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Newsletter #14 Reconstruction Ukraine - June 2024

Dear readers,

June is a month of major international events focusing on Ukraine’s security and economy. This includes several international visits by President Zelenskyi, the Ukraine Peace Summit in Switzerland, the Ukraine Recovery Conference in Berlin, and the G7 Summit in Italy. Important decisions were made, and significant announcements were delivered at each of these events, which we will delve into in this edition.

In this June edition of our newsletter, we will place a special focus on the outcomes of the Ukrainian Recovery Conference 2024 that took place in Berlin. This conference became a platform for major announcements regarding Ukraine’s economic recovery, including key international initiatives, programs, and agreements supporting the country.

Additionally, we will highlight developments in French-Ukrainian economic cooperation. This month saw the launch of a €200 million grant fund, the announcement of the French development bank Agence Française de Développement opening an office in Ukraine, and several intergovernmental agreements in the health sector and defense industries.

Enjoy your reading!

Ukraine Reconstruction: Key Figures

On June 11-12, the Ukrainian Reconstruction Conference (URC 2024) was held in Berlin, it is the third edition of the conference since the full-scale invasion. It brought together leaders of governments, international organisations and businesses to discuss ways to support Ukraine's reconstruction and development. This year, a special focus was made on private businesses projects and initiatives. It became an occasion for many announcements of important agreements and new partnerships. You will find below some key figures from the URC 2024

• More than 3,400 participants, including 700 business representatives, more than 100 representatives of cities and municipalities, think tanks and civil society organisations, as well as more than 300 media representatives
• 100 agreements signed with the commitments of over €16 billion 
• 14 agreements signed by the European Commission for financing and guarantees with various international financial institutions.
• 14 business-to-business agreements signed by Ukrainian companies with German and international partners totalling over €560 million, spanning sectors like manufacturing, agricultural machinery, and renewable energy.
• €1.4 billion in guarantee and grant agreements within the investment component of the Ukraine Facility program
•  $35 million additional funding for humanitarian land demining 
• more than $350 million of Risk Insurance Agreements

Source: Ministry of Economy of Ukraine 

Important Developments

• The European Union opened accession negotiations with Ukraine

On June 25, the first Intergovernmental Conference took place at the ministerial level that opened accession negotiations with Ukraine. This follows the decision by the European Council on 14-15 December 2023 to open accession negotiations with Ukraine, and the approval by the Council of the Negotiating Framework for the negotiations with Ukraine on 21 June, in accordance with the revised enlargement methodology.

The EU has now invited the Commission to continue to assess the state of preparedness of Ukraine for opening negotiations in specific areas and identify the issues that will most likely come up in the negotiations, starting with the fundamentals' cluster which, in accordance with the Negotiating Framework, will be opened first. 

It is a historic day and a significant achievement for the country, representing another sign of solidarity and unity between the EU countries and Ukraine.

Source: European Council, Ministry of Finance of Ukraine 

Ukraine Recovery Conference 2024: Outcomes

In this chapter we cover the major agreements and financing commitments that were reached during your Ukraine Recovery Conference in Berlin on June 11-12.

• €190 million guarantee for SMEs from the European Commission and EIB Group

The European Commission and EIB Group signed agreements for two guarantee facilities totalling €190 million. They are designed to enhance access to finance for SMEs in Ukraine by sharing risk with Ukrainian local banks and financial intermediaries.

These programmes are expected to unlock over €1 billion in lending to businesses in Ukraine, enabling them to secure credit on favourable terms and increase their resilience.

This financial package will help Ukrainian SMEs cope with the impact of Russia’s invasion and reorient them towards the EU economy. It will also support startups, women in business, young people and regions as well as firms owned by or employing internally displaced people (IDPs) and veterans.

Source:  European Investment Bank

• The European Investment Bank (EIB) will provide EUR 100 million to Ukraine to restore and modernise social infrastructure 

During the Ukraine Recovery Conference, the Government of Ukraine signed a financing agreement with the European Investment Bank under the Recovery III project, which is an EIB project aimed at supporting small-scale infrastructure to address the needs following the full-scale Russian invasion of Ukraine.  

The European Investment Bank (EIB) will provide EUR 100 million in loans to Ukraine to restore social and municipal infrastructure. The funds will be used to restore and modernise basic social services in education, healthcare, housing for internally displaced people, social security, as well as to restore and modernise critical infrastructure in the damaged areas and in the regions that have received assistance. 

