Developing transport, logistics, and trade infrastructure is crucial for facilitating exports, especially given Russia’s blockade of the Black Sea. Investments in increasing port transshipment capacities, building railway lines, and cooperating with partner countries to develop border crossing points can simplify the export process and reduce transportation costs, making Ukrainian products more competitive in international markets.
Trade support: The Ukrainian government, in cooperation with international partners, will implement trade facilitation programs. These include providing financial support to small and medium-sized enterprises, compensating agricultural producers for demining costs, implementing mechanisms for war risk insurance, and more.
Basic institutional reforms: Implementing structural reforms and improving the business environment are crucial for stimulating exports. These measures include reducing bureaucracy, increasing transparency in the regulatory environment, protecting intellectual property rights, and strengthening the rule of law. By creating a more favorable business climate, Ukraine can attract foreign investment and stimulate export-oriented industries.
What is Ukraine’s export potential?
Ukraine’s export potential can be considered in two main dimensions. First, there is an increase in export volumes (restoring the supply of goods to pre-invasion levels and further increasing volumes). For some goods, such as grain, export volumes have almost reached pre-war levels thanks to the operation of the “temporary transport corridor,” despite parts of Ukraine being mined and occupied. Second, there is a shift in the commodity structure toward a higher share of manufacturing and high-value-added goods. According to the aforementioned plan, the main focus is on developing five sectors, including agriculture and mining (considering the potential for mineral processing).
According to the International Trade Centre, Ukraine has an export potential of tens of billions of dollars. In absolute terms, we could demonstrate the largest volumes in the supply of ferrous metals, vegetable oils, grains, mineral resources, machinery and equipment, electricity, and more (see Figure 1). However, an important caveat is that these calculations were made considering data mostly before the full-scale war and, therefore, do not fully take its consequences into account.
For instance, the export potential in the segment of ferrous metals is estimated at $10 billion, with only 51% of this potential actually realized (meaning the actual export volume). Thus, there was significant potential for increasing exports of this product. However, Russia occupied and destroyed over a third of Ukraine’s steel production capacity. Therefore, in the foreseeable future of the next decade, the country is unlikely to restore pre-war levels of metallurgical production, let alone exceed them and realize this potential.
A more realistic scenario seems to be increasing the export of mineral resources, particularly iron ore products. On the one hand, there is demand for this product both in Europe and in distant countries like China, while domestic demand in Ukraine has significantly decreased due to the loss of production capacities. On the other hand, Ukraine has the capability to produce high-quality iron ore products that align with “green” transition plans. Implementing these plans is already on the agenda.
Additionally, the International Trade Centre calculations and the Ukraine Facility Plan highlight titanium ores and their processed products as having significant export potential.
Figure 1.Top 25 product categories with the highest export potential in Ukraine and the degree of export potential realization
The top sub-sectors with significant export potential also include agri-food sector products, which are considered promising within the Ukraine Facility framework. Specifically, these are sunflower oil, corn, wheat and meslin, and rapeseed. With proper support for the sector—investments in productivity growth, logistics development, reduction of trade barriers, and demining of territories—this potential can be realized.
Another segment with significant potential is machinery and equipment. Today, Ukraine is a manufacturer and supplier of automotive wiring harnesses with corresponding factories in the western regions. The volume of such product exports to European countries can be significantly increased.
Under equal conditions and before full-scale war, Ukraine had the potential to export a wide range of goods and services, from raw agricultural and mining products to high-tech products. However, the key items of foreign supply were and still remain raw materials and semi-finished products.
Trade results for 2023
Ukraine’s foreign trade results in 2023 continued to be influenced by factors directly related to the war on its territory, as well as the war’s indirect impacts. On the one hand, the Ukrainian economy suffered from attacks on energy and transport infrastructure and power outages at the beginning of 2023. The significant implications also came from Russia’s withdrawal from the “grain deal” until Ukraine, under the protection of its defense forces, organized its own “temporary maritime corridor.” This allowed for the revitalization of foreign economic activity.
On the other hand, the global economic slowdown observed even in Europe resulted in reduced demand for Ukrainian products. Given Ukraine’s limited ability to choose export markets, transporters’ blockade of western borders and European countries’ restrictions on the supply of agricultural products further undermined the footing of Ukrainian exporters.
Figure 2.Volumes of Ukraine’s foreign trade in 2014-2023, $ billion
Last year, Ukraine’s negative balance of foreign trade increased by 2.5 times, reaching its highest level since the beginning of Russia’s invasion in 2014. This result was driven by simultaneous growth in the value of imports and further contraction of exports. Specifically, imports almost returned to the level of 2021 when countries were recovering from the COVID-19 pandemic crisis and showing rapid restoration. It is likely that its value would have been higher if not for Polish carriers’ blockade of the western border. According to the NBU’s estimates, direct losses from imports alone in November 2023 amounted to $500 million. To illustrate, this is almost equivalent to the total value of drones imported into Ukraine last year.
Import of goods
In physical terms, imports in 2023 amounted to 26.8 million tons, which is 29% less than in 2022. However, in value terms, imports grew by 7% due to the importation of more expensive goods such as transport and electrical goods, pharmaceuticals and blood products, and food products, as well as increased purchases of drones, generators, and pipe products. This was made possible only with the financial support of our international partners, who provided grants and loans. Additionally, hidden imports, meaning goods for which neither the State Statistics Service nor the State Customs Service of Ukraine provide detailed statistics, increased manifold.
Figure 3.Commodity structure of Ukraine’s imports in 2019-2023, $ million
Source: State Customs Service of Ukraine
Traditionally, mineral fuels – oil and oil products and gas – occupied the largest share in Ukraine’s import structure. The leading suppliers of these products were Poland, Greece, India, Lithuania, and Slovakia. Ukraine halted imports of these goods from Russia and Belarus, while European countries and India had previously supplied them. Compared to 2022, the import of these products decreased by 39% in value terms due to cheaper oil and the refusal to purchase from the aggressor country.
Imports of other key commodity groups increased. Specifically, the growth in purchases of cars, mobile equipment, generators, batteries, transformers, trucks, tractors, and drones from abroad is directly related to military actions. On the one hand, this increase reflects Ukraine’s defense needs, and on the other hand, it reflects the consequences of mass rocket attacks on energy facilities, forcing the population to make emergency equipment purchases.
The increase in purchases of ferrous metals and fertilizers is linked to the decline in domestic production of these goods in Ukraine. Specifically, the occupation of metallurgical plants in Mariupol has led to a deficit of certain types of steel products, forcing Ukraine to procure them from Turkey and European countries (previously, we exported them). Although Ukraine increased its own fertilizer production by 81% last year, its volume remained almost half of what it was before the full-scale war, generating demand for imported fertilizers.
Export of goods
At the end of last year, Ukraine maintained the physical volume of exports almost unchanged, but export revenues fell by 18%. This can be explained by both a decrease in prices for a range of goods, primarily in the agricultural sector, and a change in the commodity structure of exports (see Figure 4).
Grain crops held the largest share of exports, at 23% (18% of the total export value in 2021). The decrease in revenue from grain exports is mostly due to the decline in world prices for corn, Ukraine’s main export item. Although Ukraine increased its wheat exports, this was insufficient to compensate for the decreased revenue from corn exports.
There was also a decrease in the volume of exports of oilseed crops (soybeans, rapeseed, and sunflower seeds). At the same time, a positive trend was the growth in the export of oil, i.e., processed seed products.
Revenue from the export of ferrous metals and ores decreased by over 40% last year. First, in 2022, the first two months accounted for nearly full-capacity operation of metallurgical enterprises. Second, last year, companies were forced to reduce production due to power outages, the explosion of the Kakhovka HPP, and unfavorable economic conditions in external markets. Third, companies began to utilize the opportunity for sea shipments within the framework of the “temporary corridor” closer to the end of the year.
Ukraine also reduced its exports of higher-value-added products such as electrical wiring, cables, and small kitchen appliances like electric kettles. This reduction is associated with decreased electronics imports by Hungary.
In 2023, Ukraine obtained 61% of its export revenue from selling agricultural products and foodstuffs, marking a significant portion of its exports. Following closely behind were ores, metals, and products thereof, contributing 16% of export income. Machinery, equipment, vehicles, and transportation means held the third position, accounting for 8% of exports. This marked a notable change from the pre-war year of 2021, when agriculture and metallurgy shared comparable shares at 41% and 34%, respectively. However, the export structure shifted dramatically, with the share of foodstuffs in revenue nearly quadrupling compared to that of metals.
The reasons for this situation are understandable. The territories where industrial enterprises are mostly located are either occupied or near the front line. Russia’s attacks on critical infrastructure objects have led to a reduction in production volumes, and even with a stable electricity supply, logistical difficulties such as the blockade of the Black Sea and western border prevent export growth. A shortage of human resources also limits production recovery opportunities.
Foreign trade in services
Last year, Ukraine reduced external trade volumes in services due to simultaneous decreases in imports and exports. However, since the beginning of the full-scale invasion, we have observed an atypical imbalance in favor of importing services for Ukraine.
The prevalence of service imports over exports emerged in 2022 due to a sharp increase in spending by Ukrainians abroad, associated with the outflow of refugees during the first year of full-scale war. It is precisely the expenses of Ukrainians on purchasing goods and services in recipient countries that constitute the volumes of service imports under the “Travel” category. Although this segment decreased last year, it still accounts for the lion’s share of Ukrainian spending on imported services, at 69%.
Prior to the start of the full-scale war, the Ukrainian IT industry was experiencing rapid growth, with its share in the structure of service exports increasing from 2% in 2010 to 44% in 2022. In 2023, the export of IT services decreased for the first time, which is attributed to power outages and cautiousness among foreign clients regarding ordering services from Ukrainian IT specialists (due to risks of mobilization and rocket attacks).
