Interlegal regular client filed a request concerning, inter alia, controlled foreign companies (CFCs).

Rules on CFC taxation in Ukraine entered into force on January 1, 2022. CFC is a foreign company either owned or managed by the Ukrainian resident. In such cases, tax legislation of Ukraine provides for taxation on its adjusted profit in Ukraine, not in registration state.

Also, in accordance with Tax Code of Ukraine, the Ukrainian resident who owns or manages CFC shall be treated as its controlling entity. While gaining such a status, the Ukrainian residents shall bear such liabilities as submission of CFC reporting, notifying Tax Service of Ukraine on gaining/losing control over CFC etc.

Interlegal experts drafted a legal advice indicating why the Client’s company shall be deemed as CFC and the Client itself shall have a status of controlling entity, jointly with detailed procedure for filling-in and submitting CFC report. Special attention was drawn to the issue of notices on CFC in case of corporate restructuring the Client’s group of companies.

Interlegal associate attorneys Marta Sverdlykivska & Alyona Remenyak, lawyer Dmytro Bondar and partner Irina Voyevodina led the project.

Special attention should be drawn to the issues of CFC reporting in Ukraine because Tax Code of Ukraine stipulates serious penalties for non-compliance or violation of such procedure. For instance, for non-submission of CFC report by controlling entity, Tax Service of Ukraine may impose fine amounting to 268,400 UAH, while failure to notify Tax Service on acquiring share in CFC or on share transfer to another entity, as well as failure to notify on gaining/losing control over CFC, shall entail fine amounting to 805,200 UAH per each fact.

Interlegal Corporate&Tax department provides consulting upon controlled foreign companies and helps to fill-in and to submit CFC reports and notices. Legal advice and assistance by Interlegal lawyers may prevent large fines in case of using foreign companies in your own business.

The largest event for the reconstruction of Ukraine URC-2023 took place in London. Europeans have already called it another form of counteroffensive, referring to strengthening the economy and strategic planning for further support.

Moreover, during the conference, a number of countries announced additional help with weapons: Latvia will supply helicopters, Germany promised to provide missiles for Patriot and special equipment, Estonia and Iceland will provide us with a field hospital, equipment for paramedics and counter-UAS technologies.

However, the key takeaway from London is that billions of dollars and euros in aid will come at the cost of serious anti-corruption measures. In order to receive money from international partners for reconstruction, efforts must be made in reforms.

In order for Kyiv not to take “one step forward – two steps back,” on the eve of the G7 conference in London, they made a statement with clear deadlines. By September 30, Ukraine must restore declarations and public access to the register of declarations, reporting of political parties, as well as strengthen the capacity of National Anti-Corruption Bureau of Ukraine and Specialized Anti-Corruption Prosecutor’s Office.

Despite the friendly and favorable tone of the speeches, international partners, including business, allude to strengthening the fight against corruption and speeding up reforms. The emphasis is on the judicial one.

While the outcome of the conference in Lugano was a shocking for many 750-billion-dollar reconstruction plan and a declaration with basic principles; after the URC in Berlin Ukraine received 18 billion euros of support for 2023 – distinctively the conference in London became one of the most successful in terms of not only financial guarantees, but also strategic recovery.

Let’s analyze the key results of London, which also constitute challenges for Ukraine.

Number One. 60 Billion Euros

Ukraine’s needs by 2027 will amount to EUR 110 billion. Covering most of them, EUR 60 billion, is the result of the conference in London. These are grants, loans, and frozen Russian assets.

In particular, the EU will provide Ukraine with EUR 50 billion over the next four years.

Announcing this amount, the president of the European Commission, Ursula von der Leyen, emphasized that Ukraine will become a member of the EU, and “Ukrainian reforms will receive European investments.” “For every step you take towards us, the European Union must take a step towards Ukraine. You need to ensure transparency,” she noted, naming two key conditions: reforms and implementation of the European Commission’s recommendations.

Fifty billion will come through a special financing instrument the Ukraine Facility. It will have a European audit and control system, and a special independent Audit Commission will check the use of funds.

Ukraine Facility resources will be directed to financial stability, reconstruction and modernization of infrastructure, creation of a favorable investment environment. It is important that one of the goals of the instrument is to strengthen the rule of law and the fight against fraud and corruption, as well as promoting the development of an independent judiciary.

Thus, the Ukrainian government will be able to receive EU funds for the reconstruction and support of the economy, provided that this happens in parallel with anti-corruption measures.

In addition to EU support, the US will allocate USD 1.3 billion to Ukraine for energy and infrastructure needs, USD 3 billion will come in a package of economic aid from the UK, while another batch of more than USD 6 billion will be provided as a support from a number of other countries and international financial institutions.

On the margins of the London Conference, during the discussion of sums, it was repeatedly said that it was necessary to “put an end to nepotism and corruption.”

Number Two. Reconstruction Control System

“The dream of Ukrainians is also our dream,” said Ursula von der Leyen during her speech. Symbolically, on the same day, Ukraine presented the public module of the DREAM reconstruction management ecosystem, which works according to the “everyone sees everything” principle.

