EBRD approves new strategy for Ukraine

By Anton Usov

On 13 April 2011 the Board of Directors of the European Bank for Reconstruction and Development approved a new country strategy for Ukraine. The new strategy for 2011–2014 will have a key focus on addressing challenges in energy efficiency and energy security, unlocking Ukraine’s agricultural and industrial potential, providing good quality and reliable infrastructure and dealing with the legacy of the crisis in the financial sector.

The Bank, a major financial investor in the country which has already committed over €6 billion ($8.3 billion) through 264 projects, will focus on addressing these key transition challenges in line with the government’s reform programme and in close coordination with other International Financial Institutions (IFIs) and bilateral donors.

The level of investment in Ukraine will, to a large extent, depend on the implementation of reforms in all main sectors, while slow reform progress and deteriorating investment climate will inevitably lead to reduced investments by the Bank in the public and private sector respectively.

The Bank has selected key operational priorities for the next strategy period which reflect the transition challenges in the economy:

Energy sector: the Bank will finance projects that will increase the overall energy efficiency and decrease the carbon intensity of the sector. It will support upgrades of electricity transmission networks that would integrate Ukraine into the European energy market. The EBRD is also ready to support safety upgrades in the nuclear sector, where it will ensure a strong level of technical and environmental due diligence. The Bank may also participate in the modernisation of Ukraine’s gas transportation and distribution system, provided the Ukrainian authorities pursue a comprehensive and credible reform agenda, including restructuring of NAK NaftoGaz.

Enterprise sector: in recognition of Ukraine’s great potential as an agricultural producer and exporter, the Bank will support private sector investments into all segments of this sector, especially the instruments that assist primary producers, including seasonal working capital. In the manufacturing industry, the Bank will help to diversify the economy and restructure old energy-intensive industries with a focus on improving their governance, transparency and energy efficiency. The Bank is planning to assist Ukraine in the development of its knowledge intensive industries and in better use of its human and scientific potential. It is also ready to support the government’s privatisation programme, subject to transparent process and tendering of remaining state enterprises.

Infrastructure: in the road sector, the Bank will support the modernisation of the key international corridors connecting the country with the European Union as well as priority national and regional roads.  Railway sector projects can be supported only after the authorities make credible steps to corporatise the national rail operator. The Bank is ready to make a significant investment into modernisation of municipal utilities, in particular the district heating companies, to unlock large potential energy efficiency gains with the assistance of international Eastern Europe Energy Efficiency and Environment Partnership (E5P) donor fund. However, this would need to be preceded by amendments to the Budget Code, to enable cities to guarantee loans to municipal enterprises.

Financial Sector and Capital Markets: main priorities will include providing the banking sector with targeted long-term loan and equity funding. The lending instruments would focus on micro and small businesses, financing energy efficiency improvements and trade facilitation. In cooperation with other IFIs, the Bank will help the authorities to address develop local capital market, including structuring loans in local currency.