Figure 4.Structure of foreign trade in services in 2019-2023, $ million
The increasing share of the agricultural and food sector in exports requires attention and effective solutions. Perhaps, by implementing the Ukraine Facility Plan, we can return to increasing exports in processing industries and restore growth in the IT industry. Defense industry manufacturers also have significant export potential. The war has catalyzed the active development of the defense industry with a rapid increase in the number of arms manufacturers. However, currently, there is insufficient state funding to utilize existing capacities. A solution could be to export excess production abroad so that arms manufacturers receive working capital and investment funds, but currently, such exports are prohibited.
Limited optimism for 2024
The beginning of 2024 brings cautious optimism in terms of foreign trade (see Figure 6). After a decline in quarterly export volumes last year, Ukraine demonstrates a sharp recovery in indicators based on the results of the first three months of the current year. Moreover, according to the operational data of the Ministry of Economy, Ukraine reached pre-war levels of monthly exports in April, amounting to $3.3 billion (13 million tons).
Traditionally, key export drivers include grain (such as corn and wheat) suppliers and exporters of iron ore and ferrous metals. These companies have resumed sea exports crucial for re-entering markets in the Middle East, America, and Asia. Meanwhile, machinery exports dropped out of the top 10 commodity groups.
In the metallurgical products segment (iron ore and steel products), an increase in export volumes can be expected this year thanks to the operation of the “sea corridor” under the protection of Ukrainian defense forces. However, limiting factors to consider include weakened demand in Europe and China, reduced economic efficiency of sales due to expensive logistics, and the risk of production volume restrictions.
Expectations in the agricultural segment are less optimistic. According to experts’ estimates, the volume of the harvest may decrease in 2024 due to a reduction in the sown areas of certain crops against the backdrop of an unfavorable price situation in the international market and lower yields. According to preliminary estimates for the 2024-2025 marketing year, this will affect export volumes, which may decrease to 43.7 million tons compared to the expected 53.1 million tons in the 2023-2024 marketing year.
Even in the short term, the record volume of grain exports achieved in April 2024 (which even exceeded pre-war levels) will not be repeated in May, as the available volumes of wheat for export have already been sold, and those of corn have been contracted.
Key risks for 2024
The importance of restoring export activity is undeniable. On the one hand, exports are a source of foreign currency inflows necessary to support the exchange rate, finance defense, and reconstruction efforts. On the other hand, access to foreign markets allows producers to increase capacity utilization, expand production volumes, and enhance their influence in international markets. From this perspective, stimulating export activity reflects not only an economic but also a geopolitical aspect, providing additional means to strengthen Ukraine’s position in the world.
However, in the context of geopolitical tensions and uncertainty associated with the war with Russia, Ukraine’s export opportunities face serious challenges. The expansion of the conflict zone threatens not only physical infrastructure but also the functioning of export channels and the security of transportation routes. These circumstances, along with potential economic constraints from Western partners (such as restrictions on imports or transit of agricultural products from Ukraine), create uncertainty about the future export potential and require careful risk analysis and strategic decision-making.
Among the risks for export growth this year are:
Escalation of hostilities and occupation of new territories. Although the Ukraine Facility Plan was developed with the assumption of the end of hostilities by the end of 2024, as of May 2024, the aggressor country continues to build up its military potential and forces for further advancement, as indicated by both Ukrainian and international sources. The occupation of new territories by Russia, including the complete seizure of the Donetsk region, could lead to further degradation of the industrial sector. Other consequences of the intensification of hostilities and occupation include the destruction of infrastructure and further population migration.
Shelling of energy and transportation infrastructure. Mass rocket attacks on critical infrastructure objects and damage to power grids can lead to both restrictions on electricity consumption by industrial consumers and complete production shutdowns. Attacks on transportation infrastructure can lead to disruptions in raw material supplies and increased costs for recovery. Consequently, export volumes will decrease.
Further mobilization; population migration abroad. Increasing the volumes and pace of mobilization can deepen the deficit of human capital, reduce productivity, and increase labor costs, which in turn can lead to a decrease in enterprises’ export activity. Large industrial enterprises are already facing limitations in expanding production due to a labor shortage and, in an attempt to adapt to the existing conditions, are employing more women.
Blockade of the western border. The blockade of the border with EU countries has led to both a reduction in exports by road transport and a decrease in customs revenues to Ukraine’s state budget. Consequently, the resumption of the blockade may result in delays in deliveries of products to foreign customers, actual reduction in supply volumes, and increased transportation costs.
Implementation of trade restrictions or cancellation of preferential trade terms. The suspension of all import duties and trade defense measures by the EU for Ukraine in the spring of 2022 proved to be a lifeline for Ukrainian exporters, who, in the conditions of the maritime blockade, could only supply goods to Europe or through European countries. The EU has already extended preferential trade terms twice, most recently in March 2024, but with conditions to protect its agricultural market. Abandoning preferential trade terms or introducing trade restrictions could lead to a reduction in export volumes due to restricted access to markets.
Suspension of the “temporary corridor.” Closing the “temporary corridor” in the Black Sea would return Ukrainian exporters to the situation of summer 2023 when Russia withdrew from the “grain deal,” and an alternative maritime route was not yet secured. Although Ukraine has since continued to develop alternative transportation routes via the Danube or through ports in Romania and Poland, this could lead to a significant increase in delivery times and costs, as well as a restructuring of logistic chains that would be less efficient. The export of agricultural products, ores, and black metals critically depends on the ability to export by sea.
Further weakening of the global economy, particularly in Europe. Decreased demand for goods from Ukraine due to economic hardships in Europe could lead to a reduction in export volumes and a decrease in production levels. With the ability to transport goods by sea, this risk could be mitigated by redirecting exports to markets in the Middle East, America, and Asia.
The Ukraine Recovery Conference (URC) 2024, held in Berlin on June 11-12, marked a significant step forward in the international community’s support for Ukraine amid the ongoing war with Russia.
The conference brought together over 3,400 participants from various sectors, including national and local governments, businesses, and civil society organizations. The event aimed to consolidate sustainable international support for Ukraine’s recovery, reconstruction, reform, and modernization efforts.
Events later in the week, including the G7 summit and the Ukraine peace summit, further confirmed the international community’s commitment to assisting Ukraine in overcoming the ongoing crisis.
This year’s conference was a continuation of the 2017 Ukraine Reform Conference in London, and bilateral and multilateral events in Lugano (2022 and 2023), Toronto and Paris (2022), Rome, Berlin and Warsaw (2023) as well as last year’s Ukraine Recovery Conference in London. Lawyers from Dentons participated in most of these events.
Below is a brief summary of key announcements and agreements to aid Ukraine’s recovery based on publicly available information and insights of our lawyers who participated in the event.
Key announcements and agreements
European Bank for Reconstruction and Development (EBRD) commitments
One of the major highlights of the conference was the EBRD’s announcement of €600 million in new funding commitments and de-risking tools. This brings the total EBRD financing deployed in wartime Ukraine to €4.5 billion. Notably, the EBRD signed multiple financing agreements, including:
€300 million in emergency support for the energy sector to address the immediate energy crisis exacerbated by Russian attacks on Ukraine’s energy infrastructure.
€517 million from the European Union to support Ukraine’s economy and recovery through EBRD programs.
€60 million loan for a greenfield biofuels project and equity investment in renewable energy. These projects underscore the focus on sustainable and renewable energy solutions.
€70 million in local-currency loans and risk-sharing facilities with Ukrainian banks to boost access to finance for small and medium-sized enterprises (SMEs).
The EBRD also announced a joint venture with GOLDBECK SOLAR Investment to construct up to 500 MW of solar power plants in Ukraine over the next three to five years.
International aid and investments
The conference saw the announcement of over €16 billion in more than 110 international agreements and assistance. Significant contributions included:
€1.4 billion in guarantee and grant agreements under the Ukraine Facility program.
€7 billion SME Resilience Alliance to support the resilience and growth of Ukrainian SMEs.
€700 million Skills Alliance retraining program to address structural unemployment and support workforce development in Ukraine.
€350 million in guarantees and €17.5 million in technical assistanсe from EU via IFC to accelerate and scale-up investments in renewable energy such as wind power projects, battery energy storage systems, transport, digital sector, and industrial investments.
€430 million program of EIB group to restore the housing sector. The first program will focus on repairing war-damaged residential buildings, and the second will be a credit program and extensive grant resources from the European Commission.
$350 million war risk insurance program to facilitate foreign investment in Ukraine during the war. The program, in partnership with the US International Development Finance Corporation (DFC), includes US$50 million to reinsure policies issued by Ukrainian companies and US$300 million to insure military risks in the healthcare and agriculture sectors.
Focus areas of the conference
The URC 2024 extended the dimensions of Ukraine’s recovery to four key areas:
Business development: The conference launched several initiatives to stimulate economic growth and private sector involvement by offering mechanisms to derisk investments and provide access to financing. This includes investments in renewable energy, biofuels, and significant support for SMEs.
European integration: With Ukraine’s EU candidate status, substantial support was directed towards meeting EU accession requirements and facilitating integration processes. On June 14, 2024, the EU approved in principle the negotiating framework for the accession of Ukraine and Moldova to the EU. Huge emphasis was given to sustainable recovery of a competitive economy as well as funds to achieve these targets in various sectors.
Municipal and regional development: Agreements were signed to improve infrastructure and essential services in cities like Mykolaiv, Lutsk, Kharkiv, Kyiv, Kryvyi Rih, and Zhytomyr. These included projects for water infrastructure, housing, district heating systems, public transport and export logistics.
