Category: Publications

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	Q2 2024 (end-June)
EU-2023, Ukraine Facility	Adopt energy and climate plan (draft)	Q2 2024
EU-2023, Ukraine Facility	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	deadline
EU-2023, Ukraine Facility	Adopt the revised transport strategy until 2030	Q4 2024
EU-2023, Ukraine Facility	Adopt the Strategy for developing and expanding the border infrastructure with EU and Moldova until 2030	Q4 2024
EU-2023, Ukraine Facility	Adopt the law on aligning Ukraine railways with EU acquis	Q4 2025
Ukraine Facility	Adopt the draft law on better regulation of maritime and river shipping and simplification of administrative procedures	Q2 2026
EU-2023, Ukraine Facility	Adopt the EU regulation on port services	Q1 2027

Critical materials

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	deadline
Ukraine Facility	Adopt the draft law on mineral base development	Q4 2024
Ukraine Facility	Upgrade the e-cabinet of subsoil users	Q1 2025
Ukraine Facility	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	2024-2025
Revenue Strategy	Harmonize Ukrainian law with the EU system of custom duty privileges. The new Customs Code should align with the EU Customs Code and additional regulations 2015/2446, 2015/2447, 2022/2399, 1186/2009, 608/2013.	2024-26
EU-2023, Revenue strategy	Align VAT legislation with the EU directive	2025-2027
Revenue Strategy	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. 

Source: https://voxukraine.org/en/sectoral-reforms-human-capital-and-tax-policies-what-to-expect-in-the-next-four-years

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.

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.

Source: https://www.kyivpost.com/post/29917

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

Source: https://ukrainianvictory.org/publications/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.

Source: https://voxukraine.org/en/ukraine-s-reconstruction-policy-options-for-building-an-effective-financial-architecture

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.

Source – https://www.kyivpost.com/post/30574?fbclid=IwAR32nzPjTnNqFSvdHvgTXe7oXOVx3zTuNN33zcWpaeDtKhvbsZmVkqI3E08

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.

The Register was established in May 2023 within the framework of the Council of Europe by Resolution CM/Res(2023)3 establishing the Enlarged Partial Agreement on the Register of Damage Caused by the Aggression of the Russian Federation Against Ukraine.³

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.

---

¹ See official press-release, dated 27 March 2024, available at: https://rd4u.coe.int/en/-/register-of-damage-for-ukraine-to-open-for-claims-submission-on-2-april-2024.

²See official webpage of the Register available at: https://rd4u.coe.int/en/home.

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.

⁸ Statute of the Register, Articles 1.1 and 2.3.

⁹ Claims Rules, Article 11.2.

¹⁰ See The full list of categories of claims eligible for recording available at https://rd4u.coe.int/en/documents.

¹¹ See The full list of categories of claims eligible for recording available at https://rd4u.coe.int/en/documents.

¹² For example, the claim form for damage or destruction of residential immovable property is available at https://rd4u.coe.int/en/documents.

¹³ Claims Rules, Article 21.7(b).

¹⁴ Claims Rules, Article 18.2.

¹⁵ Claims Rules, Article 21.3.

Source – https://www.mayerbrown.com/en/insights/publications/2024/04/russia-investment-protection-and-arbitration-part-2

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:

1. Industrial and warehouse buildings;
2. Non-residential agricultural buildings;
3. Pipelines, lines of electronic communication networks, and power transmission (except for main oil and gas pipelines);
4. 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.

Source – https://www.dentons.com/en/insights/articles/2024/april/3/ukraine-adapts-construction-legislation-to-address-the-challenges-of-war

The Investment Guide by BDO in Ukraine serves as a vital platform for investors, delivering essential information about Ukraine’s reconstruction. It meticulously outlines key mechanisms and stages crucial for attracting investments, while also providing in-depth analyses of potential risks and effective strategies for their mitigation. The guide elaborates on investment opportunities spanning various economic sectors, placing special emphasis on international financing and export credit. Additionally, it furnishes specific recommendations for meticulously selecting investment projects. We anticipate that our guide will evolve into an indispensable tool for those eager to contribute to the ongoing restoration of Ukraine.

BDO in Ukraine experts have compiled useful tips and valuable information in one place for potential investors looking to invest and contribute to Ukraine’s Recovery today. The information in the Guide is regularly updated and supplemented with relevant materials on the topic.

