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Newsletter #13 Reconstruction Ukraine - May 2024

Dear readers,

May witnessed the repercussions of attacks on Ukrainian energy infrastructure, resulting in regular electricity cuts to optimize resources. Additionally, the month marked the signing of the framework agreement for the implementation of the €50 billion Ukraine Facility, paving the way for its ratification by the Ukrainian Parliament.

In this edition of our newsletter, we delve into the figures concerning housing destruction and the outcomes of the eVidnovlennya program, which aims to assist the population with housing. We also discuss the liberalization of the foreign exchange for businesses, the restructuring project of the Ministry of Reconstruction, and provide updates in the energy sector involving both public entities like Naftogaz and Energoatom, as well as private players like Hydrogen Ukraine.

Furthermore, we unveil results from the virtual space for the tech sector, Diiia City, and share several updates in the innovation sector in Ukraine. This edition also informs you about the opening of the Unbroken prosthetic and orthopedic center in Lviv, the expansion of pharmaceutical producer Farmak, and other pertinent business news.

Have a nice reading!

Ukraine’s Reconstruction: Key Figures

Housing damages

In 2024, the devastating attacks on Ukraine continue to cause damage to civilian infrastructure. As of the beginning of 2024, the losses in the housing stock are as follows:

• $55.86 billion is the value of direct losses to the housing stock, according to preliminary estimates.
• 88.9 million m² is the total area of damaged or destroyed objects by shelling, which is 8.6% of the total housing stock of Ukraine.
• About 250 thousand buildings is the total number of destroyed or damaged housing objects, of which 222.6 thousand are private (individual) houses; 27 thousand are apartment buildings; 0.53 thousand are dormitories.

Source: Kyiv School of Economics

eVidnovlennia: housing program for population

The Ukrainian government has undertaken several initiatives to address the consequences of the war among population. One of them is eVidnovlennia, the state program launched in May 2023, which provides compensation for damaged and destroyed housing. This program offers financial assistance for home restoration and provides certificates for the purchase of new homes when restoration is not possible. On May 11, during an event marking the first anniversary of eVidnovlennia, the results of the first year of the program were summarised.

• UAH 11 billion (app. EUR 260 million) total amount of funds paid out, from which
• UAH 5.8 billion (app. EUR 140 million) allocated for repairs
• UAH 5.6 billion (app. EUR 133 million) allocated for the purchase of real estate through a housing certificate.
• 57 thousand people received payments.
• 2.8 thousand people bought new homes with housing certificates received as compensation for destroyed housing.

Source: The Ministry for Communities, Territories and Infrastructure Development of Ukraine, TAPAS

Diia City: virtual space for IT sector

Diia City, a special virtual space for IT sector, which was launched in 2022, just two weeks before the full-scale invasion, celebrates significant results this May. Diia City provides a unique tax and legal space for IT business making it easier and less expensive to manage and operate business. In only two years, over 1000 companies joined the programme and became residents of Diia City. There is a clear trend of increasing business presence within the space.

• 1000 residents of Diia City, about 50 residents join the space every month.
• nearly 150 defence-tech companies.
• almost UAH 4 billion (app. EUR 95 million) in taxes paid by residents in the first quarter of 2024 VS the total amount of taxes amounted to UAH 8 billion (app. EUR 190 million) in 2023.
• more than 70 thousand IT professionals working in companies.

Source: Ministry of Digital Transformation of Ukraine

CCIFU’s action for enhancing French-Ukrainian tech cooperation

• 14 Ukrainian startups and official delegation participate in Viva Technology in Paris

CCI France Ukraine took part in organising a Ukrainian national stand in Viva Tech 2024, Europe's largest startup and tech event, held from May 22 to 25 in Paris. This event attracted in total over 165,000 visitors, 13,500 startups, and 400 speakers, driving innovation by connecting startups, tech leaders, major corporations, and investors to tackle the world's most significant challenges.

The Ukrainian stand featured 14 companies, hardware, and software startups in different sectors, including 3D UTU, Bimp, Deus Robotics, Easy Peasy Insurtech, EDMAPS, Genera, HOWCOW, Mark, OUTEX, PinMy, Promova, Reservble, UA Green and Ukraine Global Banking.

The Ukrainian stand was visited by Minister of Digital Affairs of France Marina Ferrari, Ambassador of Ukraine to France Vadym Omelchenko, representatives of BNP Paribas and MazarX Factory from Study Tours.