Human capital development: Initiatives such as the Human Capital Resilience Charter and the Skills Alliance for Ukraine were launched to support returnee workers and veterans and promote inclusive recovery.
High-profile support and future prospects
German Chancellor Olaf Scholz and European Commission President Ursula von der Leyen emphasized the importance of Ukraine’s reconstruction for both Ukraine and the EU. Von der Leyen announced that Ukraine would receive €1.9 billion through the Ukraine Facility by the end of June, with a significant portion directed towards urgent power system repairs and defense.
Ukrainian President Volodymyr Zelenskyy highlighted the immediate need for energy infrastructure repairs and long-term investment. He stressed that foreign investments in Ukraine’s energy sector could yield high returns and create substantial economic opportunities.
A few days later at the Ukraine peace summit in Switzerland, US Vice President Kamala Harris announced a new energy aid package, consisting of $500M in new funding for energy assistance and redirecting $324M of previously announced funds to Ukraine’s emergency energy needs.
The news from the US comes a few days after the G7 leaders adopted a declaration outlining the use of proceeds from frozen Russian assets to give Ukraine $50 billion in loans. This plan aims to ensure Ukraine can continue its defense against Russia and signals Western resolve. The funds will come from loans by G7 members and the EU, backed by interest from the frozen assets, with repayment expected from either interest or future reparations by Russia. The disbursement of funds, intended for various purposes including military and humanitarian support, is planned to start by the end of the year, although there are still unresolved details and potential risks related to the ongoing status of the frozen assets.
The weekend brought additional support for Ukraine at the Ukraine Peace Summit in Switzerland, at which representatives from 78 countries agreed that Ukraine’s territorial integrity must be the basis for any peace agreement with Russia. The conference marked a preliminary step towards diplomacy but faced challenges due to the absence of key developing nations from the final document. Despite varied participation, the summit underscored the necessity for international cooperation to resolve the conflict.
Conclusion
The main events of last week – the Ukraine Recovery Conference 2024 in Germany, the G7 summit in Italy and the Ukraine peace summit in Switzerland – demonstrated a robust international commitment to supporting Ukraine’s recovery and long-term development. The agreements and initiatives announced at the URC reflect a comprehensive approach, addressing immediate needs while laying the groundwork for sustainable growth and integration into the European Union. As Ukraine continues to navigate the challenges posed by the ongoing conflict, the support and collaboration fostered at URC 2024 – and confirmed by the participants of the G7 and the peace summit – will be crucial in building a resilient and prosperous future.
In the first article, we considered the institutional reforms foreseen by several strategic documents which the Ukrainian government promised to implement over the next few years: EU-2023 Review, Ukraine Facility Plan, IMF program for Ukraine, and the government Revenue Strategy.
In this article, we look at sectoral reforms that should create prerequisites for sustainable economic development and EU integration. We also discuss planned changes in the taxation system that should increase budget revenues. Overall the proposed measures (if implemented properly) will result in more efficient spending of public funds and will improve the investment attractiveness of Ukraine.
Human capital: improvements in education and care for the vulnerable
The current IMF program focuses on macroeconomic stability and sustainability of public finance and therefore it only briefly mentions human capital (previous programs usually also included only general references to healthcare or education reforms). Specifically, the IMF program states that the Ukrainian government will refrain from introducing new “special” (privileged) pensions or lowering pension age since the Ukrainian pension system is already strained. EU documents do not mention healthcare reform either, perhaps implying that healthcare reform launched in 2017 should continue (at the same time EU-2023 Review notes that the absence of a national health insurance card does not allow implementation of the European Health Insurance Card in Ukraine). The Ukraine Facility Plan includes investment in healthcare (see Table 2) but no institutional reforms. It pays a lot of attention to education and social security: these spheres are essential to preserve and develop Ukraine’s human capital.
The government will continue consolidating social payments (recently it adopted a decree on the Single System for Social Sphere that will keep the data of all the recipients of social support). The creation of this single database has been ongoing for over 15 years, and now it is supported by another World Bank loan. The need to change the model of social support has been discussed for years, but recently the government made a few practical steps to replace “the zoo” of social payments with tailored support for households. The aim of this new system is to address specific needs of a household (restore lost documents, find a job, enroll children into a school etc.) so that it becomes sustainable. Social services will be provided not only by state and communal entities but also by private organizations or NGOs.
A comprehensive law on the integration of veterans into civilian life (to be adopted) will address healthcare needs, retraining, employment, and support for veteran businesses. Ukraine plans to develop an electronic system with information on all the people with disabilities that will use the International Classification of Functioning Disability and Health. The system will automatically offer support to these people.
Both EU-2023 Review and Ukraine Facility foresee de-institutionalization of elderly, people with disabilities, and children. The former two groups will get tailored social services and the latter one – foster families.
The major reforms of the housing policy foresee the adoption of legislation to enable leases with an opportunity to buy communal housing, to improve the transparency of the distribution of social housing and opportunities for civil society organizations (CSOs) to monitor social housing projects. The standards for social housing such as accessibility, energy efficiency etc. will be adopted (in fact, they will be introduced for all the housing – see Table 3).
EU-2023 Review notes that Ukraine still has to do some work on eliminating discrimination: to implement the equal rights strategy and gender pay gap strategy, to ratify the ILO convention 190 on reducing violence and harassment. Ukraine also needs to start collecting relevant data, e.g. statistics on court cases on discrimination, to be able to measure progress in this sphere.
Ukraine’s EU integration includes integration of the labour markets. Thus Ukraine will need to provide for EU citizens and their children the same rights to access employment and education as Ukrainian citizens have. Recently, the legislation for employment of foreigners was simplified (the wage floor was abandoned) but they still need an employment permit. Ukraine recognizes foreign qualifications since 2021 but it still needs to implement the EU law on professional recognition in full and to join the EURES network which supports the EU single labour market. Simplification of employment for foreigners will be beneficial for Ukraine because it currently faces labour shortages in some industries.
Another EU requirement is better protection of the rights of workers: strengthening social dialogue and powers of the respective Council, aligning workplace safety norms with the EU and providing more powers to labour inspections (implementation of ILO Conventions 81 and 129 which Ukraine ratified a long time ago).
Ukraine Facility Plan foresees adoption of the new laws on vocational and pre-school education. Two draft laws on vocational education (4207, 4207-1) that were submitted to the parliament in 2020 were rejected by the parliamentary committee on education in August 2023. In April 2024 the Ministry of Education presented another draft law on this topic (currently under discussion). The ministry plans to intensify cooperation between vocational schools and potential employers and to provide new equipment to vocational schools. The draft law on preschool education was adopted in the first reading more than a year ago. This new legislation on vocational and preschool education should establish fair market rules and a “guaranteed” access to preschool education for all the children of relevant age.
Speaking of other education levels, the EU-2023 review mentions implementation of the Strategy on higher education adopted at the end of 2022. The strategy foresees mergers of higher education institutions to exploit economies of scale and development of the “money follows a student” principle: provision of educational grants to students instead of “budget-funded places” for the majority of specialties.
Although Ukraine has very little money to invest into science and research, it cooperates with the Horizon Europe program; it also adopted the National Open Science Plan and Strategy for Innovation Sector development. Today this sphere is probably the least reformed. The Ministry of Education and Science plans to introduce performance-based research funding, the first steps to which were made in 2018 when the National Research Fund was created.
Table 1. Documents and other indicators of reforms in the sphere of human capital
origin of recommendation
documents to be adopted or amended and other indicators
deadline
EU-2023, Ukraine Facility
Adopt the Demographic Development Strategy for the period up to 2040 (done)
Q3 2024
EU-2023, Ukraine Facility
Adopt a strategy to deinstitutionalize elderly and people with disabilities
Q4 2024
EU-2023, Ukraine Facility
Adopt a strategy to deinstitutionalize children
Q4 2024
EU-2023
Develop and implement a strategy to attract and reintegrate displaced persons in the Ukrainian labour market
2024
EU-2023
Establish national office and contact points for the Horizon Europe program
2024
EU-2023
Adopt the strategy for scientific and technological development
2024
EU-2023
Develop regional smart specialization strategies
2024
EU-2023
Develop a plan for a relevant statistical data collection, analysis and sharing mechanism for education and training
2024
EU-2023
Implement a plan to optimize the network of education institutions
2024
Ukraine Facility
Adopt the strategy for developing culture (enhancing cultural institutions and support for creative industries)
Q1 2025
EU-2023, Ukraine Facility
Implement the law on preschool education
Q1 2025
EU-2023, Ukraine Facility
Implement the law on vocational education
Q2 2025
EU-2023, Ukraine Facility
Adopt Cabmin resolution on the procurement of social services
Q2 2025
EU-2023, Ukraine Facility
Adopt legislation on the transition system from military service to civilian life
Q4 2025
EU-2023, Ukraine Facility
Adopt a law on key priorities of housing policy
Q4 2025
EU-2023, Ukraine Facility
Adopt Population Employment Strategy
Q2 2026
EU-2023, Ukraine Facility
Adopt a new version of the law on social housing fund
Q4 2026
Ukraine Facility
Adopt a law introducing electronic system for people with disabilities and offering relevant support to them
Q4 2026
Table 2. Investment in human capital foreseen by Ukraine Facility program (at least 20% to be allocated by local governments)
investment purpose
amount, EUR million
2024-2025
2026-2027
School shelters, school buses, modern teaching methods + equipment for them; materials and equipment, nutrition, VET centres at schools
300
350
Healthcare: lab equipment, shelters, medical equipment, healthcare infrastructure, IT solutions
200
200
Reconstruction of damaged and construction of new social infrastructure
–
350
Compensation to people whose houses were destroyed
–
600
Provision of housing to persons with disabilities of I-II groups; to IDPs who fought for Ukraine and their family members; to family members of deceased defenders
200
250
Energy market and green transition: more market elements, less government regulation
Measures in this sector (among them market pricing of energy and enhancing competition) aim to raise energy efficiency and thus lower consumption and greenhouse gas (GHG) emissions. They include alignment of Ukrainian legislation with EU directives on electricity and gas markets and on atomic energy; introduction of market-based carbon pricing mechanisms and a different carbon tax model; development of more efficient (decentralized) district heating (table 3). Ukraine should adopt an Energy and Climate plan that would set a more ambitious goal than the current 27% of energy supplied by renewable sources by 2030 (in 2021 this share was about 6%).