Steps for investors

1. Consider the following valuable resources when identifying potentially interesting projects for investment

• Investment Opportunities Map of Ukraine, precented by European Business Association in Ukraine 
• Go to government investment promoting agency – UkraineInvest or Advantage Ukraine
• Systems responsible for the recovery of Ukraine
• Check UVCA initiatives Ukraine Redevelopment Platform, 1% Pledge or visit UVCA Investors Club
• Explore Investors guide to Ukrainian IT

2. Check your country

• Political and war risks mitigation possibilities 
• German Export Credit Guarantees – Simplified procedures for Ukraine 
• International Chambers of Commerce / Business Associations

3. If your investment requires establishing a Ukrainian legal entity, check Ukrainian initiatives, legislation and regulations for investors

• Taxation in Ukraine
• Diia.City –preferable tax regime for investments in IT Industry in Ukraine    
• Valuation of war damage
• Privatization process in Ukraine
• Financial state support programs
• The Law of Ukraine “On Industrial Parks” 
• Key legislative act regulating data protection in Ukraine
• Key points on prevention of money laundering in Ukraine
• Access to EU Finance
• Compensation for employers for hiring the unemployed persons and creating new workplaces
• Ukrainian E-Residency for Foreign Nationals
• Entry regime to Ukraine for foreign citizens
• Guide to electronic public procurement system in Ukraine

Disclaimer: Please note that this information is in effect as of the date of this document (23/03/2024)This publication is for informational purposes only and should not be construed as legal, tax, or financial advice. Please consult with a professional advisor for personalized guidance. 

Source – https://www.bdo.ua/uk-ua/ukraine-recovery-2/investments-in-ukraine

Ukraine offers several special legal regimes to facilitate investments
activity and future recovery as follows:

Significant investment projects

construction (including upgrades and re-equipment, etc.) and/or supply
projects in certain business areas and subject to specific (preferred)
terms and conditions, commonly known from “law on investment nannies”
(Law of Ukraine “On State Support of Investment Projects with Significant
Investments in Ukraine” No. 1116-IX dated 17 December 2020).

Industrial parks

territories which are designated for industrial park development in
accordance with the local zoning documentation and equipped with
the relevant infrastructure, and where participants of industrial park
may carry out certain business activities on preferential terms. (Law of Ukraine “On Industrial Parks” No. 5018-VI dated 21 June 2012).

Immediate recovery projects

a set of exemptions and simplified procedures, which serve as fast-track
solution for constructions and other activities addressing immediate
humanitarian and industrial needs (social/temporary housing, recovery of
critical infrastructure, construction of industrial and energy objects, etc.),
subject to certain exceptions within the period of martial law and certain
additional period following its termination Law of Ukraine “On Amendments
to Certain Legislative Acts of Ukraine Regarding the Peculiarities of
Regulation of Land Relations under Martial Law” No. 2247-IX dated 12 May
2022 (the “Law No. 2247”); Law of Ukraine “On Amendments to Certain
Legislative Acts of Ukraine to Simplify the Procedure for Changing Land Use
Designation to Attract Investments for the Purpose of Immediate Recovery of
Ukraine” No. 3563-IX dated 06 February 2024 (the “Law No. 3563”), coming
into effect on 28 May 2024).

Full information – https://www.asterslaw.com/content/uploads/investments%20in%20Ukraine.pdf

Source – https://www.asterslaw.com/ua/press_center/legal_alerts/ukraine_offers_special_regimes_for_major_real_estate_and_other_investments/

PART 1: US WARNS OF SERIOUS RISKS OF CONTINUING BUSINESS IN RUSSIA: KEY OPTIONS FOR FOREIGN INVESTORS

In its recent business advisory, dated 23 February 2024, the United States (“US”) Government warns businesses and individuals of serious legal, financial, and reputational risks entailed in maintaining operations in Russia (the “Advisory”).¹ It highlights that by staying in Russia, foreign investors may face penalties – including economic sanctions, export controls and import restrictions – imposed by the US and its allies and partners, and risk becoming involved in Russia’s military actions against Ukraine and violations of international law.

In light of this Advisory, it is important for foreign investors with assets and operations in Russia to know the options available to them and how different options may impact their investment protection and chances of bringing credible arbitration claims. This theme is the focus of Part 1 of this new Series entitled “Russia: Investment Protection and Arbitration”.

PURPOSE OF THE ADVISORY

While appreciating that the choice of whether and how to continue operations in Russia, suspend such operations, or exit the Russian market is ultimately up to the businesses, individuals and organizations, through the Advisory the US Government seeks to (i) highlight the operational, legal, economic, and reputational risks associated with their Russian business operations and relationships and (ii) urges them to undertake heightened compliance due diligence and human rights due diligence to evaluate potential involvement in violations and identify ways to mitigate associated risks.

CLOSER LOOK AT THE LEGAL RISKS

The Advisory acknowledges that while the “serious risks” stemming from operating in Russia may be mitigated by rigorous due diligence, “substantial risk is likely to remain.”  Key legal risks which investors should be aware of include:

• Russian legislation (post-invasion) allowing regional governments to nationalize assets of businesses from “unfriendly states”²;
• a decree by the Russian President of 3 March 2023 enabling external management by the Russian State in businesses failing to perform State defence contracts during martial law, essentially leading to partial nationalization; and
• ·other recently enacted legislation restricting dividend payments, fund transfers, and sales of interests in fuel and energy sectors for businesses affiliated with “unfriendly states”.

