Investment in Ukraine: How the State and Investor Can Both Benefit
The war in Ukraine is now in its second year, and the country continues to experience enormous destruction and damage. However, the path to progress involves attracting investments into vital societal infrastructure, including schools, hospitals, kindergartens, and universities, all of which urgently need reconstruction. By providing spaces for education and growth, Ukraine can pave the way for it to enjoy a prosperous future.
Because once there are places for children to go, where they can study and acquire knowledge about the future of Ukraine – then the country will flourish.
In fact, the topic of investment in Ukraine is becoming more and more urgent, if not every month, then with every day. The country’s potential for investment is unparalleled, thanks to its diligent workforce, lands in need of rejuvenation, and the opportunity for a fresh start.
A public-private partnership (PPP) is one of the ways that can be used to restore the country. In short, a public-private partnership is a joint business project involving the state and a private investor on mutually-beneficial terms. In the PPP format, both projects with a large commercial component, such as a seaport, grain terminal, wharf, and social infrastructure projects, such as a school, hospital, and kindergarten, can be implemented.
The most popular form of public-private partnership is the concession agreement. Under the terms of such an agreement, the executive authority transfers to a business the rights to create an object or manage an object for money and for a specified period. At the same time, the entrepreneur must be ready to take on not only the obligation to rebuild or create an object or manage it, but also proprietary responsibility and entrepreneurial risks in the event that the project’s implementation fails.
It is also worth adding something about risk insurance. A good example can be the grain agreement concluded with the Russian Federation, which it not only did not comply with but carried out an armed attack by attacking Ukrainian ships carrying grain. Indeed, if the investor will not have confidence that he/she will be compensated for something in the event of death or damage to some property, then why would they invest their own funds in this property?
Ukraine has developed new reform of the public-private partnership. The main goal is to simplify the existing procedures within the framework of the PPP. It will also lead to a 50% reduction in project preparation time.
What are the pros?
Simplification of procedures for small projects: Procedures for small projects worth up to USD 5.3 million will be significantly simplified. This may include the restoration of hospitals, kindergartens, schools and train stations. The average period for making preparations for the implementation of such projects will be reduced to 6 months.
Larger infrastructure projects: For large infrastructure projects that can be implemented in the form of a concession, the preparation period can be longer – from 9 months.
Electronic procurement system: The selection and approval of PPP projects will be carried out through an electronic procurement system, which will reduce the risks of corruption. It will also simplify the process and make it more convenient.
Reducing bureaucratic procedures: The reform aims to reduce bureaucratic obstacles to a minimum, which will improve cooperation with the state partner.
This reform will make it possible to ensure a more effective public-private partnership, promote the development of infrastructure and the economy, as well as reduce risks and shorten the time period needed for the preparation of a project.
What are the advantages of a public-private partnership for a foreign investor?
Risk reduction: Participation in a PPP (public-private partnership) enables a foreign investor to share risks with the state, which can help to reduce the large financial risks associated with large projects.
Access to infrastructure and markets: PPPs (public-private partnership) can provide foreign investors with access to new markets and infrastructure, which can help to expand their business geography and increase opportunities.
Technical and managerial experience: Participation in a PPP (public-private partnership) enables a foreign investor to gain access to the technical and managerial experience of the state, which can be useful for the successful implementation of a project.
Access to resources: A PPP (public-private partnership) can provide a foreign investor with access to resources such as land, water, energy, etc., which can be important for the successful implementation of a project.
Reducing bureaucratic obstacles: Government support and participation in PPPs (public-private partnership) can help foreign investors to avoid some of the bureaucratic and administrative difficulties that usually arise when implementing projects.
Long-term opportunities: PPPs (public-private partnership) can provide foreign investors with the opportunity to attract long-term investment and to generate stable income over a long period.
Increasing confidence: Participation in joint projects with the state can increase confidence in foreign investors and reduce internal and external restrictions on their activities.
In general terms, PPP (public-private partnership) can be a profitable opportunity for foreign investors to cooperate with the state and implement successful and profitable projects in various sectors of the economy.
What do PPP projects look like in general, and what might this entity look like? The answer is depicted in more detail in the target PPP model for recovery
The huge advantages that Ukraine has in terms of investment are that this country has a relatively inexpensive skilled workforce, educated staff, good infrastructure, high investment income and convenient logistics.
But it is important to pay attention to the risks. After the withdrawal of the Russian Federation from the grain agreement, grain deliveries by sea are practically not being carried out. All because no one can guarantee that the ship in question will reach the unloading port in question. After all, insurers do not insure ships or property, because the risks of sinking a ship or destroying property during this war are very high, because Russia regards all ships and ships in the Black Sea as military ones and aims to destroy them.
Insurers will lose money, and this could have huge consequences that could lead to reluctance to invest in public-private partnerships.
But there are also drawbacks, namely challenges to the law-enforcement and judicial system, high level of bureaucracy in the processes for issuing permits, systemic corruption, and the traditional closing off of certain industries to foreign investment. The biggest risk is war, and this is the biggest obstacle to the development of this area.
However, the Ukrainian authorities are working on this, exposing and punishing criminals involved in corruption schemes: from hospitals to the Supreme Court of Ukraine, the Ukrainian authorities are improving legislation and the judicial system, making it more transparent and understandable for society and Europe.
The experience of foreign countries shows that there must be a public-private partnership. Every country has investors in the industry that needs it the most. For example, in the US, the most common PPP (public-private partnership) projects are highway concessions, while the Spanish government directs investors towards rehabilitating bridges and railways.
Well, attracting investments to Ukraine for its reconstruction is not only good, but would also improve the condition of Ukrainian society, returning people to their own homes and raising the prosperity of not only Ukraine, but of the whole world, which has not abandoned Ukraine in such difficult times.
By Kateryna Lyhopeka, assistant attorney of the dispute resolution practice at Miller law firm