These changes will be accompanied by investment in energy infrastructure and energy efficiency (table 4).
Unfortunately, the introduction of market energy tariffs is delayed until martial law is lifted. This will impede capital investment in the sector and will likely worsen the financial situation of Naftogas. Recent Russian attacks on energy generation mean that Ukraine has to urgently rebuild power generation capacities. Since the end of the war is not insight, it is better to aim at distributed power generation – small power stations that use gas, oil products or bio materials that are easy to protect. Construction of large generation capacities, such as nuclear reactors, should be postponed.
Table 3. Documents and other indicators of reforms in the sphere of energy and green transition
origin of recommendation
documents to be adopted or amended or other indicators
deadline
IMF
Calculate the stock of arrears of District Heating companies to Naftogas (distribute by pre- and after full-scale war)Structural benchmark
Adopt the Strategy for thermal modernization of buildings (done)
Q2 2024
Ukraine Facility
NEURC adopts secondary legislation for REMIT law to ensure integrity and transparency of wholesale energy market
Q3 2024
IMF
Compensations to Naftogas for its PSO duties shall not exceed UAH 60 bn (end-Aug – compensation sum calculated)
Q3 2024
IMF
Adopt draft law 6133 to accommodate for the end of gas transit
2024
EU-2023, Ukraine Facility
Amend the Cabmin decree to encourage investment into green energy (implement the EU Directive 2018/2001). The guarantees of renewable energy sources were introduced in 2023.
Q4 2024
EU-2023, Ukraine Facility
Adopt the draft law providing more independence to NEURC in line with EU (exempt the decisions of the National Energy and Utilities Regulatory Commission from the state registration procedure)
Q4 2024
EU-2023, Ukraine Facility
Adopt the draft law providing more independence to NEURC in line with EU legislation (special status of NEURC)
Q4 2025
EU-2023, Ukraine Facility
Approve action plan (measures and time frame) for establishment of GHG emissions trading system
Q1 2025
EU-2023, Ukraine Facility
Adopt the draft law on climate policy setting climate goals and mechanisms for their achievement
Q1 2025
Revenue strategy
Develop GHG emissions taxation model that would tax oil, gas, coal extraction or imports rather than GHG emissions
2024-2025
EU-2023, Ukraine Facility
Adopt a Roadmap to separate the Renewable Energy Surcharge from the Transmission Tariff
Q2 2025
EU-2023, Ukraine Facility
Resume mandatory monitoring, reporting and verification (MRV) system for emitting facilities according to existing legislation (i.e. only newly built facilities)
Q2 2025
EU-2023, Ukraine Facility
Adopt the new law on district heating (setting clear rules for connection and disconnection; procedures for installment of individual heat substations)
Q3 2025
EU-2023, Ukraine Facility
Adopt the Second Nationally Determined Contribution (NDC) to the Paris Agreement (current commitment is reduction of emissions by 2030 to 65% of 1990 level – practically achieved)
Q3 2025
EU-2023, Ukraine Facility
Cancel the moratorium on raising heat and hot water tariffs
Q4 2025
EU-2023, Ukraine Facility
Adopt a new law on electricity market introducing 16 EU directives
Q4 2025
EU-2023, Ukraine Facility
Appoint a nominated electricity market operator designated by National Energy and Utilities Regulatory Commission (NEURC).
Q4 2025
EU-2023, Ukraine Facility
Adopt the State targeted economic program for energy modernisation of heat generating enterprises until 2030
Q4 2025
EU-2023, Ukraine Facility
Create an independent Scientific and Expert Council on Climate Change and Preservation of the Ozone Layer
Q4 2025
Ukraine Facility
Implement EU Directive 2022/03/MC–EnС to align with the EU taxation and customs regimes for cross-border electricity trade
Q2 2026
EU-2023, Ukraine Facility, IMF
Adopt a Roadmap for gradual liberalization of gas and electricity markets to be implemented after the expiration of the martial law (liberalization of prices, reform of PSO, introduction of targeted subsidies)
Q2 2026
Ukraine Facility
Adopt a law streamlining permit issuance for green investment in line with EU rules
Q3 2026
Ukraine Facility
Adopt minimum requirements for energy efficiency and classes of energy efficiency of buildings
Q3 2026
Ukraine Facility
Adopt requirements to energy labeling and eco-design as mandatory minimum criteria during public procurement. Strengthen the capacity of the state market surveillance body to enforce these requirements.
Q1 2027
Table 4. Investment into energy sector foreseen by Ukraine Facility program
investment purpose
amount, EUR million
2026-2027
Raising energy efficiency of district heating companies
550
Contribution to the Energy Efficiency Fund
Thermal modernisation of public buildings
Physical protection of Ukraine’s energy infrastructure
Support for the development of renewable energy sources
Environmental protection: improving quality of land and water, protecting biodiversity and forests
In this sphere, like in all the others, Ukraine should work on aligning its legislation with the EU acquis, specifically, introduce the EU air and water quality standards and relevant measurement system; adopt and implement the draft law on emerald network (a number of nature preservation sites). Automated pollution control systems should be installed at all the facilities, not only the new plants, because the largest pollutants are the old Soviet legacy plants. Ukraine will need to amend its legislation to align with the UNECE Convention on the Transboundary Effects of Industrial Accidents which Ukraine ratified in 2022. Specifically, Ukraine will need to establish closer cooperation between the State Emergency Service and State Ecological Inspection to develop prevention measures to mitigate environmental risks resulting from industrial accidents.
Table 5. Documents and other indicators of reforms in the sphere of environmental protection
origin of recommendation
documents to be adopted or amended and other indicators
deadline
Ukraine Facility
Adopt the draft law on ensuring the rights to a safe environment (introducing EU Directive 2010/75/EU). Adopt necessary by-laws by Q3 2025 including provisions on applications of the best available technologies.
Q3 2024
EU-2023, Ukraine Facility
Develop a concept note defining the scope of deviations from the Environmental Impact Assessment (EIA) and Strategic Environmental Assessment (SEA) rules
Q3 2024
EU-2023, Ukraine Facility
Adopt the Strategy for implementing the principles of the circular economy and its Action Plan in 5-10 priority sectors (e.g. waste, textiles, electronics, agriculture)
Q1 2026
EU-2023, Ukraine Facility
Approve national waste management plan until 2033 (current plan until 2030 is not implemented yet)
Q1 2026
EU-2023, Ukraine Facility
Adopt the law on reducing deforestation and forest degradation: expand electronic timber accounting, introduce certification of origin of timber and wood products
Q2 2026
Agricultural sector: more transparency of state support and demining
The main expected changes in the agricultural sector are (1) introduction of land monitoring systems and (2) supporting only farmers who are registered in the State Agrarian Registry. Ukraine Facility foresees provision to Ukrainian farmers of EUR 75 million in 2024-2025 and the same amount in 2026-2027 for demining.
Table 6. Documents and other indicators of reforms in the agrifood sector
origin of recommendation
documents to be adopted or amended and other indicators
deadline
EU-2023, Ukraine Facility
Adopt demining strategy until 2033 (draft approved in Feb 2024)
Q2 2024
EU-2023, Ukraine Facility
Adopt national strategy on agriculture and rural development for 2023-2030 (concept)
Q4 2024
EU-2023, Ukraine Facility
Adopt the draft law on state agrarian registry (SAR)(at the end of Q1 2026 at least 80% of public support to agricultural producers should be provided via SAR)
Q4 2024
EU-2023, Ukraine Facility
Adopt a long-term plan for the development of irrigation systems
Q1 2025
EU-2023, Ukraine Facility
Deploy the automated system for monitoring of land relations and the geoinformation system for land assessment within State Land Cadaster in line with the decree on public land monitoring
Q1 2025
EU-2023, Ukraine Facility
Adopt the new version of the law on state support to agro producers
Q3 2025
Ukraine Facility
Deploy the EU-aligned Farm Sustainability Data Network (FSDN) system
Q1 2027
Transport: reforms of the border crossing points, railroads, and water transport
In this sector, a lot of changes are planned for all the modes of transport. On the railways, the European model will be introduced (the discussion of different models of railroad restructuring can be found at VoxUkraine: article 1, article 2). Western border crossing points will be developed, and regulation of maritime and river transport will be considerably changed in line with the EU rules. Ukraine Facility foresees investment of EUR 350 million in 2026-2027 into reconstruction of transport infrastructure.
Table 7. Documents and other indicators of reforms in the transport sector
origin of recommendation
documents to be adopted or amended and other indicators
Ukraine has many materials that will be useful for years to come, e.g. lithium, rare earth metals, and non-metal materials. The Ukrainian government plans to attract investors into extraction of these materials via product sharing agreements or PPPs.