DREAM will allow monitoring every stage of the implementation of reconstruction projects: from the amount of funds involved and tenders to their completion. Simply put, every British or American can see exactly which objects their countries finance and what exactly the funds are spent on.

The data is presented in the form of graphs, tables, and diagrams, you can view information by communities or regions. Moreover, internationals themselves can choose projects for financing and monitor their implementation. This is important for the empowerment of communities and their direct inclusion in reconstruction processes.

More than 6,000 projects have already been entered into the system. The system will be fully functional in 2024.

Since the West constantly emphasizes the principles of transparency and accountability during the use of reconstruction funds, the electronic system can significantly strengthen Ukraine here.

However, the issue of transparency in the allocation of funds remains important. After all, the activities of commissions and funds are not always public, Ukrainians can find out about most of the expenses already by the fact of making decisions.

Number Three (with reservations). Anti-corruption progress

The European Commission provided a verbal preliminary assessment of Ukraine’s implementation of the recommendations on the way to EU membership, noting “significant steps forward” and progress in the implementation of reforms.

However, this result is with reservations, because currently Ukraine has been credited with fulfilling two of the seven recommendations. These are the conditions for the reform of the judiciary and mass media.

Reforming the Constitutional Court of Ukraine is marked as “good progress.”

There is “some progress” in the fight against de-oligarchization, the adoption of a law on the rights of national minorities, as well as in the fight against corruption, money laundering and law enforcement reform, where “it is necessary to strengthen the anti-money laundering system.” I would like to remind you that the State Anti-corruption Program for 2023 envisages a competition for the head of the National Police as the first step towards police reform. Also, the European Commission, after a year of full-scale war with a number of corruption scandals and dismissals among top officials, emphasizes that the fight against corruption is “at a high level.”

A number of signed agreements and memoranda, the creation of a business coalition for reconstruction of more than 400 international companies, and a serious step to insure military and political risks can be added to the results of London.

However, the three above-mentioned results are key to the simultaneous implementation of reforms, combating corruption, and building trust in Ukraine on the part of international partners.

After all, it is corruption that can slow down reconstruction and the attraction of public funds and private investments. The public continues to advocate for accountability tools, open registries, and transparent procurement.
Therefore, one of the priorities of the Ukrainian government, even during the war, is the fight against corruption and anti-corruption reforms. And this fundamentally distinguishes us from Russia.

https://zn.ua/eng/three-key-conclusions-about-the-reconstruction-of-ukraine-from-the-conference-in-london-.html?fbclid=IwAR1EifRwwyRt3ZlYJjwp4PAi_K_WFOnLag4oXT0RQCXARX5jcTpo_gRe_vQ

Odesa did well in its bid to host Expo 2030, but in the end it was excluded. Still, we can dream of what might have been. Because even dreams deferred have been known to materialize.

Last night I dreamed of a journey to the future and of finding myself in the summer of 2030 in Odesa, in the middle of the Universal EXPO. Seven years earlier Ukraine had miraculously won the competition to host the international event, and today I see a completely transformed city. Odesa is literally overrun by tourists. They have filled hotels and restaurants since April and will continue until October. About half a million visitors a week, half Ukrainians and half from all over the world, who come to see the Pearl of the Black Sea, the maritime capital of Ukraine. But, above all, to visit the country famous for the courage of its soldiers, who repulsed the second largest army in the world and defeated a country 28 times its size.

Around me there is an explosion of social life, with cultural events organized by the 150 foreign countries that have built a pavilion on the exhibition site and brought their music, dances and national products. An amazing experience for a city accustomed to a high season of only three months, with no international events taking place in either spring or autumn.
Now, however, there are not enough hotels in the city for this flood of tourists, nor spaces for cultural events. Many private individuals have offered their apartments for rent, while old buildings, headquarters of 19^th-century banks, abandoned for decades, have been renovated and furnished to host events. Despite this, many tourists had to book throughout the region, even in Chisinau, the capital of Moldova, and nearby Mykolaiv. In this city famous for its shipyards, Danish companies have built a new international airport. The connections between these cities are incomparable to those before the war. The high-speed train has been in operation since just a year, linking Odesa to Chisinau (90 minutes), Mykolaiv (20 minutes) and Kyiv (150 minutes). This is why many international tourists, who come for the Expo, also go to the Ukrainian capital.
The site chosen for the Expo is in an ideal position, easily accessible from the historic center. You can get there in a few minutes by taxi or tram. It was called the “irrigation fields” and there was a legend that it had been filled with the skeletons of people killed in the mafia gang war of the 1990s. But when the land was cleared only a few animal bones were found. After the Expo, the site will be used for hosting trade fairs, including the first Ukrainian gastronomy fair, to promote Ukraine’s products for export.

The most amazing thing is that you can already figure out what legacy EXPO will leave, in addition to having extended the tourist season from three to six months. Many foreign countries have put Odesa on the map of their cultural and trade relations. In fact, if before there were just 30 foreign consulates, today they have already risen to 60, to guard the gateway of Ukrainian exports with their diplomatic network.