There also were several side events joined by the Ukrainian delegation, among them:

• masterclass from the Mazars X Factory acceleration programme, where Mazars, together with Women Business Angels, spoke about the French tech ecosystem.
• Venture Connect in Paris event by Expertise France, where representatives of Ukrainian companies BIMP, Deus Robotics and Easy Peasy pitched to the jury of venture capital funds’ representatives among 10 startups from Georgia, Moldova and Armenia. Deus Robotics got the jury’s coup de coeur prize.
• Ukrainian Tech Night, which brought together more than 150 guests from the Ukrainian and French innovation sectors.

The national stand of Ukraine at Viva Technology 2024 was organised by the Ministry of Digital Transformation of Ukraine, the Embassy of Ukraine in the French Republic, Diia.City, the Ukrainian Startup Fund together with the IT Ukraine Association, the French-Ukrainian Chamber of Commerce and Industry (CCI France Ukraine), La French Tech Kyiv, Nazovni, Digital Ukraine, Seeds of Bravery, and with the support of Mastercard and UKRSIBBANK BNP Paribas Group.

Source: CCIFU

Key developments for Ukraine’s Reconstruction

• Currency liberalisation by National Bank of Ukraine

The National Bank of Ukraine (NBU) is implementing the largest package of measures to ease the foreign exchange restrictions for businesses since the start of the full-scale war. It includes a number of changes which are aimed at improving the conditions for doing business in Ukraine and promoting local companies to expand their business abroad, as well as to support the economic recovery and new investment inflows to Ukraine. Most measures came into force on May 4, 2024, and the possibility to repatriate "new" dividends is effective from May 13, 2024.

The changes have already been considered in the revised macroeconomic forecast, which assumes that international reserves will remain close to their current level this year and next year (USD 43–44 billion).

Key improvements include:

1. The removal of all foreign exchange restrictions imports of works and services Businesses will be able to buy and transfer foreign currency abroad to import works and services, pay airport and port fees, fines, and membership fees.
2. Businesses will be able to repatriate “new” dividends based on the results of their operations for the period starting from January 1, 2024. This does not apply to dividend payments from retained earnings for previous periods or reserve capital.
3. The ability to transfer funds abroad to pay for lease/rent.
4. The easing of restrictions on the repayment of "new" external loans. The minimum term for using a "new" loan is reduced from three to one year, after which it is allowed to purchase foreign currency to repay such a loan.
5. The possibility of repaying interest on “old” external loans.
6. The easing of restrictions on the transfer of foreign currency from representative offices to their parent companies. The monthly limit for such transactions (by one representative office of one company) is EUR 5 million in equivalent.

This package is a major step toward Ukrainian economic recovery. These measures will facilitate the increase in export revenues to Ukraine and the inflow of new investments to Ukraine, attract the necessary equipment, improve conditions for restructuring external loans and contribute to the further development of cashless payments in Ukraine.

Source: National bank of Ukraine

• Project of splitting Ministry of restoration on two ministries: Ministry of regional and territorial development and Ministry of infrastructure

On May 8, at a meeting of the parliamentary faction "Servant of the People" with the participation of Prime Minister Denys Shmyhal, a decision was made to split the Ministry of Community Development, Territories, and Infrastructure of Ukraine into two separate bodies. According to some parliament members, after this the Cabinet of Ministers of Ukraine should adopt the decision on splitting the ministry. The next day, on 9 May 2024, the Verkhovna Rada of Ukraine adopted a resolution to dismiss Oleksandr Kubrakov from the post of Vice Prime Minister for Restoration of Ukraine - Minister for Communities, Territories and Infrastructure Development of Ukraine.

The Cabinet of Ministers has decided to temporarily entrust the duties of the Minister of Communities, Territories and Infrastructure of Ukraine to the First Deputy Minister for Restoration of Ukraine Vasyl Shkurakov.

Oleksandr Kubrakov was appointed as the Minister of Infrastructure of Ukraine in May 2021. On December 1, 2022, followed his appointment as Vice Prime Minister for the Restoration of Ukraine and the Minister of Community Development, Territories, and Infrastructure of Ukraine. At the same time, Ukrainian Parliament decided to merge the Ministry of Infrastructure and the Ministry of Regional Policy to reform the state apparatus and reduce the number of civil servants.

Source: Forbes.ua, Verkhovna Rada of Ukraine

• Ministry of Defense signed memorandum of cooperation with Defense Builder Accelerator

On May 10, 2024, the Ministry of Defense of Ukraine signed a memorandum of cooperation with the Defence Builder Accelerator (DBA) — a development program for defense startups aimed at assisting developers in creating technological solutions tailored to the needs of the Defense Forces and swiftly delivering them to the front line.