Table 8. Documents and other indicators of reforms in the sector of critical materials
origin of recommendation
documents to be adopted or amended and other indicators
Launch the Product Sharing Agreement (PSA) tenders with participation of international players; publish the results
Q2 2025
Ukraine Facility
Publish the pipeline of investment projects for extraction of critical raw materials
Q2 2025
Ukraine Facility
Publish report on the verification of Critical Raw Materials reserves of Ukraine
Q3 2025
Ukraine Facility
Publish a study assessing the current legislation on Environmental, Social and Governance (ESG) reporting in the mining and extractive sector with recommendations on what legislative gaps need to be closed
Q4 2025
Tax system: closing loopholes and raising tax revenues
In this last section we consider the planned changes to the taxation system that would enable the government to collect more taxes to finance defense and other needs. These changes are described by the government’s Revenue Strategy, to which both Ukraine Facility Plan and the IMF program refer.
The IMF program is mainly focused on reduction of tax evasion and leveling the playing field. Within this program the government promised to refrain from tax amnesties or introduction of new tax exemptions during the program duration (some tax exemptions on critical imports are possible but should be limited in time and tightly overseen, and by 2026 the system of privileges on customs payments should be harmonized with the EU rules). Both the IMF program and the EU-2023 Review mention the need to implement the EU Anti-Tax Avoidance Directive. Ukraine will develop a unified approach to provision of tax privileges and introduce constant monitoring of the sum of these privileges and their effectiveness.
One of the most important loopholes in the taxation system is the simplified tax regime that allows large companies to “optimize” tax payments by hiring their staff as private entrepreneurs. This way an employee pays only 5% of income tax plus social contribution equal to 22% of minimum salary, which is much lower than 18% of income tax + 1.5% of military surcharge + social contribution equal to 22% of the actual salary. The Revenue Strategy assumes that when deductibles are similar, people will demand official employment because in this case they will not need to administer their taxes. Those who stay on the simplified system will have to use cash registers and will have to pay VAT after they reach a certain revenue threshold. The Revenue Strategy does not specify planned tax rates for entrepreneurs working on the simplified system. It only states that these rates will be differentiated by types of activities and by the sum of revenues.
Progressive scale will be introduced (again) for a “regular” personal income tax. Historically, Ukraine had both flat and progressive scales and it is hard to tell which one was more efficient. The minimum non-taxable income will be replaced by subsidies to the poorest.
All these changes will happen a year after the tax inspection introduces a proper personal data protection system and gains access to bank accounts of people, i.e. the earliest in 2027. The government may need to collect more taxes already in 2024-2025 because of insufficient external economic support. The government may raise the VAT rate or speed up aligning of excise rates with the EU.
Legal entities that use simplified taxation systems will pay the rate equal to the regular profit tax rate – 18% compared to current 6% of turnover + VAT or 10% without VAT. Profit tax privileges and exemptions will be limited so that effective tax rate does not fall below 15%. However, to encourage investment, the government plans to implement instant amortization (i.e. spending on some productive assets will be deductible from the profit tax base in the same year when it is made).
Until 2027 the government will implement the rules that discourage companies from searching for low-tax jurisdictions (BEPS and OECD two-pillar solution). By 2025 it plans to align the Ukrainian taxation system with international rules and by 2030 – to review all the agreements on avoiding dual taxation and if needed adjust Ukrainian legislation to international norms.
As we noted in the first article, local governments will receive more powers and opportunities to collect property tax. This tax should become the major revenue source for local budgets, in line with the experience of other countries.
By the end of 2025, Ukraine will introduce taxation of virtual assets and a new carbon tax model (see table 3).
Table 9. Documents and other indicators of tax reforms
origin of recommendation
documents to be adopted or amended and other indicators
deadline
IMF
Assess the effectiveness of tax privileges, their effect on the budget
Q2 2024
EU-2023, IMF
Develop the draft law in line with EU Anti-Tax Avoidance directive to prevent tax evasion
2024
IMF, Revenue Strategy
Analyze and reform rent payments: all payments for radio frequencies will be the same, there will be a legislative limit on the time during which a well can be considered new (those wells pay lower rent)
2024
EU-2023
Ensure the implementation of the automatic exchange of tax information with EU Member States in line with the OECD Global Standards and Ukrainian law. Establish central communication office for information exchange with EU Member States and connections to EU IT systems
2024
Revenue Strategy
Adopt the draft law introducing OECD principles of transfer pricing
2024
Revenue Strategy
Publish a study on pros and cons of windfall taxes modeling impact of such taxes on Ukraine’s investment attractiveness
2024
Revenue Strategy
PIT: exemptions/privileges cut but instant amortization introduced
2024-2025
Revenue Strategy
Implementation of e-Excise system: sub-laws and IT solution
Implement the EU directives on headquarters and branches; shares and royalties
2026
Revenue Strategy
Reform Personal Income Tax and simplified taxation system
2027
Revenue Strategy
Introduce the excise on sugar drinks
2027
Revenue Strategy
Set minimum excise rates on alcohol at the EU level
2028
Revenue Strategy
Gradually align tobacco taxes with the EU
2029
Revenue Strategy
Set minimum excise rates on fuel at the EU level
2029
Conclusion
In some areas (energy sector, education and science, taxation or social support) Ukraine will need major institutional reforms. In some sectors (e.g. agriculture or transport) no major changes are planned but a lot of investment is needed (demining, reconstruction of transport infrastructure etc).
Implementation of the planned reforms will show Ukraine’s commitment to join the EU and will also benefit Ukrainian businesses and public finance. The Ukraine Facility Plan will provide some “seed” investment, e.g. into reconstruction of schools, hospitals or energy efficiency. If institutional reforms are properly implemented, this investment will attract some private players or international organizations. However, this will happen only if Ukraine receives enough military support to be able to defeat Russia.
Ukraine needs as much outside help as it can get to build back after Russia’s attempt to destroy it. Denmark is helping pave the way and showing others how it might be done efficiently.
Ukrainian rescuers hose down a destroyed residential building as they move rubble after a missile strike in Mykolaiv on July 20, 2023, amid the Russian invasion of Ukraine.
The reconstruction plan for the city of Mykolaiv, Ukraine’s ninth largest, could become an anti-corruption model for all other Ukrainian cities as the Municipality of Mykolaiv partners with the United Nations Economic Commission for Europe (UNECE) and Denmark.
Taras Byk, board member of the Agency for Recovery and Development, and foreign businessmen from Odesa discussed rebuilding Mykolaiv at a meeting on March 14.
The city, which in Soviet times had the largest military shipyards on the Black Sea, was massively attacked by Russian troops in the first months of the war in 2022, due to its strategic bridge over the Bug River, the large natural barrier that blocks the road to Odesa. It was an obligatory passage for the Russians to conquer the rich ports of Ukraine.
As such, the city was hit continually, until the end of March 2022, by missiles and artillery shells. Even today it is attacked regularly with missiles and drones, like Odesa. Half of its 500,000 inhabitants have abandoned their homes.
In the summer of 2022, the mayor of Mykolaiv, Oleksandr Sienkevych, publicly asked for the UN’s help in developing a forward-looking master plan to rebuild his city, centered on people and the future.
The UNECE agency in Geneva mobilized the international architecture firm One Work in Milan to create the reconstruction master plan, according to the principle of build back better – that is, not redoing the city as it was before the destruction, but improving it. On the basis of the guidelines thus developed, UNECE will offer international tenders for the various works to be carried out.
A few months earlier, in July 2022, at the first international conference for the reconstruction of Ukraine, Prime Minister Denys Shmyhal had presented a map with the assignment of Ukrainian cities and regions to various Western countries in Lugano. A sort of international piecemeal adoption of Ukraine, to concentrate foreign investments according to nationality.
This approach was then completely abandoned, with the sole exception of Denmark, which confirmed that it wanted to concentrate the work of Danish companies on Mykolaiv. Denmark has decided to play this important role also due to the country’s maritime tradition. In effect, it would allow Denmark to facilitate a special relationship with a Black Sea port for its operations.
Sienkevych said in a television interview that Ukrainians see Denmark as a perfect partner for cooperation. “We see Mykolaiv as ‘the new Copenhagen’ of the future,” he said. But the Mayor also made a provocative statement for some Ukrainian administrators: “We don’t need money, we need projects.”
He basically asked not to offer funds to his own administration, but to pay companies directly at their offices outside Ukraine, to neutralize the risk of corruption – a working method that could be copied by other cities in Ukraine.
Taras Byk, with his Recovery and Development Agency, manages this strategic collaboration with Denmark. His task is to assess the city’s needs and communicate them to his Danish interlocutors so they can identify which companies can carry out the projects.
“It’s not a system where Denmark just hands over the money and then decides what to do with it. We have to create the projects first and then find the financing,” Byk said.
Among the key sectors that Danish companies will have to deal with is the waste collection and disposal/recycling system, which is lacking throughout Ukraine. Greenery will also be a central theme of the reconstruction, Byk explained. “We see the development of Mykolaiv as a green city, so Denmark’s experiences will be significant.”
But the most pressing problem is that many buildings in the city no longer have water or heating. Today the inhabitants have to collect water in bottles distributed by public service vehicles. Also, in this field Danish companies can help with the reconstruction of the urban water system destroyed by the Russians and a modern water purification plant.
Of course, where Danish companies need subcontractors to carry out work on site more economically, there will also be work for Ukrainian companies, Byk added in his presentation.
The presentation of the Damage and Key Needs Assessment Report of Mykolaiv took place in Kyiv on Dec. 16, 2022. The study was conducted by the KSE Institute with the support of the EU Anti-Corruption Initiative (EUACI).
According to an EUACI estimate, the reconstruction of Mykolaiv is expected to cost at least €852 million.
Denmark initially allocated 100 million DKK ($14.6 million) for the reconstruction of the city. And according to Danish Development Minister Flemming Møller Mortensen, this amount will increase.
For two years now, Russia has been systematically destroying the Ukrainian agricultural sector, threatening global food security.