Following the signing, the Ministry for Communities, Territories and Infrastructure Development will issue calls for project proposals. Communities will be invited to submit applications for the reconstruction of healthcare, housing, education and water-sector facilities and shelters. Projects will be selected based on transparent criteria, prioritising liberated territories, areas close to conflict zones and regions with large numbers of internally displaced people.

Source: European Investment Bank, Cabinet of Ministers of Ukraine

• Ukraine will receive USD 109 million in grant financing under the World Bank Group projects

Ukrainian Minister of Finance Sergii Marchenko and Arup Banerji, the Regional Director for Ukraine, Moldova, and Belarus at the World Bank, have signed Letters of Amendment to grant agreements for two significant World Bank projects: “The Housing Repair for People's Empowerment Project” (HOPE) and "The Restoration Project of Winterization and Energy Resources" (Re-PoWER Ukraine).

According to these amendments, Ukraine will receive USD 109 million in grant financing to restore and support the energy sector. Under the HOPE project, an additional USD 62 million will be allocated to medium-sized repairs of residential buildings that were partially damaged because of war. 

An additional grant of USD 47 million under the Re-PoWER will be used to provide district heating services to residents of Kharkiv. This includes procuring and installing essential heating equipment. 

These grants will be provided through the Ukraine Relief, Recovery, Reconstruction and Reform Trust Fund (URTF).

Source: Ministry of Finance of Ukraine

• €100 million loan from CEB for Ukrainian healthcare

The Council of Europe Development Bank (CEB) Governor Carlo Monticelli and Minister of Health of Ukraine Viktor Liashko signed a €100 million loan to restore access to essential healthcare services in Ukraine. The first arrangements regarding this agreement were made in November 2023 (mentioned in our Newsletter for November 2023). 

The CEB loan will play a crucial role in restoring access to essential medical services, expanding those related to mental health and rehabilitation, improving efficiency and quality, and modernising the healthcare network. The project is part of a larger framework operation - Health Enhancement and Life-Saving (HEAL) - estimated at $500 million and designed by the World Bank.

Ukrainian Health Minister Viktor Liashko states that the cost of restoring Ukraine’s healthcare system from the consequences of full-scale war, which are already documented, amounts to more than US$14 billion over the next 10 years. So for the Ukrainian medical system to continue functioning and developing, the support of international partners, like the CEB, is critically important.

This project marks the first CEB operation approved for Ukraine following the country’s accession to CEB in June 2023. 

Source: Council of Europe Development Bank

• Ukraine presented a new Ukraine Investment Guide

During the Ukraine Reconstruction Conference 'Ukraine Investment Guide' was presented. It offers valuable insights on reconstruction efforts and investment activities in Ukraine.

The Guide was prepared by the Ministry of Economy and the KSE Institute with the support of KPMG, EY, Deloitte, BDO, and the Tony Blair Institute. 

The document includes 95 investment projects worth more than $27 billion. 

The Investment Guide emphasises the importance of developing priority sectors, as well as the processing industry to eliminate problems in export logistics and grow high-value-added industries. It contains a detailed overview of key sectors such as energy, infrastructure, agri-food, green steel, pharmaceuticals and medicine, critical materials, and IT, as well as examples of investment projects in these sectors. 

The Ukrainian Investment Guide is available via the link.

Source: Ministry of Economy of Ukraine, Kyiv School of Economics

• The SME Resilience Alliance initiative 

In the framework of the Ukraine Recovery Conference-2024 in Berlin, Ukraine and Germany, together with 12 other countries and 17 development agencies and international organisations, launched the Small and Medium-Sized Enterprises (SME) Resilience Alliance for Ukraine. 

All founding members contribute to the Alliance through financial investments, policy advice or development programmes. Total commitments currently stand at over €7 billion for ongoing and new SME programmes, of which over €4.5 billion is funding for new projects.

After the URC 2024, the SME Resilience Alliance will establish a coordination mechanism led by Ukraine and Germany to support the implementation of the SME Strategy, mobilise support and coordination among donors, and support and discuss reforms in the SME sector. Each member of the Alliance will be represented by a coordinator.

Source: Ministry of Economy of Ukraine

• The creation of a multilateral Skills Alliance initiative 

The Ministry of Economy of Ukraine, together with the German government, is launching the Skills Alliance initiative, which has already attracted nearly 50 countries, donors, international partners and representatives of the business community.

The initiative aims to provide retraining or qualification opportunities for more than 180,000 people over the next three years. Over the next three years, €700 million is planned to be allocated for this purpose. It is primarily aimed at training young people, internally displaced persons and women within the country. But Ukrainians living abroad will also have access to it.

