In order to use the funds provided by the European Union efficiently, it is proposed to create a new instrument, the Ukraine Facility (the ‘Facility') which should cater both for short-term State and recovery needs and medium-term reconstruction and modernisation of Ukraine.
The legal basis for its activities should become a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on establishing the Ukraine Facility, which is expected to be adopted by the end of this year.
The proposed financial mechanism will support Ukraine's efforts to maintain macro-financial stability, promote recovery, and modernize the country as it implements key reforms on its path to EU accession. It will support the transition to a green, digital and inclusive economy that is gradually aligned with EU rules and standards. Moreover, it opens up the possibility of using contributions from other donors to the recovery and reconstruction of Ukraine.
The Facility will be organised around three pillars:
Pillar I – financial support in the form of grants and loans to the State. This particular Pillar is dedicated to the recovery, reconstruction and modernisation of the country. Within this pillar the Ukrainian Government will need to prepare a ‘Ukraine Plan', which will be reviewed by Commission and adopted by Council. This complicated procedure will make it impossible to easily change the course of Ukraine's recovery in line with the EU's vision. Payments will occur according to a fixed quarterly schedule, following verification by the Commission of the satisfactory fulfilment of the relevant conditions.
The Plan must be highly detailed, as the allocation of funds will be tied to specific objectives. The Ukraine Plan should include reform and investment measures, along with the qualitative and quantitative steps that warrant satisfactory fulfilment of those measures, and an indicative timetable for the implementation of those measures. Assistance under the Facility shall be implemented by work programmes.
After the adoption of the Regulation, a framework agreement will be concluded between Ukraine and the EU, which will detail the procedure for reporting, evaluating, controlling, and monitoring the activities of the Facility.
Pillar II – a specific Ukraine Investment Framework designed to attract and mobilise public and private investments in Ukraine's recovery and reconstruction by providing guarantees and blended finance (a mix of loans and EU grants) in support of the implementation of the Ukraine Plan, with the possibility of scaling up this support when conditions allow for it.
Pillar III – technical assistance and other supporting measures, including mobilisation of expertise on reforms, support to municipalities, civil society, and other forms of bilateral support normally available for pre-accession countries under the Instrument for Pre-Accession (IPA), also supporting the objectives of the Ukraine Plan. Interest rate subsidies for the loans support will also be covered.
When reviewing the proposed Regulation, the following provisions seem to be the most interesting:
- One of the specific objectives of the Facility is development and strengthening a sustainable green transition in all sectors of the economy, including the transition to decarbonisation of the economy; promotion of digital transformation as a factor of sustainable development and inclusive growth.
- The financing of the activities will be based not only on the activities developed and proposed by the Government of Ukraine, but also on the activities envisaged by the Ukraine’s National Energy and Climate Plan, if available, with Ukraine’s Nationally Determined Contribution under the Paris Agreement. It is worse to mention – that the first one is not adopted, and the procedure of its drafting is confidential and closed from the public (which violates requirements to consult with civil society), and the second one, adopted in 2021 – requires changes and adaptation to existing realities.
- A multi-level system of control and audit over the implementation of the declared measures in the Plan allows for a reduction in the risks of misuse of funds. Securing opportunities for individuals and legal entities, international and regional organisations to participate in tenders for funds to implement measures will promote healthy competition.
However, after analysing the draft Regulation, there remains a certain aftertaste regarding the transparency of the Ukrainian government in developing the plan, the involvement of the public, civil societies and experts in discussions, as well as in the implementation of measures envisaged by the Plan.
It is worth noting that the Ukrainian Government took a responsible approach to the start of work on the Plan. On July 26 2023, the first meeting of the inter-ministerial working group on the preparation of the "Plan of Ukraine" under the Ukraine Facility program took place.
The Plan will be prepared in stages. By August 4th, the Draft Concept, i.e. the general structure and distribution of the Plan's topics, must be approved. The next stage is to write the Concept of the Plan itself by the end of August, which will describe the main measures needed to ensure rapid economic growth. The full preparation of the Ukraine Plan should be completed by October 31st.