In research prepared for the International Centre for Ukrainian Victory, experts examined the loss of fertile land, explosive contamination, damage from the explosion of the Kakhovka Dam, loss of agricultural infrastructure, and damage from the militarisation of the Black Sea. They also analysed the prospects for the recovery of the Ukrainian agricultural sector and the need to protect infrastructure, ports, and trade routes from enemy attacks.
Key findings:
Ukraine’s agricultural sector has suffered more than $80 billion of direct losses and damage as a result of the full-scale invasion.
The areas directly affected by the hostilities accounted for about 36% of pre-war grain production.
1/3 of agricultural companies left the market. Another 10-20% may leave in 2023/24 MY, given the current working conditions. About 2,653 agricultural enterprises suffered losses. Over 90% of small farmers suffer losses.
The area of temporarily occupied agricultural land in Ukraine reaches 8.0 million hectares (6.2 million hectares excluding Crimea).
Russia’s destruction of the Kakhovka dam caused Ukraine losses worth almost $14 billion. 90% of the irrigation canals have dried up.
Water supply to 31 irrigation systems in Dnipro, Kherson, and Zaporizhzhia regions was stopped. In 2021, they provided irrigation for 584,000 hectares, from which they harvested about 4 million tons of grain and oil crops worth $1.5 billion.
174 thousand km2 of Ukraine’s territory (almost 30%) was assessed as potentially contaminated with mines and explosive remnants of war. This is the total area of such countries as Belgium, the Netherlands, Switzerland, Slovenia, and Denmark.
The production of major crops in 2024 could reach 79.8 million tons, which is only 900 thousand tons less than in 2023. But this is a significantly lower production rate compared to the period before the full-scale invasion (season 2021-2022).
Attachment RESEARCH: IMPACT OF THE WAR ON THE GLOBAL FOOD SECURITY
What financial system can facilitate Ukraine’s post-war recovery and development? A new report provides a clear answer: an effective, competitive and widely trusted financial system that lives up to recognised standards of integrity, is compliant with the EU accession process, and assumes a recognised role in Europe’s banking and capital market unions. The team of authors, which combines leading Ukrainian economists with experts from CEPR’s Research Policy Network on European financial architecture, stress that a well-designed financial sector – the whole of banks, capital markets, insurance, mortgages, financial regulation and supervision – can play a catalytic role in Ukraine’s reconstruction. Preparing for EU accession can help to steer that process and build confidence among investors and the public, at home and in the international community.
Discussions about the post-war reconstruction of Ukraine inevitably start with observing the huge physical damage inflicted in the course of the Russian invasion, and the consequent need for the rebuilding of hospitals, housing, schools, and other essential infrastructure. But this tragedy also gives Ukraine an opportunity to build back better, to modernise the country along many dimensions, and to be ready to withstand possible further Russian aggression and become an important element of the NATO security system (Becker et al. 2023, Gorodnichenko and Rashkovan 2022, Gorodnichenko et al. 2023).
To this end, ravaged by war as it is, Ukraine will need massive support from its allies. The key policy question is how to ensure first, that resources become available in sufficient volume, and second, that they go to the best uses and foster sustainable development of the country. As we argue in a new report (Carletti et al. 2024), both aspects are deeply dependent on the existence of a widely trusted and visibly effective financial system. The emerging financial system in Ukraine is supposed to function well at two levels: channelling investible funds; and establishing good governance by screening and monitoring projects across the country.
In thinking about Ukraine’s future, there is a clear precedent in the provision of large-scale aid from the US to Europe after WWII. The European Recovery Program or Marshall Plan of 1947 is often held up as the ‘gold standard’ for the economic reconstruction of areas in the wake of political, military, or economic devastation because it stood at the beginning of an era of unprecedented growth coupled with political stability. To be clear, the Marshall Plan was not just about the transfer of money, but rather about institutional reforms such as establishing deep connections linking national economies to their neighbours and to the world, and helping to create an effective financial system domestically.
In the three-quarters of a century since the launch of the Marshall Plan, the world has accumulated a rich experience of reconstruction and development efforts. History is littered with failed attempts to impose designs and manage domestic processes, but also impressive examples of collaborations that have fuelled rapid recovery. The successes point to the need for strong recipient country ownership of donor coordination and application of core governance standards along with environmental, social and procurement standards. Ukraine’s reconstruction and modernisation offer rich opportunities to put these lessons to use and ensure that the country’s transition to an advanced European economy goes as quickly and smoothly as possible.
Consistent with this view, German Chancellor Olaf Scholz declared at the June 2022 G7 summit at Schloss Elmau, Germany, that there was a consensus that a new Marshall Plan was needed. In a similar spirit, the G7’s first major international conference on the “Recovery, Reconstruction and Modernisation of Ukraine” in October 2022 underscored the role that institutions play in governing and coordinating recovery and reconstruction, as well as the need to establish a recovery framework that emphasises cross-border linkages and a deepening relationship of Ukraine with the EU, with membership as one stage in that process (G7 Germany 2022).
These aspirations will require large investment. Funds will partly be drawn in from public sources, national and international. Some foreign public capital will come from international institutions and sources such as the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the World Bank. But a large part of the required funds will have to be mobilised from private sources abroad. Furthermore, such a mobilisation will not be possible without mobilising domestic savings.
This report makes a series of proposals on reforms and policies necessary to achieve these goals. We stress that a well-designed financial sector – the whole of banks, capital markets, insurance, mortgages, financial regulation, and supervision – can play a catalytic role in Ukraine’s reconstruction and development. We also show how preparing for EU accession can help to steer that process and build confidence among investors and the public.
What financial system can facilitate recovery and development? The answer is clear to us: an effective, competitive, widely trusted financial system, living up to recognised standards of integrity, compliant with the EU accession process, and assuming a recognised role in Europe’s banking and capital market unions.
What strategic steps are necessary to deliver this longer-term vision?
Principle #1: Ukraine’s institutional framework for banking and financial markets should be aligned with that of the euro area and the EU’s Banking Union, in particular with regard to financial legislation and supervisory practice
To access global capital and to converge with the rest of Europe, Ukraine has to integrate its financial system into European markets and institutions. This does not mean that Ukraine should copy everything from the euro area’s regulatory framework right away. But to integrate fully into the euro area’s banking and capital markets and thus tap into vast resources and experiences, Ukraine will need to adopt the euro area playbook.
For example, on its transition to EU accession, Ukraine could and should sign a formal agreement with the EU’s Single Supervisory Mechanism to help align supervisory standards and practices with those commonly applied inside the EU.
In a similar spirit, aligning enforcement for transparency and reporting (e.g. the International Financial Reporting Standards, the International Sustainability Standards Board, and the European Securities and Markets Authority) should facilitate more the access, at least for large Ukrainian firms, to capital markets outside the country (e.g. Frankfurt, London, Paris, and Warsaw), thereby unlocking potentially significant investments and strengthening their governance.
The same logic suggests that the resilience and international recognition of the mortgage lending market in Ukraine can be supported by introducing collateral rules in line with international practice, for example limiting the ratio of loan-to value and debt-to-income service, and strengthening the role of covered bonds and specialised lending institutions, such as savings and loans associations.
Finally, by making the institutional framework compatible with the EU, Ukraine should facilitate the entry of foreign banks and other financial firms, thus deepening domestic capital markets further and boosting competition.
Principle #2: Financial sector effectiveness can be significantly improved by creating recognised and catalytic institutions that are capable of coordinating international donors and investors, as well as integrating foreign capital markets and domestic financial institutions
We suggest establishing three institutions, partly based on existing institutions, in order to strengthen and widen Ukrainian ownership of the reconstruction and reform process.
First, a National Reconstruction and Reform Council (NRRC) should be established that develops and communicates a broadly shared vision for reconstruction, strives for agreement on the reform agenda and monitors its implementation.
Second, a Ukraine Development Bank (UDB) could leverage the capacity of existing banks in the country’s reconstruction and ambition to build back better. The UDB would raise capital in the markets to finance programmes (e.g. machinery, energy, housing) by entering into co-financing deals with existing banks, thereby leveraging their ability to invest. Moreover, the UDB would lend to sub-sovereign entities carrying out infrastructure projects (roads, rails, reconstruction). The UDB is envisioned as an institution co-owned by national and multilateral development banks, to ensure world- class practices as well as access to cheaper capital in international markets.
Third, a Ukraine Development Platform (UDP) would be a multilateral venture, with strong Ukraine ownership, that is dedicated to strategic planning and donor coordination relating to the reconstruction effort during and after the war. The government would put projects on the platform for multilateral and bilateral development banks to explore how they could collaborate. The UDP would also promote core standards to be applied to projects and encourage development institutions to come together in financing individual projects.
Together, the UDB and the UDP should be capable of facilitating Ukrainian banks’ access to international capital flows, while the NRRC would help to ensure a broad consensus within Ukrainian society for the reform agenda.
Figure 1. Proposed architecture: new institutions for financing recovery
Principle #3: Reforms of the financial sector should seek to resolve post-war legacies and deliver a market-based allocation of capital
There is a clear need to recapitalise banks and compensate for losses caused by war- related non-performing loans. To the same end, war insurance and various public–private partnerships are needed to de-risk investment and credit in a country that is likely to continue to live in the shadow of potential Russian aggression.
To support the achievement of a market-based allocation of capital, the government should privatise state-owned banks by selling stakes to investors and other banks, aiming for a diverse and competitive, (largely) privately owned domestic banking landscape, with somewhat limited roles for institutions remaining under state ownership.