This program will provide 15 defense startups with the opportunity to develop team management systems, establish legal and financial structures, and attract investments more effectively over a period of four months. Participants of the accelerator will also have access to testing at a training ground and receive rapid feedback on the use of their developments in combat conditions.

Kateryna Chernogorenko, Deputy Minister of Defense of Ukraine, said that the combination of military, governmental, and business expertise will help Ukraine to achieve a technological advantage.

To participate in the program, startups must meet a range of requirements, including having a minimum viable product (MVP) or a prototype (TRL4) in areas such as UAVs, ground and water robotic systems, cybersecurity, sensors, etc.

This project will facilitate the effective attraction of investments and the scaling of defense technology production.

Source: Ministry of Defence of Ukraine

International Benchmark

• Naftogaz and Swedfund will cooperate for the modernization of thermal power plants and renewable energy in Ukraine

On April 29, 2024, Naftogaz of Ukraine and the Swedish financial institution Swedfund International AB signed a memorandum of cooperation in the areas of modernising thermal power plants and developing potential renewable energy projects in Ukraine. 

Swedfund's project accelerator will be able to provide grant funding for feasibility studies to promote priority projects. Additionally, it aims to strengthen project development and sustainable procurement capacities as Ukraine transitions to a sustainable, carbon-neutral energy system model.

Stefan Falk, the director of the Swedfund project accelerator, notes that through feasibility studies and capacity-building efforts in Ukraine, we are laying the foundations for more sustainable infrastructure projects in the fields of digitalization, water supply, waste management, and energy.

Source: Naftogaz, Swedfund

• "Energoatom" and Hyundai Engineering agreed on cooperation in the design, construction and commissioning of new power units of nuclear power plants in Ukraine

Energoatom and Korean Hyundai Engineering and Construction Co., Ltd. have agreed to cooperate in the design, construction and commissioning of new nuclear power units in Ukraine. 

The relevant agreements were signed mid-May in the presence of Minister of Energy of Ukraine German Galushchenko and Ambassador of the Republic of Korea to Ukraine Kim Hyung Tae by Acting Chairman of the Board of Energoatom Petro Kotin and Senior Vice President and Chief Sustainability Officer at Hyundai Engineering and Construction Hwang Joon-Ha.

The memorandum of cooperation between the companies was developed based on the agreement outlined in the letter of intent signed at the World Nuclear Exhibition in Paris in late November 2023.

German Galushchenko highlighted the importance of the agreement in the process of construction of new power units at Khmelnytsky NPP, in particular, using the AR1000 technology, which will replace the capacity of the occupied Zaporizhzhya NPP.

Kim Hyung Tae stated that the memorandum signed between Energoatom and Hyundai would foster the development of Ukrainian-Korean cooperation in the nuclear industry, facilitating the exchange of expertise in nuclear technologies.

Source: Energoatom, Ukrainian government portal

• Austria allocates EUR 500 million to insure investments in Ukraine

The Austrian Ministry of Finance and Austrian Export Credit Agency (OeKB) have established conditions to support Austrian exports to Ukraine in accordance with the 2024 Budget Act. The goal is to increase cooperation between Ukrainian and Austrian businesses, which has been hindered by war in Ukraine.

The support is implemented through a special risk system for Ukraine, which the Ministry of Finance set up within OeKB. This involves providing 500 million euros over the next five years to support businesses in Ukraine and the country's reconstruction.  The insurance amount might be increased to 1 billion euros by securing funds from international financial organisations.

Austrian Finance Minister Magnus Brunner stated that in this way, Austria is ensuring vital investments for Ukraine. This includes, among other things, the supply of drinking water and heat, ensuring security, and the reconstruction of the transport sector with roads, bridges, and railway infrastructure, as well as investments, such as joint workshops for buses, trams, and trains.

Applications to participate in the program can be submitted to OeKB starting in mid-May 2024.

Source: Advantage Ukraine, Ministry of finance of Austria

Focus on private sector

• LLC Hydrogen Ukraine receives a grant from UK for the production of renewable hydrogen in Odesa

LLC Hydrogen Ukraine and AB5 Consulting have been awarded a grant to implement the H2U project for the production of renewable hydrogen in Odesa region. This initiative is part of the InnovateUkraine competition, funded by the UK Foreign Office and organised by the British Embassy in Kyiv.  The program was officially launched on May 2, 2024, with the participation of the British Foreign Secretary David Cameron and the Minister of Energy of Ukraine Herman Galushchenko.

The UK will finance 70% of the cost of a comprehensive feasibility study for the plant, with the rest covered by the company. The feasibility study includes the construction of an electrolysis plant, wind and solar power plants, and a hydrogen pipeline that will connect Ukraine with consumers in the EU.