Skills Alliance is a joint project that will bring together numerous programmes already being implemented or planned for implementation.

Source: Ministry of Economy of Ukraine 

French-Ukrainian Cooperation Development

• €200 million French grant fund for the restoration and maintenance of critical infrastructure and priority sectors of Ukraine's economy

On June 7, Volodymyr Zelenskyy visited France to commemorate the 80th anniversary of the Allied landings in Normandy.

During the visit the Government of the French Republic and the Government of Ukraine signed a Grant Agreement to support the restoration and maintenance of critical infrastructure and priority sectors of Ukraine's economy. The Agreement aims to attract grant funds from the Government of the French Republic in the amount of €200 million to be used for the reconstruction and restoration of critical infrastructure. It is expected that €60 million of these funds will be used to support Ukraine's energy sector.

The funds are intended for those companies that will invest in critical infrastructure to rebuild Ukraine, namely healthcare, infrastructure, energy, agriculture, water and wastewater, waste management, demining, housing, and digital technologies. Projects in other sectors of the economy will be considered on an individual basis.

The intergovernmental agreement is expected to be ratified soon by the Ukrainian parliament. The selection of projects is to be carried out by the Ministry of Economy of Ukraine.

The examination of the applications is expected to begin in summer or early autumn and will be carried out jointly by the General Directorate of the Treasury - Ministry of the Economy, Finance and Industrial Sovereignty of France - and by the General Directorate of Globalization - Ministry of Europe and of Foreign Affair of France who will co-chair the granting committees.

Source: Ministry of Economy of Ukraine, Direction Générale du Trésor

• Webinar Replay

Our 10th episode of webinars dedicated to the reconstruction of Ukraine was devoted to the subject of the French €200M fund for the reconstruction of critical infrastructure in Ukraine.

We were delighted to welcome Ms Elise Benyo, Project Officer to the special delegate for aid and reconstruction in Ukraine, and Mr Jean-Baptiste Brasseur, Head of the Economic Service (DG Treasury) at the French Embassy in Ukraine, who presented the opportunities offered by this fund, the objectives pursued, the sectors in focus, as well as the conditions and procedures to follow in order to apply and set up your project.

It was an extremely informative webinar, which we invite you to review in replay.

VISIONNER LE REPLAY

• Opening of the AFD Group office in Kyiv

Agence Française de Développement , a French development bank, will open a representative office in Kyiv in July 2024. This office will be shared with Expertise France, an AFD Group subsidiary already present in the country. AFD Group's aim is to become a long-term partner for Ukrainian development players in both the public and private sectors.

The priority sectors for intervention will be energy and transport, with support for the development of administrative capacities. Its work will focus on both quick-impact initiatives and longer-term projects, particularly in : 

• Ukrainian municipalities and regions, to support efforts to re-establish essential services, rebuild and improve the quality of life of inhabitants through urban services and housing, while moving towards sustainable practices;
• civil society players, in their day-to-day efforts to support the most vulnerable sections of the population and consolidate social links in order to cope with the effects of the war and contribute to the economic, social and environmental reconstruction effort;
• the private sector, which plays an essential role in the country's economic resilience and its long-term capacity to ensure the prosperity of its population by developing a genuine economic partnership with European countries.

AFD will allocate 400 million euros in loans and 50 million euros in grants until 2027.

AFD's new mandate will also enable it to continue and expand the support it is providing to the country in its bid to join the European Union (EU).

Source: AFD

• DTEK and Schneider Electric signed a memorandum of understanding to bring innovative energy solutions to Ukraine

On 11th June DTEK Group and SCHNEIDER ELECTRIC announced a memorandum of understanding to bring innovative energy solutions to Ukraine focusing on smart infrastructure, grid modernisation, digitisation, and industry solutions.

The partnership outlines a comprehensive framework for close cooperation to identify and implement projects that will enhance energy efficiency, ensure reliability of supply, and promote sustainable energy use across Ukraine.

The main areas of cooperation include:

• Collaborative initiatives and information sharing that identify, apply, and promote effective measures and solutions to implement pilot projects in the energy sector.
• Meeting DTEK’s immediate needs to fast-track restoration and maximise DTEK’s energy generation capabilities.
• Developing and implementing battery storage assets, in and outside Ukraine, to create a more dispersed and resilient energy grid.
• Modernising Ukraine’s electricity grid to enhance reliability of supply, minimise energy losses and create a more flexible, future-proof network.
• Developing and implementing pilot/demo projects that test innovative solutions with the ultimate aim of creating a more energy efficient energy sector.
• Identifying potential project financing solutions alongside European export credit agencies (ECAs) and other international financial institutions.