Principle #4: Financial development should be supported by broader reforms of corporate governance, the rule of law, pension systems, etc. – and by a favourable macroeconomic environment
Over the last decade, Ukraine has made great strides in strengthening its macroeconomic framework and banking sector, but these achievements must now be supplemented by wider governance reforms. In a nutshell, reforms of the financial sector are unlikely to yield sustainable benefits if the rest of the country suffers from corruption, if households have few incentives to save, if investors cannot protect their projects from expropriation, if markets are closed to competition and if oligarchs control much of the economy.
Because broader reforms are essential for EU accession, we can hope that the determination of Ukraine to join should provide a sufficiently strong institutional anchor that motivates them.
Principle #5: Faith in the long-term success of Ukraine
We would like to flag the final key ingredient: faith. We see the prospect of Ukraine as a free, democratic and prosperous country and a full EU member as a faith-breeding promise in the sense of Gerschenkron (1962). We hope that others share our faith in the long-term success of Ukraine, not only for the sake of the brave Ukrainians who defend their homes and freedoms but also for anybody who believes in the free world.
The European Business Association offers Kyiv Post insights into how Ukraine can attract more business to help in both during the war and in the post-war recovery.
Ukraine’s economy has proved to be a resilient one. Notwithstanding the ongoing war, most Ukrainian companies continued working, and during the second year since the full-scale Russian invasion some have even increased their activity. Kyiv Post spoke to Katerina Morozova, Head of the European Business Association (EBA) Odesa – Southern Ukraine Office.
Assessing the resilience of Ukrainian companies amidst the ongoing war
Businesses in Ukraine continue to operate and show financial results even in such difficult conditions. We see a gradual but steady trend of recovery in business activity and financial performance starting in 2022.
Currently, 78 percent of the Association’s member companies are operating at full capacity, while a year ago only 54 percent were fully operational. The number of companies with restrictions on their operations continues to decrease – from 46 percent last year to the current 21 percent. The most common restriction remains the reduction of the companies’ geographical scope of activity. Currently, 1 percent of the companies surveyed are not operating.
The majority of companies, namely 88 percent, pay salaries in full, while 15 percent pay bonuses or additional funds. At the same time, 43 percent of the companies have increased the salary level for their employees. The number of companies that reduce the level of pay or dismiss personnel in 2024 remains quite low and currently stands at 5 percent and 3 percent, respectively.
Companies support the Armed Forces of Ukraine (AFU) and the number of their own employees’ in the AFU remains high, with as much as 57 percent of respondents continuing to provide financial support. In addition, 45 percent supply their own products to the needs of the AFU and vulnerable groups, 26 percent provide services, 18 percent provide medicines, and 12 percent supply protective/defense equipment. The volume of assistance to the army and the population from businesses has remained stably high since the beginning of the full-scale invasion.
Ukrainian businesses maintain financial resilience despite significant losses from the war. Currently, 46 percent of the surveyed companies have financial reserves for more than a year, 19 percent for a year, 24 percent for six months, and 6 percent for several months.
Critical factors for successful reconstruction
The war unleashed by Russia against Ukraine has caused significant damage to the Ukrainian economy. Many businesses have been destroyed, others have lost markets or supply chains. However, in order to achieve success in this direction, it is necessary to carefully consider several critical factors:
Fighting corruption. Corruption is a serious threat to any economy. Ensuring transparency, anti-corruption laws and effective control over the activities of government bodies will help reduce corruption risks and attract more investment.
Business regulation reforms. Simplifying business registration procedures, reducing bureaucratic barriers and improving the legal system are key aspects that will help support entrepreneurship development and attract more investment.
Human resources development. Investing in education and skills development of workers is key to creating a competitive workforce that meets the needs of the labor market.
Among the main drivers of change in business sentiment, top managers cite the military situation, the mobilization situation and uncertainty with regard to international aid (above all from the US).
At the same time, much will continue to depend on international support – whether it will remain at the same level, which would allow us to keep the front line and the macroeconomic situation stable.
The judicial system does not really work the way it does abroad, which makes it difficult for investors to feel confident and get guarantees.
Ukraine’s preparedness to welcome international investors: ensuring transparency and legal integrity
Before the war, the main problems were the lack of rule of law and a weak judicial system. The problem of corruption is closely related to these factors. When we talked to investors about the main obstacles, they always singled out these problems among their main concerns. However, when we analyze other countries, we see that the situation in Ukraine is not so bad. The problems with corruption sometimes seem exaggerated. But the judicial system does not really work the way it does abroad, which makes it difficult for investors to feel confident and get guarantees.
Investors see the news about the events in our country, and for them it becomes an obstacle to making a decision to invest in Ukraine. Those companies that already operate in Ukraine do not feel fear, because they are already familiar with our territory and understand how to work here. We need to work with them, especially when the general perception of Ukraine abroad is reduced to such concepts as “loans, corruption, war.” That’s why we, as an association, decided to launch a new project “Global Business for Ukraine.”
The project aims to create an international business network to promote opportunities in Ukraine. This network will be a significant complement to economic diplomacy, which, in our view, will enable more effective work by engaging investors who either know little about Ukraine or have too much negative information. It is important to understand that investors often study how to do business in Ukraine and with whom to collaborate. They learn about local business processes, and when this is overshadowed by a negative background of corruption and lack of rule of law, the decision to invest in Ukraine can become very difficult for them.
Comprehensive work is needed. On the one hand, within the country, we must ensure the effective operation of our institutions. Special attention should be paid to the judicial branch to ensure it truly works in favor of citizens.
On the other hand, we must actively work abroad, expanding information about the opportunities and advantages of doing business in Ukraine. When communicating with members of our association, we see that many of them successfully conduct their business even in modern conditions.
Amidst the challenging times, Ukraine has seen notable investments that underscore its resilience and potential for growth:
Bayer Group is injecting €60 million ($65 million) into seed production despite the ongoing war with Russia. This investment includes expanding drying capacities, constructing bomb shelters for employees, and upgrading machinery and equipment.
Carlsberg Ukraine unveiled a significant investment project in 2023, injecting Hr.1.5 billion ($39 million) into a new production line at the Kyiv Brewery. The line, equipped with cutting-edge technology, aims to enhance operational efficiency, meet consumer demands, and boost brewery capacity by 80 percent.
Despite the challenging time, the war has not stopped investment activity in Ukraine. Of course, the risks have significantly increased, but new opportunities have also emerged for those willing to seize them.
PART 2: LAUNCH OF THE REGISTER OF DAMAGE FOR UKRAINE
Yesterday, the Register of Damage for Ukraine (the “Register”) officially launched, meaning that the claims submission process for those seeking compensation for the damage inflicted by the war in Ukraine is now open.1
The Register, established within the framework of the Council of Europe and supported, among others, by Canada, the European Union, Japan, the United States and the United Kingdom, stands as a pivotal initiative in response to the full-scale military invasion of Ukraine by the Russian Federation (“Russia”). It aims to provide a structured framework for recording compensation claims for damages, losses, and injuries inflicted by the invasion.2
In Part 2 of our new Series entitled “Russia: Investment Protection and Arbitration”, we focus on the mandate, functions and operational framework of the Register and highlight key points for potential users of the Register.
REGISTER’S MANDATE AND FUNCTIONS
The Register is a digital platform tasked with receiving and processing the claims for damages and related evidence arising from the Russian invasion of Ukraine.
Serving as the first component in an international reparations mechanism for Ukraine, it is aimed at capturing damages, losses, and injuries, incurred in Ukraine by individuals, companies and the State of Ukraine due to the Russian invasion. The Register’s role does not extend to assessing the validity (beyond eligibility) or value of claims, nor does it authorize any payments. Rather, its function is solely to document these claims for potential future action.
In addition to the Register, future compensation mechanisms for damages caused by Russia’s aggression against Ukraine are expected to include a claims commission and a compensation fund (both requiring separate international instruments to be established).4
ORGANISATIONAL STRUCTURE
The Register is governed by the Conference of Participants, representing the European Union and forty-three member states of the Register.5 This body is responsible for approving rules and regulations, adopting budgets and providing oversight, as well as appointing members of the Board of the Register (the “Board”).
The Board is the key authority responsible for the functioning of the Register, comprising experts in international law, war damages, and claims resolution. Based in The Hague, the Netherlands, the Board’s role is to assess claim eligibility and develop operational rules and regulations.
The Executive Director of the Register oversees the daily work of the Secretariat of the Register (the “Secretariat”), coordinates and forwards claim submissions to the Board and liaises with national and international bodies to ensure that the Register operates smoothly. The Secretariat provides administrative as well as substantive and technical support in relation to the maintenance and functioning of the Register.
ELIGIBILITY CRITERIA AND CLAIM CATEGORIES
To qualify for inclusion in the Register, the claims must satisfy all of the below criteria:
incurred on or after 24 February 2022;
incurred within the territory of Ukraine (including its territorial waters); and
caused by Russia’s “internationally wrongful acts in or against Ukraine”.6
The Rules Governing the Submission, Processing and Recording of Claims provide for an additional eligibility criterion that the claim shall be submitted “by or on behalf of an eligible Claimant”.7
The categories of potential claimants are broad and cover:
natural persons;
legal persons (including foreign companies); and
the State of Ukraine, which includes “regional and local authorities, and state-owned or controlled entities”.8
In order to submit their claim, legal entities and the State of Ukraine must engage duly appointed representatives (such as lawyers), while individuals have the option to proceed without representation. The rules on the use of representatives are expected to be adopted separately.9
Anticipated categories of damages encompass personal injury, property loss, business loss, damage to infrastructure, and environmental harm, among others.10
The Board has opted for a phased approach to the implementation of the Register. The launch on 2 April 2024 focusses solely on one critical category of damage, namely damage or destruction of residential property. Subsequent phases are expected to also address the claims from individuals most severely impacted by the conflict, claims concerning the damage or destruction of Ukraine’s critical infrastructure and claims from businesses (including foreign companies) which suffered business losses, as well as infrastructure and other damages as a result of the invasion.
