Ukraine Plan investment priorities need adjustment to unique prospects

Ukraine Facility Platform (UAFP) welcomes the European Commission’s endorsement of the Ukraine Plan submitted by the Government of Ukraine. However, Ukraine and the EU face the next challenge of refining the Plan’s priorities before adoption to ensure its successful implementation.

The Ukraine Plan outlines Ukraine’s recovery, reconstruction, and modernization needs and priorities, which the European Union will support with €50 billion in 2024–2027 as part of the Ukraine Facility instrument. Unfortunately, as of now, the Plan does not fully utilize the instrument’s unique opportunities to address the crucial challenges Ukraine faces now and soon.
Reviewing the Plan’s priorities is urgent. Given that today’s policy solutions and strategies determine outcomes over a 10-15-year horizon, they must be adequately designed now to meet both urgent recovery and long-term growth needs.
Committed to ensuring Ukraine’s resilience, recovery, and growth, UAFP contributes its analytical findings, along with research-based and data-driven recommendations for the upcoming reviews, to the effort.

We identified several core opportunities Ukraine cannot afford to miss in 2024–2027 and needs to envisage in the Plan:

The Plan focuses on public investment while recognizing that due to the war burden, it will be insufficient to cover the Plan’s objectives. To address the issue, the Plan should emphasize leveraging private investment, which it does not currently do.
According to the IFC estimate, Ukraine could unlock $130 billion in private-sector investments flow into the country and open an additional $282 billion in further private-sector opportunities by accelerating economic reforms, addressing sectoral needs, and deepening EU integration.

Along with securing the investment flow, it is essential to provide local communities with tools and mechanisms to launch investment projects and enhance their absorption capacity. Given that the highest historical general absorption rate never exceeded 30%, this issue is critical for the successful implementation of the Plan.

Therefore, the Plan should introduce necessary legal
adjustments and measures to enable effective formats such as private-public partnerships, concessions, and deferred payment 
agreements, opening the way for local investment projects. The recovery and growth of the energy and transport sectors, particularly, will depend primarily on the local communities and their ability to absorb investments.

The Plan should also tackle the problem of bureaucratic bottlenecks on the governmental level in using the resources allocated for Ukraine by international financial institutions for regional development projects.

The Ukraine Plan enlists a broad range of scattered priorities, hindering the implementation of its own objectives. To avoid creating unnecessary obstacles and outright dangerous delays, the priorities must be cut to a feasible set, specified, followed by a clearly defined implementation approach ensuring a clear understanding of the investment projects, calculations, and timelines to fulfill the Plan’s objectives.

In the case of the Energy sector, such an approach will give Ukraine the means to start dealing with the most urgent issues before the winter hits.

Approximately 50% of Ukraine’s generation capacity is now lost to Russian occupation and missile strikes. Ukraine will need at least 15 GWt of new generation capacities, which will require $34.5 bln of investment.

However, the Plan’s investment priorities are currently set around restoring state-owned generation. Investment in new nuclear blocks is defined as a top priority despite the fact that historically, building a nuclear power plant takes 10+ years, and even successful project completion will work in a long-term perspective but will not address the current lack of generation. Besides, increasing the capacity factor of existing nuclear reactors from 75% to 90% can effectively increase their output without constructing new facilities.

The Plan’s focus should be shifted to a timely and successful electricity market coupling that will significantly reduce the need for expensive backup capacity and flexibility. Interconnector capacity expansion should also be considered to gain a tangible economic effect. Additionally, the issue of network losses should be addressed on the TSO and DSO levels.

Also, while clearly committing to implementing the European market rules framework and fostering green transition objectives, the Plan lacks details on eliminating crucial obstacles to investments in new generation and misses incentives for a green transition. Addressing this issue will allow Ukraine to catch up with its previous commitments within the European Energy Community Treaty on full market integration, overdue in December 2023. However, the Plan envisages that Ukraine will finalize this approximation process by the second quarter 2026.

Research by the UAFP indicates that building generation capacity requires overcoming not just regulatory hurdles but also ensuring several key factors:

• Fostering partnerships with local authorities
• Adopting a cluster approach to secure fuel supplies through collaboration with various sectors
• Defining appropriate financial vehicles for project implementation

Financial incentives are key to boosting resilience, aiding regional capacity building, enhancing the implementation of EU investments, and supporting the shift towards green energy.

In the Transport sector, focusing on the clear state strategy to engage strategic investors, along with defining the priorities of the crucial routes, will secure private investment and unlock an opportunity for infrastructure development. Regulatory reforms and technical and financial support for public and private operators’ transition into urban transportation will foster the development of zero-emission technologies.

In the Agri-Food sector, introducing new technologies, building partnerships with EU counterparts, and developing SMEs could strengthen added value to export capacity while prioritizing the adoption of climate-smart agricultural (CSA) technologies. Facilitating partnerships and defining actions to remove fiscal barriers will secure private investment in the sector.
(For a more detailed assessment, please download UKRAINE PLAN: IMPLEMENTATION RISK ASSESSMENT AND RECOMMENDATIONS FOR UPCOMING REVIEWS by UAFP)

To sum up, the present challenge of refining the Ukraine Plan requires thorough prioritizing, focusing on engaging private businesses and local communities and introducing necessary tools for them.

To ensure efficient execution of the Plan, it should include an analysis of each implementation phase to allow for appropriate adaptation and early intervention
should new challenges arise and provide assistance in project preparation and implementation.

This approach has been verified, and the successful case of the Western Balkans Investment Framework might be used as an applicable reference, as there is no time to waste.