Schneider Electric has been providing significant support since the beginning of the war and was one of the first companies to respond to DTEK's call for support after Russia's invasion in February 2022. Since April 2022, Schneider Electric has donated 43,000 pieces of critical equipment worth €4 million (equivalent to UAH 150 million). These efforts have helped to keep Ukraine's power system functioning. 

Source: DTEK, Schneider Electric

• Signing of French-Ukrainian agreements in the healthcare sector

Within the framework of the Ukraine Recovery Conference, Ukraine and France signed 3 new agreements to improve the Ukrainian healthcare system by opening new facilities and supplying modern equipment.

1. A framework agreement between the governments of Ukraine and France on official support for the project to build modular hospitals in Ukraine. It provides for the attraction of financial support in the form of a soft loan of €35 million.
2. Framework agreement between the governments of Ukraine and France on official support for the project to modernise the diagnosis and treatment of breast cancer. It implies equipping Ukrainian medical institutions with modern medical equipment for the diagnosis of breast cancer - mammography. The amount of funding for the project is over €11.6 million. 
3. Agreement between the Superhumans Center and Expertise France in Ukraine. It provides for:  allocation of funding for the opening of a new Superhumans Center in Odesa, which will house a prosthetics laboratory, a physical rehabilitation department, and a centre for psychological support and reintegration of veterans; training of a team of 15 employees who will subsequently work as part of multidisciplinary teams at the centre and cooperation with Odesa Medical University in the field of training interns. 

These agreements mark a significant step forward in the modernization and enhancement of Ukraine's healthcare system.

Source: Ministry of health of Ukraine, French Healthcare Association

Key developments for Ukraine’s Reconstruction

• Creation of a list of all the industrial parks currently open in the country 

The Ministry of Economy presented an updated catalogue of industrial parks that will help companies find partners or a place with a well-developed infrastructure where they can locate their production facilities and attract new investments.

In this catalogue, potential investors can find information about the location, area, infrastructure, and available services at each site, saving time on searching for details and contacts. In addition, the catalogue contains data on tax and investment incentives, which will allow inter to make the most of the advantages offered by each industrial park. 

Vitaliy Kindrativ, Deputy Minister of Economy of Ukraine stated that industrial parks will contribute to the modernisation of industry, the implementation of resource efficiency and circular economy approaches, employment growth and regional development, which has been repeatedly confirmed by international experience. 

You can download the updated catalogue with details in English via the link.

Source: Ministry of Economy of Ukraine

International Benchmark

• The G7 agreed to make available $50 billion from Russia's frozen assets to Ukraine

With a view to supporting Ukraine’s current and future needs in the face of a prolonged defence against Russia, the G7 will launch Extraordinary Revenue Acceleration (ERA) Loans for Ukraine, in order to make available approximately USD 50 billion in additional funding to Ukraine by the end of the year.

The loans will be repaid using the profits generated by the roughly $280 billion of blocked funds, most of which lie immobilised in Europe. This agreement aims to deliver crucial medium-term support for Ukraine, addressing its financing needs through 2025 and beyond. 

The $50 billion would be made up of a series of pledges — a “loan syndicate” — that are still being hashed out. The loans will be structured differently based on each participant’s internal procedures. Each will carry the risk of the loans they provide, should the frozen assets generate fewer profits than envisioned.

The proceeds from the frozen assets are estimated to be worth between €3 billion to €5 billion annually. 

Repayment of the loan hinges on the assets remaining immobilised for long enough that their windfall profits can repay it, a process which will take several years.

Source: G7 communiqué, Bloomberg

• Ukrainian and Japanese companies signed 23 memorandums of understanding

On the road to the URC-2024 International Conference on Ukraine's Recovery, a Japanese-Ukrainian roundtable was held in Berlin with the participation of public and private entities, after which 23 memorandums of understanding were signed between Ukrainian and Japanese organisations. 

The memorandums include:

• Cooperation and restoration of productivity in the agricultural sector, wastewater management. Modernization of agricultural machinery;
• Promotion of reconstruction;
• Financing of the affordable housing sector;
• Technology exchange in drone manufacturing and demining;
• Waste management;
• Grant for 100 prostheses through production licensing;
• Cooperation in the healthcare sector;
• Disposal of medical containers;
• Carbon-free production;
• Cooperation in the creation of green material production and use of construction waste;

The projects will be eligible for technical assistance provided by Japan to Ukraine through the United Nations Industrial Development Organization (UNIDO) in the amount of 188 million euros. In total, thanks to UNIDO, it is planned to implement about 30-40 specific projects to transfer Japanese technologies to Ukrainian companies in the first phase. For this purpose, grants of up to $10 million per project will be allocated. Last week, the Ukrainian government and UNIDO announced a call for proposals for Japanese companies.