In terms of claims that may be made by legal entities, the non-exhaustive list of categories11 include not only claims for damage or destruction of property and other assets, but also business and other economic losses like the loss of control of property in temporarily occupied territories, relocation (evacuation) of businesses, and humanitarian expenditures.
OPERATIONAL FRAMEWORK AND SUBMISSION PROCESS
The primary features of the Register’s operational framework unveiled thus far are as follows:
claim submission will be exclusively in digital form, utilising the Diia mobile application which is already widely used in Ukraine for a variety of State services;
claims will be filed using specific forms published by the Board;12
the filing of claims is free of charge;
initially, claims may only be submitted in Ukrainian, with an English language option expected to be available later;
no specific deadlines for claim submission have been announced yet (although this may be subject to change in the future); and
decisions on the eligibility and subsequent recording of claims in the Register will be made by the Board.
IMPORTANT POINTS FOR POTENTIAL CLAIMANTS
While the Register does not have adjudicatory functions with respect to submitted claims, such as determining responsibility or allocating payments or compensation, the submission of a claim (and the quality of supporting evidence) can significantly impact the likelihood and extent of recovery of any compensation. Therefore, it is advisable to approach the claim preparation and submission process with due attention and diligence, even though the submission via the mobile application Diia or its web portal might seem straightforward.
Our initial observations in relation to the Register’s framework include the following:
a wide range of evidence is available for submission, including expert reports, digital data, documents and media;
although the Board does not have adjudicative functions, it retains the power to not record a claim “with prejudice” (preventing resubmission of the same claim),13 including when it deems a claim “manifestly unfounded”;14 and
in its decision-making, the Board may take into account judgments or awards from national or international courts, tribunals and other adjudicative bodies within the Register’s mandate, although it is not bound by them.15
In respect of the latter point, claimants who have previously explored other avenues such as (i) litigation in Ukraine or (ii) international investment arbitration to recover losses incurred from the Russian invasion of Ukraine may need to reconsider their strategies in light of the launch and subsequent activities of the Register.
However, as the mandate of the Register does not extend to damages suffered before 24 February 2022, individuals and companies who have already pursued avenues like international investment arbitration to seek redress for damage caused by the Russian Federation’s illegal occupation of Crimea or support for separatist movements in the so-called Donetsk People’s Republic and Luhansk People’s Republic in eastern Ukraine since 2014 will not be directly impacted by the Register’s operation (at least until the three-stage compensation mechanism, including the claims commission and compensation fund, is established).
CONCLUDING REMARKS
The commencement of operations by the Register on 2 April 2024 marks a significant initial stride towards accountability and reparations for victims of the invasion. With its primary function lying in documenting claims and underlying evidence, the Register does not serve as a comprehensive avenue for compensating damages, losses and injuries caused by the war. Nevertheless, it represents a pivotal first component of an eagerly anticipated multifaceted reparation mechanism, which is expected, in due course, to encompass the evaluation and enforcement of claims. We will provide further Legal Insights about the claims commission and compensation fund as soon as there are any significant developments in respect of their launch.
Mayer Brown continues to monitor the relevant developments and is well-placed to provide assistance in navigating the Register and the claims process. Drawing on our expertise in international dispute settlement, Mayer Brown stands ready to offer tailored guidance and support to claimants seeking compensation for damages incurred due to the Russian invasion of Ukraine. This includes, but is not limited to, utilising the existing mechanism offered by the Register, as well as anticipated future developments within the same framework.
3 Pursuant to Article 1.1 of its Statute, as adopted by the referred Resolution, dated 12 May 2023 and amended on 27 September 2023 (the “Statute of the Register”), the Register is defined as “The Register of Damage Caused by the Aggression of the Russian Federation against Ukraine”.
4 Statute of the Register, Article 2.5.
5 The member states of the Register include Albania, Andorra, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czechia, Denmark, Estonia, European Union, Finland, France, Georgia, Germany, Greece, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Republic of Moldova, Monaco, Montenegro, Netherlands, North Macedonia, Norway, Poland, Portugal, Romania, San Marino, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Ukraine, United Kingdom and United States of America.
6 Statute of the Register, Articles 1.1 and 2.2.
7 The Rules Governing the Submission, Processing and Recording of Claims (the “Claims Rules”), as adopted by the Register’s Board on 21 March 2024, available at https://rd4u.coe.int/en/documents.
Since the enactment of martial law, Ukraine has introduced several changes to its legislation regulating construction issues. At the same time, the ongoing process of digitalization of the construction permit system continues.
Below is a brief description of changes that are most important for business.
Law of Ukraine “On Guaranteeing Proprietary Rights to Real Estate Objects to be Constructed in the Future” dated 15 August 2022, No. 2518-IX (the “Real Estate Objects Law”)
The Real Estate Objects Law seeks to protect ownership rights to real estate objects under construction. It introduces a new special property right to a future real estate object, subject to state registration.
A future real estate object is defined as a part of a divisible object under construction, as provided for by the construction and design documents, which after construction and commissioning, will become a separate real estate object (e.g. apartment, garage, other residential or non-residential premises, parking lot, etc.).
The Real Estate Objects Law divides objects under construction into:
Divisible – those containing two or more future real estate objects, and
Indivisible – those which do not contain any future real estate objects.
The list of the main technical characteristics of a divisible object under construction and information about future real estate objects that have been or are being sold were approved by Resolution of the Cabinet of Ministers of Ukraine dated 21 April 2023 No. 378 “Some Issues of Implementation of the Law of Ukraine “On Guaranteeing Proprietary Rights to Real Estate Objects to be Constructed in the Future”. According to the above Resolution, the construction customer (developer) must publish information on the technical characteristics and future real estate objects that have been or and are being sold on its website.
In order to guarantee the rights of buyers of future real estate objects, the Real Estate Objects Law stipulates that divisible objects under construction cannot be put into the stream of commerce , except in cases where they are mortgaged and the developer is replaced. Furthermore, the construction customer is obliged to determine a list of future real estate objects that will constitute a guarantee share, i.e. a set of future real estate objects, which is determined for each divisible object under construction (each stage of construction/each commissioning portion), proprietary rights to which should be encumbered before the commissioning of the finished object of construction (stage of construction / commissioning portion) in order to guarantee the completion of the relevant object by other persons (including due to bankruptcy, financial insolvency of the construction customer/construction developer).
The minimum guarantee share is determined by Resolution no. 8 of the Cabinet of Ministers of Ukraine dated 3 January 2023 “On Determining the Minimum Guarantee Share for the Construction of Real Estate Objects”. It is defined as a percentage of the total area of future real estate objects in a divisible object under construction (stage of construction/commissioning portion) in accordance with the design documents for construction when such area should make:
10 percent of the area of future real estate object(s)– for the cities of Kyiv, Dnipro, Lviv, Odesa, Kharkiv;
5 percent of the area of future real estate objects(s) – for other localities.
Law of Ukraine “On Amendments to Certain Laws of Ukraine on Priority Measures for Reforming the Urban Planning Sphere” dated 12 May 2022 No. 2254-IX (the “Reform Law”)
The Reform Law sets out a new special type of urban planning program to ensure the restoration of communities, which have suffered as a result of the armed aggression against Ukraine or of other socioeconomic, infrastructural, or ecological crises. These regional or local restoration programs will determine the key spatial, urban planning and socioeconomic priorities of the restoration policy and will include measures to ensure the restoration of the relevant region. The comprehensive restoration program is not part of urban planning documentation.
The provisions of the approved restoration program are components of the initial data for the development and introduction of changes to the urban planning documentation at the local level.
The Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Regarding Land Use Planning” dated 17 June 2020 No. 711-IX (as amended) introduced a new type of urban planning documentation at the local level – a comprehensive plan for spatial development of the territory of a territorial community. It also introduced other changes to the law in terms of regulating the development of urban planning documentation at the local level. Thus, the development plans under this law will have to take into account the relevant comprehensive restoration program.
The Reform Law regulates urban planning issues that are necessary to solve urgent problems caused by the war, in particular:
Location, including construction, of buildings and structures intended for temporary residence of internally displaced persons who lost their homes as a result of armed hostilities;
Relocation (evacuation) of production facilities of enterprises from the war zone;
Simplification of construction of certain objects of engineering and transport infrastructure under the conditions of martial law;
Creation of prerequisites for comprehensive restoration of settlements (territories) that suffered as a result of the war.
The Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Regarding the Simplification of the Procedure for Changing the Designated Purpose of Land to Attract Investments for Rapid Reconstruction of Ukraine” dated 6 February 2024 No. 3563-IX (the “Simplification Law”)
On 28 February 2024, the Simplification Law was officially published. The law:
Allows changes to the designated purpose of land plots without developing urban planning and land management documentation in the absence of the developed urban planning documentation at the local level. This simplified approach will apply to land plots outside of the settlements for locating the following class of buildings and structures:
Industrial and warehouse buildings;
Non-residential agricultural buildings;
Pipelines, lines of electronic communication networks, and power transmission (except for main oil and gas pipelines);
Complex industrial facilities (except for buildings of enterprises engaged in the extraction, production and processing of nuclear materials, the enrichment and processing of nuclear fuel; the thermal treatment (incineration) of household waste; and nuclear power plants).
The simplified procedure will be in effect for five years from the date of termination of martial law in Ukraine or in the given locality.
Allows changing the designated purpose of particularly valuable land and forest land plots in order to use them for purposes not related to forestry management, in case of location of power facilities (including technological infrastructure of power facilities).
Provides for the development of a register of territories contaminated / likely contaminated by explosive objects.
The Simplification Law will enter into force three months after its publication, i.e. from 28 May 2024.