But Expo has also revitalized some historical jewels of the city, such as the Kuyalnik spa, located in the estuary of the lagoon near the city, which was in a state of semi-abandoned. The resort frequented by kings and queens at the beginning of 20^th century for taking mud baths was taken over by a French group, which renovated it in time to attract some visitors to the new beauty farm. In addition, a Spanish group has built the first marina in Odesa, with services for sailing ships and yachts, and a club with restaurant. It was an unforgivable shortcoming for a seaside city.

Finally, the famous Potemkin staircase, which until recently had sadly ended up against the metal fence of a traffic artery, is now connected to the cruise dock with a pedestrian bridge designed by a studio famous British architects. Thanks to this passage, people go on foot to visit the new museum of the sea, with an augmented reality section, dedicated to the film “Battleship Potemkin,” and a restaurant with a panoramic view. A flagship of the city, it was built in place of the horrible post-Soviet “Hotel Odessa,” which was torn down after years of neglect.

While in my dreams I was making this pleasant journey into the future, I was awakened by the smell of coffee fresh out of my Italian coffee maker, coming from the kitchen of my house in Odesa. I opened my eyes and immediately recalled the exclusion of my city from the tender for Expo.

The only consolation for me is the fact getting this far in the competition was already a difficult undertaking, and an accomplishment. Ukraine needed the vote of many African, South American and Asian countries – a good deal of them still without a Ukrainian ambassador. What’s more, in many of these countries the diplomatic influence of the Russian Federation is strong, which certainly would not have favoured a vote for Odesa. Too bad, it was just a beautiful dream.

https://www.kyivpost.com/post/18511

President of Ukraine Volodymyr Zelenskyi held a meeting with managers of the largest asset management company BlackRock. Press service of the President’s Office informs that the parties discussed details of creating an investment fund aimed at recovery of the Ukrainian economy with public and private capital involved. 

According to the meeting results, the Ministry of Economy signed an agreement with BlackRock Financial Market Advisory on rendering services aimed to support the Development Fund of Ukraine. 

The main goal of creating the fund is to attract private and public capital for launching large-scale business projects in Ukraine. 

President of Ukraine states, “This will be a powerful signal for improving the investment climate. This is important not only for our people, for our society, but also for business, for entrepreneurs abroad. Now is a historic moment, because since the first days of independence, we have not had such huge investment cases in Ukraine. We are proud of our ability to initiate such a process”. 

He notes, for transparency and successful launching the project, Ukraine attracts the best financial and consulting organizations worldwide, such as BlackRock, JP Morgan, McKinsey, etc. 

The President emphasized that foundation and launch of the fund will make it possible to attract the Ukrainian economy country’s economy, as well as to create new enterprises immediately after cessation of active hostilities. 

Volodymyr Zelenskyi noted, “We will be able to offer interesting projects for investments in such industries as power supply, security, agriculture, logistics, infrastructure, medicine, IT and many others. We want to engage global partners who can provide us with large investments”. 

Charles Khatami, who oversees BlackRock FMA as global head of the Financial and Strategic Investors Group (FSIG), said: “This is a historic moment, maybe the greatest opportunity to unite private and public sectors when technological innovations can catalyze further development. I think that you will be able to make your contribution to the global economy and to use innovations”. 

https://biz.liga.net/ua/all/all/novosti/krupneyshaya-v-mire-investkompaniya-blackrock-budet-soprovojdat-fond-razvitiya-ukrainy

“Transparency not only within the country, but also worldwide” – this is the slogan whereunder the Ministry of Infrastructure presented the new DREAM system (Digital Restoration Ecosystem for Accountable Management) on May 5. It was created to manage reconstruction of Ukraine, in which communities will be able to contribute their projects, to involve financial resources for them and to manage construction process. 

This was reported by our correspondent who attended presentation of the new system. 

The ministry assures that DREAM facilitates for every citizen of Ukraine ability to monitor restoration projects at every stage. The system will show project documentation, sources of financing, volume and nature of purchasing goods and services, as well as status of construction works. 

Mustafa Nayem, head of the State Agency for Reconstruction and Development of the Infrastructure of Ukraine, explained that such innovation will make it possible to involve more funds from international donors for reconstruction of Ukraine.  

Mr. Nayem highlights, “When the system is launched, we’ll know exactly what we need to do, we’ll know how much it costs, and most importantly, we’ll be able to monitor it”. 

Also, a meeting of the interdepartmental working group has already been planned, which will determine the list of projects to be financed from the Fund for elimination of the consequences of hostilities. 

The system will be publicly available for all users on June 21, after its presentation in London at the Ukraine Recovery Conference. 

What objects are planned to be rebuilt first? 

Oleksandra Azarkhina, the Deputy Minister of Infrastructure, said that the department has already prioritized project financing based on the question: “How many people will be able to get access to basic services that will secure their life due to such investment?” 

She states, first of all it will cover critical infrastructure facilities: water supply, drainage, power supply, heat supply, followed by transport infrastructure and other facilities. 

Mrs. Azarkhina explained, “In fact, we count the number of people who are already users of this service, and how many people can become users of this service”. 

She added also that international partners can choose different funding priorities for each individual program. 

Damage due to hostilities by russia 

According to the Kyiv School of Economics (KSE), as of March 2023, aggregate amount of direct documented damage to Ukrainian infrastructure due to a full-scale russian invasion is estimated at 143.8 billion USD. 