It was also announced that the Japan External Trade Organization (JETRO) has decided to open an office in Kyiv.

Source: Ministry of Economy of Ukraine

• The EBRD will accumulate EUR 300 million to support Ukraine's energy sector: 

The Prime Minister of Ukraine and the President of the European Bank for Reconstruction and Development, Odile Renaud-Basso signed a memorandum of understanding during the meeting in Kyiv. The memorandum stipulates that the EBRD will accumulate EUR 300 million to support the energy sector of Ukraine.

Under the agreement, the EBRD intends to mobilise additional funding for Ukraine’s state-owned energy companies including Ukrenergo, Ukrhydroenergo and Ukranafta. The aim of this funding is to support the restoration of generation facilities and infrastructure, to facilitate the construction of new distributed flexible generation capacity and to ensure stable and uninterrupted electricity supply across the country.  

Source: Cabinet of Ministers of Ukraine, EBRD

• United States allocate $1.5 Billion to Ukraine’s Energy Sector, Address Humanitarian Needs, and Strengthen Civilian Security

During the Ukraine Peace Summit, Vice President Kamala Harris announced that the United States will provide over $1.5 billion through USAID and the State Department to support the people of Ukraine. This includes 

• $500 million in new funding for energy assistance and redirecting $324 million in previously announced funds towards emergency energy needs in Ukraine. The funding aims to repair energy infrastructure damaged in the war, expand power generation, encourage private sector investment, and protect energy infrastructure. 
• more than $379 million in humanitarian assistance from State and USAID to help address urgent needs of people impacted by war. It includes food assistance, health services, shelter, and water, sanitation, and hygiene services for millions of vulnerable Ukrainians inside the country and in the region. The assistance also envisages support for comprehensive protection activities, including case management and psychosocial support services, as well as agriculture and livelihoods assistance to enable families to restore income and meet their basic needs. 

Vice President Harris also announced that, working with Congress, the State Department plans to provide an additional $300 million in Ukrainian civilian security assistance to support lifesaving equipment for Ukrainian border guards and law enforcement. 

Source: The White House

• Aon Announces $350M Insurance Program for Ukraine

Leading international professional services company Aon and the U.S. International Development Finance Corporation announced a first-of-its-kind $350 million insurance program. The goal of the initiative is to increase insurance capacity, accelerate new capital investment and Ukraine's economic recovery.

Aon and DFC collaborated on an additional $300M in war risk insurance specifically designed for Ukraine's health care and agriculture industries.

DFC will act as the reinsurer for qualified insurance companies issuing policies in Ukraine and use its balance sheet to assume $50M of war-related reinsurance risk in Ukraine. The facility builds upon two well-established DFC models: on-lending, which guarantees loans made by local banks in Ukraine to facilitate lending to priority geographies and sectors; and insurance underwriting, especially for war and political risk. 

The first firm to be certified as a qualified Ukrainian insurance company to access the reinsurance facility is ARX, a Ukrainian subsidiary of Fairfax Financial. Aon, DFC and ARX will work together to build a portfolio of war risk insurance policies for companies operating in Ukraine and support ARX in expanding its war risk insurance offering in the country. 

Source: AON

Focus on private sector

• GOLDBECK SOLAR Investment and the EBRD signed an agreement to establish the joint venture company GOLDBECK SOLAR Investment Ukraine

Within the framework of the Ukraine Recovery Conference, GOLDBECK SOLAR Investment and the EBRD (European Bank for Reconstruction and Development) signed an agreement to establish the joint venture company GOLDBECK SOLAR Investment Ukraine. With this step, GOLDBECK SOLAR Investment strengthens its commitment to Ukraine and promotes the expansion of renewable energy in the country. The recently established company aims to help Ukraine become energy independent and resilient by developing, financing, building, and operating solar energy projects.

GOLDBECK SOLAR Investment Ukraine plans to realise up to 500 MWp of solar projects in Ukraine in the next three to five years. Planning for the construction of the first solar park is set to begin in the fall of 2024. 

Grzegorz Zielinski, Director of Energy Europe at EBRD believes that the EBRD’s holistic approach toward Ukraine’s energy sector, from both public and private levels, will catalyse further investments into the sector.

Source: GOLDBECK SOLAR