Money for reconstruction, confiscated russian assets, and the Peace Formula. What are Ukraine's achievements from the conference in London?
And how are BlackRock and JPMorgan Chase involved in the recovery efforts?
Western allies raised nearly $66 billion for the economic recovery of Ukraine during the recent Ukrainian Recovery Conference – 2023 (URC) held in London last week. These figures were cited by the UK Foreign Secretary James Cleverly. "Ukraine will rebuild. But they cannot do it alone," he stated in his concluding speech at the URC.
The two-day event generated significant resonance and discussions regarding the actual cost of rebuilding the Ukrainian economy, which was devastated due to russian aggression.
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Mind has summarised the key outcomes of the URC and delved into the intricacies of the future work of the Ukraine Development Fund, being developed in collaboration with BlackRock and JPMorgan Chase. Under what conditions do Western investors seek to finance the country's reconstruction, and what role does the Peace Formula promoted by Volodymyr Zelensky play in this process?
Who promised what? During the URC, the United Kingdom promised to provide Ukraine with $305 million in direct economic assistance, while the World Bank pledged $3 billion in credit guarantees over the next few years to help the country restore macroeconomic stability. Additionally, the United States announced an economic aid package of $1.3 billion, which will be directed towards the repair of damaged energy infrastructure, and the modernisation of ports, railways, and border crossings.
However, the calculation of the new assistance from James Cleverly ($66 billion) includes the previously announced package of $54 billion by the European Union for Ukraine's recovery, which has not yet received approval from all 27 member countries of the bloc. This falls far short of the estimated $411 billion, according to the World Bank's assessment in March, needed for the country's post-war reconstruction. Moreover, ongoing russian attacks on Ukraine further increase this figure.
What does Ukraine truly need? Ukrainian Prime Minister Denys Shmygal discussed the steps necessary for the country's recovery in both the short and long term during the URC. He stated that Ukraine is still seeking approximately $6.5 billion in assistance for the restoration of key infrastructure over the next year.
Conference participants also discussed the idea of using confiscated russian state and private assets, estimated to be worth at least $300 billion, to compensate for the costs of Ukraine's reconstruction. The United Kingdom and the European Union are currently exploring legal avenues to implement this plan.
What will happen to the energy sector? Minister of Energy German Galushchenko presented Ukraine's Energy Strategy until 2050 in London. It envisions the revitalisation of the energy sector through the use of cutting-edge technologies and strengthening energy security.
The document highlights Ukraine's potential to increase its capacity in various energy sources by 2050. These include wind generation, with a potential capacity of up to 140 GW, solar energy with up to 94 GW, energy storage with up to 38 GW, nuclear generation with up to 30 GW, combined heat and power (CHP) and bioenergy with up to 18 GW, and hydroelectric power with up to 9 GW.
Overall, the investment opportunities for new energy capacities amount to $383 billion. This includes $134 billion for wind generation, $62 billion for solar energy, $72 billion for hydrogen technologies, $25 billion for energy storage, $80 billion for nuclear generation, $5 billion for transmission systems, and $4.5 billion for hydroelectric power.
And how do global funds get involved? To mobilise billions of dollars of private capital for the country's recovery, investment fund BlackRock and JPMorgan Chase bank are helping to create the Ukraine Development Fund. Currently, this fund is in the planning stage and will not be fully launched until the end of hostilities.
According to the Financial Times, the fund aims to attract inexpensive capital from governments, donors, and international financial institutions and use it to leverage private investments, expected to be five to ten times larger in scale.
BlackRock and JPMorgan provide their services to Ukraine free of charge. At the same time, this work will allow them to familiarise themselves in advance with potential investments in the country. Financial experts have consulted with investors from both the private and public sectors in various countries and have found that they are willing to assist Ukraine, but have concerns not only about the losses caused by the war but also about the quality of governance, corruption, and underdeveloped capital markets.
What does the Ukraine Development Fund entail? The fund's strategy involves utilising cheaper state funds known as concessionary capital for initial investments and covering initial expenses.
"The notion is that this initial seed capital would be a de-risking mechanism, and it would create the potential for private sector capital to come in at scale. Ukraine will have its own organisation to source and syndicate these local investment opportunities," said Brandon Hall, co-head of BlackRock’s Financial Markets Advisory arm.
To address investor concerns regarding the fund's management, representatives from international financial institutions and governments will be included in its board, and investment professionals will be hired to implement its strategy.
Currently, most investors are waiting for the hostilities to end. "The important part is that Ukraine is already thinking ahead. When the war is over, they’re going to want to be ready and start the rebuilding process immediately," said Stefan Weiler, JPMorgan’s head of debt capital markets for central Europe, Middle East and Africa.
How is Ukraine's Peace Formula progressing? The conditional timeline for the end of the war depends on the results of the Ukraine army's counteroffensive and diplomatic efforts. Over the weekend of June 24-25, the team from the Office of the President – Andriy Yermak, Andriy Sybiha, and Igor Zhovkva – held meetings in Copenhagen with political advisors to the leaders of Turkey, India, Japan, South Africa, and European Union institutions. "The parties reviewed the implementation of the Ukrainian Peace Formula, which should become the basis for a sustainable and just peace for Ukraine," according to the Presidential Office website.
Among other things, this formula entails the complete restoration of Ukraine's borders and the withdrawal of russian forces.
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