For over one year of full-scale war, russia destroyed and damaged more than 150,000 residential buildings in Ukraine, including private houses, multi-apartment buildings and dormitories. 

President of Ukraine Volodymyr Zelenskyi stated in November 2022 that over one trillion dollars will be required to restore the country. Dozens of partner countries will be involved in the work. He noted, a special patronage system will be created in order to enable advanced countries and companies to provide assistance for restoration of Ukrainian regions, cities, industries and enterprises.

https://hromadske.ua/posts/u-mininfrastrukturi-prezentuvali-sistemu-dream-vona-maye-zabezpechiti-prozorist-u-vidbudovi-ukrayini?fbclid=IwAR2uvLtXg7UDhKju_DBiMPquommCYq4rFfxH3OjpEOdQHN9i-hOVGlwj_74

Today, the second most popular issue among Ukrainians after the discussion of military successes is the post-war recovery plan. How to live tomorrow, after our victory? How to restore and to develop Ukraine after the war? 

The Ministry of Economy, jointly with Ukrainian economists, Big Four offices and other leading consulting companies, proposed key principles to be introduced in the post-war reconstruction and development plan of Ukraine. 

One. Ukraine should gain full access to the G7 and the EU markets. 

That is, for our goods, the governments of these countries should cancel all quotas and import duties, including protective and anti-dumping duties. In this way, Ukrainian manufacturers will be able to freely export their products to markets covering 54% of the world economy. 

The United Kingdom as G7 member state already sets an example in this regard. In the coming days, following the results of bilateral negotiations, the British will announce full opening their markets to Ukraine. 

In the past, access to the markets of developed countries allowed such countries as South Korea to successfully recover from the war. 

Exports enable industry to develop and to produce more goods, as well as, first and foremost, to integrate into modern production chains. This is not only export, but also technology transfer to Ukraine, which is no less important for industrial modernization. 

Two. Full-scale joining the European Union just in 2024. 

We expect to receive the status of a candidate for EU member just in summer 2023. We have already submitted the first part of application. 

At the same rapid pace, we will meet all the requirements for Ukraine as a future EU member. This is our path to true democracy and freedom. 

Three. Complete deregulation and minimal state intervention in business operations. 

From the very outbreak of the russian invasion, the government has already begun a large-scale deregulation. 48 permits, 19 licenses, nearly 500 other public services for business were transferred to the declarative principle. Now our task is to fix this state of affairs forever. 

The Ministry of Economy has developed a corresponding bill, to be considered by the Supreme Council in the near future. 

Business should focus on basic production processes, not on relations with the state. Therefore, we should replace inspections with insurance or other similar mechanisms in those industries where it is possible. 

Four. Fast logistics from Ukraine to Europe, not exceeding 72 hours. 

Due to russian aggression, Ukraine has limited logistical capabilities. It is already clear that in the future our goods will move mainly to the west, i.e. to the European Union. Therefore, we will maximize expansion of routes and checkpoints towards the EU, increase railway logistics through dry ports and narrow-gauge transshipment nodes. 

Even when we restore operation of the ports, developed logistics with the EU will serve as grounds for economic integration of Ukraine into the European economy. 

Five. Priority to export of processed products in industries where Ukraine already has a competitive advantage on world markets. 

We mean food and metallurgy. 

In late 2020, Ukraine ranked sixth in the world in terms of food exports: 74 million tons. For comparison, Canada exported almost the same amount, i.e. 77 million tons, ranking fifth. Export price of the Ukrainian agricultural products amounted to 22 billion US dollars, wile in Canada it made up 55 billion US dollars. Such a huge difference 2.5-fold is caused by the fact that Canada exports mostly processed products, while Ukraine exports raw materials. 

That is why the basis of our industrial policy will be to stimulate further processing of raw materials to be exported. 

Corn and wheat are the two main Ukrainian export products. 

Given the limited logistics, we have to optimize export tonnage by converting it into finished product exports. That is, to move from a large volume in tons to a large volume in currency. Processed products cost two to three times more than raw materials. In addition, it provides an increase in jobs within the country. 

We already have positive experience in processing sunflowers into sunflower oil, which we can extend to corn and wheat. There are opportunities to start processing corn into bioethanol, alcohol, starch, and as feed for poultry, pork, beef, and eggs. 

We will also be able to increase the production of high-margin niche products from corn and wheat – specialized proteins used in the cosmetic, pharmaceutical and food industries. 

Thanks to the opening of the EU market and the construction of new capacities, Ukraine will process most of its ore into metal. And metals – for finished products. This is how we will achieve economies of scale. 

Ukraine ranks ninth in the world in terms of metal exports (19 million tons per year). We export a large amount of ore that needs to be processed domestically. After all, a ton of ore costs 100-150 dollars, a ton of metal – 500-1000 dollars, and a finished metal product – 1.5-2 thousand dollars. If we make power machines from these metal products, the price reaches 15-20 thousand dollars per ton. 

The modernization of metallurgy will also contribute to the decarbonization of the economy in the region, in particular through the introduction of modern ore processing methods that reduce the carbon footprint throughout the production chain. 

Ukraine’s security depends only on us. We demonstrated to Europe and the democratic world that we are capable of defending ourselves. But for this we need weapons. And we have to make it ourselves. 