The project aims to modernise Ukraine's energy production by using renewable sources to produce green hydrogen. It involves the construction of a renewable hydrogen production plant with an initial electrolysis capacity of 100 MW, which will be used to produce renewable electricity and green hydrogen for domestic consumption and export to the EU. In addition, it is planned to build a solar and wind power plant with a capacity of 120 MW and 80 MW, respectively, as well as to assess the possibility of underground hydrogen storage in the salt beds of Odesa region. At the first stage, it is planned to produce 7-8 thousand tonnes of hydrogen per year, 400-750 tonnes per month.

As part of the H2U project, a comprehensive feasibility study will be carried out under the administrative management of AB5 Consulting (UK) and the technical guidance of Hydrogen Ukraine (Ukraine). It will lay the groundwork for the construction and implementation phases of the project.

The H2U project is expected to significantly reduce coal emissions, improve energy security, and contribute to Ukraine's economic growth.

Source: Hydrogen Ukraine, Economichna pravda

• Unbroken center opened in Lviv

On May 10, 2024, German Minister of Economic Cooperation and Development Svenja Schulze, together with the Mayor of Lviv Andriy Sadovyi, officially opened the Prosthetic and Orthopedic Center Unbroken — UNBROKEN Ukraine. This initiative was implemented as part of the project "Special Support Program for Ukraine / EU4ResilientRegions," carried out by GIZ Ukraine and funded by the German government.

The UNBROKEN Center will enable the production of approximately 1,200 prostheses annually for people affected by the war. An important component of the project is training specialists in prosthetics and orthotics according to ISPO (International Society for Prosthetics and Orthotics) standards. Additionally, the center will be used for conducting research in prosthetics and developing Ukrainian startups.

This single-story building, with a total area of 1,000 square meters, houses: a prosthetics manufacturing center, a classroom for training and research, fitting and testing rooms for patients, and an inner courtyard for relaxation. It is equipped with the most modern equipment (AFT, Romedis) for manufacturing upper and lower limb prostheses, worth 650,000 euros.

Svenja Schulze noted that the UNBROKEN Center is a place of hope and strength, giving people affected by the war the opportunity to live active lives and serving as a good example of cooperation.

Source: Lviv City Council, GIZ Ukraine

• Ukrainian pharma producer Farmak received a EUR 22 million loan from EBRD

Ukrainian pharmaceutical company Farmakhas received EUR 22 million loan from the EBRD for the strategic acquisition of a Polish pharmaceutical company and modernisation of IT systems.

"Farmak" is one of the leading pharmaceutical manufacturers in Ukraine and plays a significant role in providing essential resources for the population's livelihood.

The EBRD's investment will not only support the expansion and development of Farmak but also sustain the livelihoods of its employees in Ukraine. The bank is working with the company to implement a structured program for the reintegration of veteran employees and to expand access to training for women, who will fill positions traditionally dominated by men.

Frederic Lucenet, EBRD's Head of Manufacturing and Services, noted that Farmak's M&A strategy will increase exports to Poland and other European countries and contribute to the company's long-term development.

Source: EBRD, InVenture

• Google for Startups launches new $10M fund for Ukrainian startups

Google is opening an additional $10 million Google for Startups Ukraine Support Fund with help from the Ministry of Digital Transformation of Ukraine. The aim of this project is to support Ukrainian companies which are struggling because of the ongoing war.

Ukraine-based startups can apply to receive up to $100,000 in non-dilutive funding, as well as ongoing Google mentorship and product support. Startups can also obtain an additional $350,000 in Cloud credits to help their teams build responsibly and do more with less. The registration is open starting from 3 May.

Since 2022, Google for Startups has already provided 58 startups with a total of $5 million in equity-free cash awards and hands-on technical support to grow their businesses and help lay the groundwork for Ukrainian economic recovery.

Source: Google

• Ukrainian Startup Beholder attracted financing on Tallin Latitude59

At the Latitude59 conference, held on 22-24 May in Tallinn, Estonia, Ukrainian startup Beholder won the top prize, attracting an investment of €600,000 in a startup pitching round, as well as commitments totalling €1.5 million.

It also received additional rewards, including €15,000 in legal services from Fondia legal, €5,000 in Google Cloud Credits, and €500 in PR support from PRnews.io.

Beholder is an artificial intelligence-based remote sensing platform for exploration of important mineral and energy resources.

Andriy Sevriukov, co-founder and CEO of Beholder, expressed hope that the project will help increase the investment attractiveness of Ukraine's extractive industry and create additional investment potential.

Source: Ukrainian Startup Fund