Non-resident businesses selling their assets in Russia face further burdensome rules, including a requirement for approval from a government commission and an imposition of a discount on assets sold to Russian investors. Recent regulations also require a mandatory asset valuation, a 50% discount on sales, and a 10% contribution to the State budget from the sale proceeds. In the circumstances, foreign businesses are expected to rarely sell Russian assets to third-country investors as investors have been, and will continue to be, cautious in light of tightening sanctions and rising geopolitical tensions.

There has been a notable increase in new and prospective cross-border commercial and investment disputes involving Russia and foreign investors, including in the banking, food and beverage, oil and gas, manufacturing, technology and  transport sectors (amongst others).   In the current unpredictable legal landscape, and with Russia being bound by over 60 Bilateral Investment Treaties (“BITs”), including with what the Russian authorities describe as “unfriendly states” (such as the US and European Union Member States, as well as Japan, Canada, Switzerland, Republic of Korea, Ukraine and the UK), foreign businesses and individuals operating in Russia should carefully consider the manner in which they conduct business in Russia and assess its impact on their investment protection prospects. 

OPTIONS FOR FOREIGN INVESTORS WITH ASSETS/OPERATIONS IN RUSSIA

At a high level, foreign investors with assets and operations in Russia currently have three primary options open to them. They could:

1. Maintain operations in Russia and fully comply with the existing regime.
2. Opt to sell their business under the imposed rules, for example, to Russian investors.
3. Refuse to participate in the existing regime and explore the possibility of selling their business to third-country (non-Russian) investors.

The path chosen by businesses may not only have major commercial, financial and reputational implications, but could significantly influence their prospects of safeguarding property rights in potential investment arbitration against Russia, as well as the level of compensation payable in any arbitration.

In the first scenario, if a business opts to remain in the Russian market and continue operations under the existing regime, its grounds to claim a violation by Russia of substantive protections under the applicable BIT could be severely weakened. While engaging with the existing legal regime does not entirely preclude the possibility of initiating investment arbitration, it significantly constrains the basis for future investment claims. It may be difficult to pursue investment claims incircumstances where the wronged party ostensibly agreed to operate within the very legal and business framework which it would argue had the effect of infringing its rights. It is noteworthy that the Advisory states that such businesses could also be perceived as directly or indirectly supporting Russia’s war effort due to legislation which forces them to directly support Russia’s military and are hence “at risk of being implicated in Russia’s violations of international law and human rights abuses”.

In the second scenario, when a business sells its assets under Russian regulations, the prospects for protecting its investment are slightly higher. At the same time, adhering to the legal framework and the restrictions currently in effect in Russia (thus arguably providing implied consent to their application) could diminish the likelihood of obtaining compensation in an investment claim. However, companies that comply with the regime imposed by Russia might nevertheless argue that they acquiesced under pressure and are challenging the regime’s compatibility with the international investment protection standards outlined in the applicable BITs.

In the third scenario, where businesses refuse to comply with the Russian regime, or if third-country investors take over the assets, the likelihood of successfully protecting investments through arbitration rises significantly. However, this comes at a cost of facing an increased risk of (i) retaliatory State action and/or (ii) asset expropriation by the Russian authorities. A credible claim of expropriation may arise if  Russia either denies the transfer of shares to non-Russian investors or fails to provide fair market value (or any) compensation when expropriating the foreign company’s assets. Further, since Russia discriminates between investors from “friendly” or “unfriendly” states and its regulations specifically target “unfriendly states” and associated organisations, investors could argue that this is contrary to the fair and equitable treatment (“FET”) standard found in the almost all of Russia’s BITs. Other types of BIT claims are also foreseeable in the circumstances, but the precise nature of the claims will depend on the provisions of the relevant BIT.

CONCLUDING COMMENT

Whether international businesses choose to maintain operations in Russia, sell to Russian investors, or explore a transfer of assets to non-Russian entities, these decisions (and their timing) will materially impact their ability to safeguard investment rights in potential international arbitration (or other) proceedings involving Russia.

Mayer Brown can provide expert guidance in navigating these challenges and assessing the prospects for protecting investments in Russia through a variety of mechanisms and approaches, including investor-state dispute settlement, factoring in specific circumstances of the business or individual involved, as well as the terms of any applicable BITs. For more information or advice, please contact any of the authors, or your usual Mayer Brown contact.

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¹ The Advisory has been issued by the US Department of State, the US Department of the Treasury, the US Department of Commerce and the US Department of Labor. In addition to Russia, the Advisory covers the Russia-occupied territories of Ukraine.

² According to the Federal Law No. 127-F3, dated 4 June 2018 “On Measures to Influence (Oppose) Unfriendly Acts by the United States of America and other foreign States”, the “unfriendly states” are defined as foreign States “committing unfriendly actions against Russian Federation, citizens of Russian Federation or Russian legal entities”.

Source – https://www.mayerbrown.com/en/insights/publications/2024/03/russia-investment-protection-and-arbitration-part-1