For this, there are launch pads in the form of industrial complex enterprises. We ask our Western partners about the transfer of military technology in order to establish the production of all major types of weapons as quickly as possible. From air defense to armored vehicles, missiles, small arms, ammunition, aircraft and ships. 

Six. Our task is to form a powerful military-industrial complex that will become a base for the further development of aerospace technologies. 

IT will play a crucial role in this sector, as Ukraine will be bound to military-tech. For this purpose, Israel can serve as an example, which demonstrates how high military technology can be the engine of civilian economy. 

Seven. In order to implement this program, Ukraine should increase its energy capacity. 

By European standards, our electricity is already cheap today. We have great competences in nuclear energy, which we can use for the further construction of nuclear blocks and the increase of clean energy. 

Ukraine is able to build nuclear power plants mainly by its own forces, from design to production of power equipment, except for the reactor body itself. But these skills can also be developed on the grounds of existing industrial enterprises. 

Eight. Next step in power supply is to achieve energy independence. 

Within extremely short period of 3-5 years, we should fully provide ourselves with gas from our own production. 

Ukraine is the runner-up in Europe in terms of blue fuel deposits, so this is a completely achievable goal. However, it is necessary to reduce energy consumption of our economy by means of thermal modernization program. 

As for petroleum products, we should build processing facilities to fully cover our own needs. 

Also we should take into account the experience of Brazil, where significant part of the fuel is produced through agriculture: by adding 15% bioethanol to gasoline and 20% biodiesel to diesel fuel. 

Nine. A core idea of economic transformation should be climate modernization. 

This is a clear concept for our Western partners. Significant financial resources are already available for Ukraine under this program. In addition, construction of new industrial capacities in metallurgy, food processing and power supply is immediately possible based on the principles of green economy, i.e. minimum carbon trace and low dependence on fossil fuels. 

One should understand how to implement it all. Ukrainian companies need two things: 

• The first is partnership with Europeans and Americans in the mode of technology transfer. 
• The second is access to financial resources. 

In a narrow sense, we propose the Marshall Plan 2.0 for restoration of Ukraine. In the original Marshall Plan, the US government bought up specially issued shares of European companies in order to grant them capital aimed at investment in their own production in Europe. 

Given that the global financial market has come a long way over the past 70 years, we can offer our European and American partners an updated approach. 

Partner governments can issue state guarantees to their companies in order to involve funds for investments in Ukraine. Such guarantees will cover the country risk and will allow investments in launching significant industrial projects in Ukraine. 

The concept of nearshoring is promising – it will facilitate turning Ukraine into the nearest industrial zone for Europe. This will also actively stimulate development of the service sector. 

It is important for us to secure maximum restoration of transport and social infrastructure of Ukraine within 24 months. That is, all destroyed facilities should be rebuilt within two years, without wasting time for further development. 

Last but not the least, ten. Key requirement is localization of at least 60%. 

We mean involvement of Ukrainians in the reconstruction process and maximum use of domestic resources: building materials, cement, metal. 

The Ukrainian side continues is still insisting on damage recovery by Russia for all destructions it has caused. Violations of international law by the russian federation are so significant that the frozen assets should be subject to seizure. 

We are working upon the issue that the states that froze assets of the russian federation should also remove the immunities that still protect such assets and direct these funds to restoration of Ukraine. 

We also propose imposing a special import duty on all goods and services from russia for those economies that, for various reasons, are not ready to implement a full embargo. 

Since the russian federation mainly supplies exchange goods, such a duty will not burden the buyer, and the aggressor country will reduce the price of supply by its size. Such charged funds can be transferred to Ukraine for the purpose of financing reconstruction projects. 

Therefore, economic aspect of restoration plan should include full opening the G7 and the EU markets for Ukrainian goods, large-scale development of military-industrial complex by transferring technologies and military-tech, a focus on export of finished goods in the traditional industries of agriculture and metallurgy, as well as rapid development of power supply and logistics based on the principles of green economy.

https://www.pravda.com.ua/columns/2022/04/21/7341214/

Kiyv, Ukraine (PortSEurope) April 24, 2023 – The development of Ukraine’s Danube Port Cluster – Izmail, Reni and Ust-Dunaysk – with financing from the European Bank for Reconstruction and Development (EBRD) was discussed between Oleksandr Kubrakov, Deputy Prime Minister for Recovery of Ukraine and EBRD president, Odile Renaud-Basso.

Since the Russian invasion of Ukraine in February 2022, cargo transshipment via the three ports has increased more than three times. This followed the Russian blockade of Ukraine’s Black Sea ports and the occupation of the country’s Azov Sea ports.

“We see the prospect of cooperation on the development of the Danube Port Cluster. We started our work last year,” Kubrakov said.

“Royal HaskoningDHV engineering consultancy, has developed a list of measures to increase the capacity of the Danube ports as part of a joint pilot project between the Ministry for Communities, Territories and Infrastructure Development and the EBRD, which relates to investment, operational and regulatory changes in Ukraine, Moldova and Romania.

