Such is the scale of the effort required to rebuild Ukraine that the World Bank in March 2023 estimated it at $411 billion. That figure will invariably have grown since then.
The Ukrainian Government pledged at the Ukraine Recovery Conference held in London in June 2023 to “build back better”. Given the mammoth effort that this will require, state and private actors from across the globe will need to collaborate to help bring about the country’s recovery. This presents both opportunities and challenges.
The Opportunities
Reconstruction is already underway, albeit largely confined to clearing debris, removing explosive ordnance, and repairing critical transport and communications infrastructure. In the medium- to long-term, the focus will expand to a wider range of programs, which should present opportunities for foreign businesses, including in the following areas:
Energy
Ukraine’s government has already presented its Energy Strategy to 2050, with a vision to transform the country into a source of clean, renewable energy for Europe with a mix of investment opportunities for new energy capacities in wind generation with a capacity of 140GW, 94 GW of solar generation, energy storage at 38GW, 30GW of nuclear generation, CHP and bioenergy at 18GW, and 9GW of hydropower. The significant resources required to bring this about should provide foreign companies operating in the green energy sector with numerous opportunities.
Infrastructure
The Ukrainian government at the URC set out its vision for infrastructure and housing reconstruction. Part of this program will involve expanding the Ukrainian railway network, which will include constructing a high-speed rail link between Kyiv and Warsaw and extending railways to the EU’s border and the Danube.
Several companies have already signed Memorandums of understanding with the Ukrainian government with a view to collaborating on infrastructure projects.
Tech/R&D
The development of digital infrastructure will be key to ensuring not only fast and reliable connectivity but also to reversing the “brain drain” of Ukrainian academics, researchers and other human capital who will be key to Ukraine’s future. Investment in the country’s burgeoning tech sector, as well as partnerships and initiatives such as the UK-Ukraine Tech Bridge, will support inflows of talent.
Defense
Whilst funding and weapons donations from the US, UK, and EU may continue to assist it, Ukraine will at some point likely need to start buying rather than receiving free weaponry. Alternatively, those purchasing for Ukraine will need to augment their stocks in order to make those donations.
The Challenges
In addition to ongoing hostilities, widespread destruction and the lack of security, foreign businesses will need to be mindful of the potential challenges that they could face.
Identifying Opportunities
The Ukrainian government has established two state procurement platforms: DREAM and ProZorro, through which all reconstruction projects are presented, with the intention of ensuring transparency. However, the risks of uncompetitive behavior and corruption remain, which will require ongoing monitoring and, where necessary, legal action.
The support of international and local counsel will also be paramount in order to ensure opportunities are grasped and rigid procurement requirements complied with.
Financing and collateral
It is expected that a combination of state and supranational actors, as well as multilaterals such as the EBRD, or European Bank for Reconstruction and Development, and the European Investment Bank, better known as the EIB, and private banks/funds, will provide financing, at least initially.
The EBRD recently announced that it had met its €3 billion financing target for 2022-23, and the European Union in June 2023 unveiled the ‘Ukraine Facility’ comprised of €50 billion in grants and loans.
Local collateral may present challenges due to the evolving legislative landscape and related court practice.
Evolving regulatory landscape
As part of its application for EU Membership, Ukraine will need to bring its legislation into line with European law. As part of this process, the Ukrainian Parliament in August 2023 adopted Law No.5431, kickstarting the reform of competition law. Prospective participants in reconstruction efforts will need to ensure they keep abreast of such developments.
Choice of Law
Certain contracts will be required to be subject to Ukrainian law before the Ukrainian courts, which will pose certain legal and enforcement risks. Parties to international contracts will likely favour English law and to some extent New York law when negotiating choice of law and jurisdiction agreements, with international arbitration being the preferred method of dispute resolution, not least because Ukraine is a signatory to the New York Convention on the recognition and enforcement of foreign arbitral awards.
Scrutiny
Transparency and compliance with obligations derived from the US Foreign Corrupt Practices Act and UK Bribery Act will be key, not least given Ukraine’s low ranking in Transparency International’s Corruption Perceptions Index. Close monitoring will be required to ensure that funds are not misappropriated.
Insurance risks
The UK government at the URC proposed a framework for war-risk insurance with a view to enabling private enterprise to aid in Ukraine’s reconstruction, and on 31 October 2023 signed a Statement of Intent on an EBRD war-risk insurance scheme for Ukraine. Other signatories to the Statement include the European Commission, Norway, Switzerland, and Taiwan.
Sanctions
Engaging in reconstruction projects and financing may present compliance risks with respect to complex American, British, and European sanctions laws as well as Ukrainian national sanctions laws. Businesses will also need to be mindful of export controls on goods, software, and technology, in particular with respect to nuclear and tech sector projects.
Litigation Risks
There are numerous potential high-value claims by Ukrainian and foreign entities for assets destroyed, damaged or expropriated in the invasion, or impacted by sanctions. As regards claims against Russian state/entities, the main risk will be enforcement.
States have been exploring the possibility of using sanctioned assets to fund Ukraine’s reconstruction. Despite there being broad support, such an approach would almost certainly result in domestic and international legal challenges.
Germany at the end of the URC offered to host the next Recovery Conference. It is inevitable that many of the above topics will continue to be discussed as various actors look to implement agreements and utilize funds pledged to help Ukraine “build back better.” Many other topics will no doubt be up for discussion, including the question of how and by whom these myriad efforts will be administered.
