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The Biden government is preparing to receive Ukrainian President Volodymyr Zelensky in Washington on August 31. The meeting comes at an important turning point for Ukraine and US-Ukrainian relations, including pressure from Russia, including a July 2021 essay by Russian President Vladimir Putin negating Ukraine’s claim to statehood.
As a long-time investor in Ukraine and a supporter of the Ukrainian economy, I hope that President Zelensky’s visit to the Oval Office also carries a clear message from the US government that Ukraine must ensure strong economic growth in order to maintain its independence. To achieve this goal, the Ukrainian authorities must prioritize the rule of law.
When President Zelenskyi took office in the spring of 2019, we saw a president with a new style. He seemed determined to move Ukraine even faster with new and innovative ideas on e-government and transparency.
At an investment forum in Mariupol in late 2019, held just 30 kilometers from the front, where Ukrainian soldiers faced Russian deputies, I heard President Zelenskyi enthusiastically about the opportunities in Ukraine. Investment “nannies” were promised to help large investors cope with red tape and avoid corruption. Renewable energies have been cited as one of the country’s great achievements, and investors have been pushed to privatize and invest in ports, roads and other infrastructure.
Unfortunately, building a successful country requires more than words and skillful sales. It requires reliability and the rule of law. These were often lacking in Ukraine.
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In 2020, Ukraine unilaterally terminated the contracts under which renewable energy producers were operating, abandoning foreign investors from the US, Canada and Western Europe. This included my company, a multi-billion dollar mutual fund backed by American blue-chip investors that builds and operates over 600 MW of solar and wind projects in Ukraine, an investment of more than $ 500 million .
The industrial associations of Ukraine, Western embassies and international financial institutions all tried to negotiate compromises that would have led to an amicable solution, but in vain. During protracted and ultimately fruitless discussions, Ukraine stopped all payments to producers, apparently to put them under financial constraints. This is hardly the kind of level playing field that international investment capital seeks.
Some renewable energy operators have already initiated international arbitration proceedings against Ukraine. More are likely to follow. The renewable energy sector in Ukraine has gone from being a shining example of the ability to attract investment to a salutary warning to potential international investors about the risks of doing business in the country.
This situation is damaging everyone, but especially Ukraine itself. The EU is committed to decarbonisation and Ukraine is a potential superpower for renewable energies. Ukraine has been named by the EU as a strategic partner for future green hydrogen supplies, a point reiterated in the otherwise disappointing recent US-Germany deal on Nord Stream 2. If Ukraine plays its cards well, green hydrogen could eventually turn Russian gas into a fuel for European industry, a point the Russian government understands.
Rule of law problems lurking elsewhere as well, hampering investment. For over two years, my fund has been forced to take action against the Ukrainian railway company Ukrzaliznytsia, a state-owned company that is the country’s largest employer, for a default of $ 150 million in commercial loans. Despite six rulings from the Supreme Court of Ukraine confirming our claims, the company and the Ukrainian government refused to respect the rulings of their own court.
Throughout the process we have witnessed attempts by the Ukrainian government to put pressure on the judicial system. A number of judges withdrew and put pressure on the court. Recently, a lower court targeted by anti-corruption activists issued a terrifying ruling alleging that it would render Supreme Court rulings in our favor unenforceable. The government was also accused of creating a handpicked appellate body after 51 of the 54 electoral judges were ineligible due to concurrent leave.
I recently testified before a parliamentary committee of inquiry that looked into corruption and failures in corporate governance in Ukrzaliznytsia. After the meeting, MPs came up ruefully and said that if Ukraine drove away international investors like us, there would be little hope of attracting others.
Volodymyr Zelenskyi’s visit to Washington offers the Biden government an important opportunity. Ukraine needs critical economic and military support from the United States. We share a common interest in the success of Ukraine’s young democracy. But no amount of US aid can help Ukraine if it is not helping itself. President Biden should let President Zelenskyi know that Ukraine’s western partners expect him to live up to his words. Without the rule of law and predictability, Ukraine cannot realistically expect success.
Richard Deitz is the founder and president of VR Capital Group, an emerging market institutional asset manager with over $ 5 billion in assets under management.
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Thursday, August 5, 2021
It is time to remind Russia that Crimea is Ukraine
The opening session of the new initiative of the Ukrainian Crimean Platform will take place in Kiev later this month as efforts continue to end the seven-year Russian occupation of the Ukrainian peninsula of Crimea.
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the of the Eurasia Center The mission is to strengthen transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the west to the Caucasus, Russia and Central Asia in the east.