Undoubtedly, the Danube Cluster has become a critical element of global food security in the face of limited operation of the Black Sea ports. Through operational dredging in the ports of the Danube region we will restore their passport characteristics. In this way, we are reviving (Danube’s) Bystry (Bystroye, Bystroe, Bystre) estuary channel as an alternative route for Ukrainian agricultural exports”.

Dredging

War-torn Ukraine has managed to increase the draft for vessels in the country’s section of the Danube River mouth to 6.5 m, local media reported in February. A year earlier, the maximum draft was 3.9 m. This will allow bigger ships to use Ukrainian ports in the river while Russia blocks Ukraine’s Azov and Black Sea ports.

According to the administration of the port of Izmail, the draft for vessels in the section from 0 km of the Bystroye mouth of the Danube to 77 km of the Kiliya mouth is 6.5 m, from 77 km to 116 km of the Kiliya mouth – 7 m.

“More than 17 million tonnes of cargo were exported from these ports, including more than 11 million tonnes of food,” Kubrakov said in February. He added that the Bystroye Estuary was opened for navigation, and dredging works are underway in the Ukrainian part of the Danube. Increasing the draft of ships ensures more efficient navigation between the Black Sea and the Danube River, as well as increases the cargo flow through the Danube ports.

Deepwater navigation canal Danube – Black Sea

The Kiliya mouth is the northern, most abundant branch of the Danube Delta. Its length is 116 km, width is from 0.6 to 1.2 km. The ports of Izmail, Kiliya and Vilkovo are located there. Since 2007, it has been part of the deep water shipping route of the Danube-Black Sea Canal.

The Deepwater Navigation Course Danube – Black Sea is a deep-water canal in the Danube Delta that runs through the Danube Delta estuaries (distributaries) Chilia, Starostambul (Old Istambul), Kiliya and Bystroye.

Most of its length coincides with the Romania-Ukraine border that stretches along the Danube. The canal is served by the Ukrainian state-owned Ukrainian Sea Ports Authority (USPA) and its piloting services branch Delta Lotsman (Delta Pilot).

Navigation on the Danube – Black Sea Canal has restarted in July 2022 after the liberation of Ukraine’s Snake Island in the Black Sea from the occupying Russian troops. Russia invaded Ukraine on February 24, 2022.

The small rock outcropping known as Snake Island (Zmiinyi Island) sits just 25 miles from the Bystry estuary’s mouth, and it had been occupied by a well-armed Russian garrison. A sustained barrage of Ukrainian artillery fire forced the occupying Russian troops to depart on June 30.

Ukraine revived its long-idled inland ports along the northern edge of the Danube River Delta. These shallow-draft inland ports now transship cargo by barge into Romania for onward transport and are also accessible from the Black Sea.

In July 2022, Romania allowed ships with Ukrainian grain, under flags of third countries to use the Kiliya (Chilia, Kiliiske) Canal and the Bystroe (Bastro, Bastroe, Bystre) Canal.

Joint projects with the EBRD

Ukraine’s Ministry for Communities, Territories and Infrastructure Development is implementing a number of joint projects with the EBRD:

• Development of the road sector within the framework of the project Development of the Trans-European Transport Network. Ukraine – Road Corridors. Cooperation with the EBRD is underway to include the M-09 Ternopil-Lviv-Rawa Ruska (to Lublin) and M-11 Lviv-Shehyni roads in the overhaul project. This will allow for improving logistics on Ukraine’s western borders.
• Development of the railway network, including electrification of the railway network and meeting the basic needs of UkrZaliznytsia (state owned railway company) in times of war.
• Development of UkrPoshta’s (state owned postal services operator) logistics network, including the purchase of vehicles, modernisation of sorting equipment and reopening of offices in the de-occupied territories.
• UkSATSE (Ukrainian State Air Traffic Services Enterprise) has submitted a grant request to the EBRD and a list of potential projects to be funded. The projects are related to the preparation of air navigation infrastructure for the post-war resumption of flights.

https://www.portseurope.com/ebrd-to-help-develop-ukraines-danube-ports-of-izmail-reni-and-ust-dunaysk/?utm_source=mailpoet&utm_medium=email&utm_campaign=date-mtext-date-d-date-y-weekly-news-for-the-port-industry_1

The war in Ukraine has caused massive damage to the country’s infrastructure. To rebuild, the country needs to mobilize large amounts of capital, and private investment will be crucial to fill the gap left by public and donor funding. However, attracting private investment will be challenging due to the inherent risks of the business environment.

At the request of the World Bank, we are forming a focus group of 6-10 companies with potential interest in post-war investment in Ukraine. We wish to understand how post-war investors will view and mitigate various risks, and what measures may need to be implemented to improve the business environment.

The issues we want to discuss include:

• Availability and cost of various insurances or other risk mitigation/credit enhancement instruments
• Procurement processes
• Project execution: permits, labour etc.
• Any other concerns identified by the focus group members

The participants would have an opportunity to share their insights into potential roadblocks to private sector participation and shape strategies to overcome them. We anticipate that participation in the focus group will involve 3 to 4 hours.

We are dedicated to ensuring that the focus group is an open, collaborative, and productive process. To achieve this, Castalia will conduct virtual interviews with each focus group participant individually to better understand their unique perspectives and experiences related to infrastructure rebuilding efforts and PPPs post-war. In addition, we will facilitate a collaborative workshop with the entire focus group, where participants can share their insights and exchange ideas. The discussions will be subject to the World Bank’s policy on Access to Information and Confidentiality and Protection of Personal Data.

On 31 March, the IMF approved a new 4-year Extended Fund Facility (EFF) programme with a financing volume of USD 15.6 bn for Ukraine. This follows a series of shorter engagements with the Fund after the war broke out last year. Adopting a new multi-year programme for a coun­try subject to a full-scale invasion is also a new experi­ence for the IMF, which openly communicates the sub­stantial financial risks to the Fund of such a constellation, and which obtained adequate financial assurances from some of Ukraine’s key international partners in that re­gard.

As in every programme, it comes with conditionality at­tached, which is focused on ensuring macro-financial (es­pecially fiscal) stability during the war and enhance long­term growth perspective and at the same time pave the way closer to EU accession.

The role of the Fund in supporting Ukraine goes way be­yond its financing role – the USD 15.6 bn are a relatively small part in comparison to the USD 115 bn in total sup­port currently pledged to Ukraine. Still, the economic and financial experience of the Fund, its conditionalities as well as coordination position at the intersection between the international partners and Ukraine make its contribu­tion to Ukraine resilience and recovery so unique.

IMF policy towards Ukraine since the full-scale war

Right after the beginning of Russia’s full-scale invasion, Ukraine and the IMF agreed to cancel the then ongoing Stand-by Arrangement designed during the COVID crisis in favour of providing critical financial support under the Rapid Financing Instrument. Ukraine received an imme­diate disbursement of USD 1.4 bn in March 2022. A sec­ond disbursement of USD 1.3 bn was related to the newly created “Food Shock Window” in October 2022. Upon re­quest of Ukraine’s government, a Programme Monitor­ing with Board Involvement (PMB) was established with the IMF in December 2022. The PMB did not include fi­nancial support, but monitored economic policy making for four months and ultimately paved the way to a full- fledged programme, which was approved by IMF man­agement on 31 March 2023.

New programme with a two-phase approach

The newly adopted EFF tries to support Ukraine’s author­ities in stabilizing the economy as the war continues, but also in embarking on a broader set of reforms to drive the economic recovery once war is over. As significant finan­cial risks arise from lending to an economy in a full-scale war, the IMF received assurances by the G7 and a num­ber of EU countries regarding Ukraine’s ability to service its debt to the Fund.

The EFF will run over 48 months, with an overall loan vol­ume of USD 15.6 bn, and is split into two phases. The first one concentrates on anchoring macrofinancial stability during the ongoing full-scale war. It includes Ukraine’s ef­fort to increase revenues, support disinflation, exchange rate and financial stability. The second phase considers more structural reforms in a post-war environment when Ukraine can focus more intensively on them and the re­construction process against the background of an EU ac­cession path.

After the Board approved the programme, a disburse­ment of USD 2.7 bn was provided in the beginning of April 2023. Two further disbursements are scheduled for later this year if Ukraine meets the programme targets. How­ever, given Ukraine’s debt repayments to the IMF, net disbursements sum up to a maximum of USD 1.9 bn.

Source: IMF, *projection of maximum disbursement

The IMF highlights the very large uncertainty in the war environment by providing a baseline economic growth forecast with a range of -3% to +1% yoy instead of a typ­ical point estimate for 2023. Also, a downside scenario is explicitly considered. In the baseline, inflation is fore­cast to decelerate to 21.1% yoy. A continuation of blocked logistics for some important export goods leads the current account into deficit. Overall, the lack of eco­nomic recovery and continued military efforts remain the driving forces behind a large budget deficit. In the baseline scenario, the IMF estimates it to rise to 28.2% of GDP (excluding grants), even larger than in 2022. In the downside scenario, a further economic decline by 10% with inflation increasing to 27.6% is projected. In this case, the budget deficit reaches 35% of GDP (ex­cluding grants) – a massive burden for Ukraine and its partners. In light of these scenarios for the fiscal needs, disbursements by the IMF play only a minor role in clos­ing the fiscal gap.

NEWSLETTER UKRAINE

Projected financing of the fiscal gap 2023

The EU committed financial aid amounting of USD 19 bn throughout the year with USD 4.8 bn already provided and the US USD 14 bn, with USD 3.5 bn already pro­vided. Overall, the IMF estimates that USD 115 bn are pledged in support of Ukraine until now.

Programme success depends on five principal criteria Nevertheless, the IMF programme with its conditionality is a key reform anchor. The programme sets the focus on five principal criteria:

• Fiscal transparency and revenue increase
• Financing strategy and debt sustainability
• Monetary and exchange rate policy
• Financial sector and banking policy
• Governance, anti-corruption reforms and growth.

These conditionalities try to ensure macro-financial sta­bility during the war and enhance long-term growth perspective and at the same time pave the way closer to EU accession. It is split into three prior actions as well as 19 structural benchmarks and monitored throughout eleven reviews until March 2027. Each of the successful reviews will enable further disbursements under this programme. Thereby, most of the reviews will focus on fiscal and debt sustainability issues.

Debt sustainability

Under the IMF’s macroeconomic scenarios, public debt will continue to grow, after having jumped from 50% of GDP to 82% of GDP in 2022 due to the war. Against this background, it is not a surprise that debt is considered unsustainable under all scenarios, unless there is addi­tional financial support on highly concessional terms and including debt restructuring. The concrete form and the details of this restructuring are not specified, and should be worked out at a later stage when there is more cer­tainty regarding the economic outlook.

Outlook

Supporting a country subject to an external full-scale ag­gression economically and financially is a new role for the IMF, and the exceptional high risks around the pro­gramme are clearly mentioned and communicated. Still, it’s a risk worth taking. The new multi-year pro­gramme with the IMF will play a prominent dual role as a catalyst for continued international support for Ukraine, as well as for further economic reforms neces­sary to maintain macroeconomic stability during the war and achieve a sustainable economic recovery of Ukraine after the war has ended. In that sense, the role of the Fund goes far beyond what its financing share in the total support package for Ukraine would suggest. Leveraging its vast economic and financial experience and coordinating the efforts of many other international partners will be a main tasks ahead.

Report on recovery of Ukraine economy calls for more targeted assistance and greater cooperation among aid groups

How do you rebuild a country ravaged by war? It’s not usually something the European Investment Bank has to do. But the EU bank’s big commitment to support Ukraine after the Russian invasion meant that the question had to be answered.

“We are usually focused on financial transactions, and we don’t develop strategies for helping countries during a war,” says Jean-Erik de Zagon, head of the Kyiv office for the European Investment Bank. “But we needed a plan for the huge amount of money we’re investing to reconstruct Ukraine.”

Working with the Boston Consulting Group, the European Investment Bank reviewed public documents on the war in Ukraine, especially findings from the international conference in Lugano, Switzerland, held in July 2022 to raise money for Ukraine’s recovery. More than 30 loan officers, engineers and other experts at the European Investment Bank contributed to the resulting report.

The final publication, released in February 2023 and called  A Study on Potential Recovery Strategies for Ukraine, offers a blunt assessment of the country’s needs. Yearly gross domestic product in Ukraine is expected to shrink more than 30% because of the war with Russia, the report says. All economic sectors are struggling, but especially heavy industry, energy supply, and foreign trade.

The survival of Ukraine as a sovereign state is a prerequisite for future recovery and long-term modernization, the report says.

“If Ukraine can’t survive now, nothing will work,” de Zagon says. “They have to win the war, that is already difficult, and then we also have to keep people in Ukraine, keep the economy going.”

Here are some of the headline problems facing Ukraine:

• The war has caused six million people to leave their homes.
• There is a bottleneck in the process to review, approve and implement recovery and reconstruction loans and grants in Ukraine. Providing loans and technical assistance directly to the appropriate office, town, city or region, under creative investment plans to spread the risk, will be key to effectively rebuilding the country.
• Years of economic progress have been reversed. There has been a significant decrease in the monthly value of goods exported compared to before the war (down 62%).
• Small and medium-size companies have an average fall in revenue of nearly 80%. Nearly a third of these companies have relocated to safer areas and 66% can’t pay employees.

Solutions for Ukraine rebuilding

The Ukraine recovery report outlines the ways that the European Investment Bank and other organisations can help the country survive and recover.

1) Offer more help right now

“If we don’t do more work now during the crisis, we will be so far behind when we finally start that everything will be more difficult,” de Zagon says. “People in Ukraine need help now — food, medication, shelters, schools, hospitals.”

The so-call solidarity lanes that improve roads between Ukraine and border countries are playing a big role in keeping the economy alive and meeting basic needs.

2) Assist key areas of the country

Investment needs to be aimed where it can do the most work for the economic recovery. Ukraine’s needs far outstrip available funds, so international financial institutions must focus on the most important investments that can keep the economy functioning and lay the foundations for a long-term recovery.

“You have to make very difficult choices when deciding where to put the money,” de Zagon says. “Which projects do you need to finance first, which roads need to be repaired first, what infrastructure is needed today, what shelters should be built, what food do we need? And all this work needs to be sustainable and generate taxes, so the government can pay its bills.”

3) Closer cooperation with the European Union

The future of Ukraine is tied to integration with other democracies, especially those closest to the country. Improving cooperation and integration with the European Union is good for Ukraine and Europe, good for global trade, and good for the entire democratic world, the report says.

4) Let Ukraine lead the recovery

Ukraine must own the reconstruction effort, as this strengthens the country’s sovereignty and accountability. While international organizations need to advise and monitor the recovery process, Ukraine will have to become independent from international aid at some point after the war ends.

“We can come with our ideas and experience, but we should give the power to the government and the people,” de Zagon says. “We should let them have their way with planning the reconstruction.”

5) Work together

Hundreds of organizations are helping Ukraine. International financial institutions should find out how they can offer the most value by working together and then tightening these partnerships.

“There are so many needs and not enough resources, so we have to be sure we work together and coordinate,” says de Zagon, who meets weekly with Ukrainians, EU institutions and aid organisations around the world to make sure every possibility is being exploited to help Ukraine. “We can play like a team.”

https://www.eib.org/en/stories/ukraine-recovery-economy-report