Ukraine's reconstruction efforts present myriad opportunities for foreign businesses particularly in the energy, construction and tech sectors. At the same time, it is imperative for foreign businesses to approach these opportunities with a well-informed strategy. Understanding and navigating the complex regulatory and legal risks is key to maximizing opportunities and maximizing contributions to the reconstruction process.

By the end of the Ukraine Reconstruction Conference 2023 (URC) that took place in London on and June 21 – 22, 2023, a total US$60 billion in additional international commitments were made to support the reconstruction of Ukraine. In addition to pledges from governments and inter-governmental institutions, more than 400 global companies pledged support to rebuild the war-torn economy. Of significant note, the Ukrainian Ministry of Economy is working with U.S. private investment companies to establish the Ukraine Development Fund designed to mobilize capital from the private sector. If adopted, U.S. and UK proposed new legislation would allow the seizure of hundreds of billions of dollars of frozen Russian public and private assets to finance the reconstruction. The international financial support directed toward Ukraine signals confidence in its rebuilding process, which the World Bank estimated would cost $411 billion as of March 2023 (and which has increased since then).

The Ukrainian Government clearly set out its vision to “build back better” at the URC. Amongst other strategic goals, Ukraine will endeavor to become a reliable energy source for Europe, a leader in green industries and a center for the high-tech industry. In parallel, Ukraine will implement a comprehensive regulatory reform program with the ultimate goal of obtaining EU membership.

Emerging Business Opportunities

The URC highlighted the need for reconstruction to begin now and gradually be ramped up as there is unlikely to be a “clean victory” moment. In the short-term, reconstruction projects will continue to target immediate and critical needs such as rebuilding critical infrastructure including damages utilities, strategic transport networks (roads, bridges, ports, airports) and technology infrastructure (internet connectivity and enhancing Ukrainian cyber-security capabilities). Some large U.S. and European tech and construction companies have already started working on such projects for the Ukrainian Government.

In the medium-to-long term, reconstruction will focus on a much wider range of programs designed to “build back better” and facilitate the integration of the Ukrainian economy into the EU, presenting attractive opportunities for foreign businesses, especially in the following areas:

  • Energy

At the URC, the Ukrainian Minister of Energy presented Ukraine's Energy Strategy until 2050. The strategy aims for climate neutrality, integration with EU markets and transforming Ukraine into a key source of energy for Europe; as a result, much of the focus is on green energy sources. By 2050, Ukraine will aim to increase wind generation capacity to 140 GW, solar generation to 94 GW, energy storage to 38 GW, nuclear generation to 30 GW, CHP and bioenergy capacity to 18 GW, and hydropower generation to 9 GW. The government also plans to decommission coal-fired thermal power plants and replace them with natural gas and biomethane power plants. Significant resources are and will continue to be dedicated to the Ukrainian green energy sector, presenting opportunities for foreign companies in the nuclear, renewable energy and gas sectors.

Most recently, and as a result of the URC, the European Bank for Reconstruction and Development will provide €600 million in financing for the formation of strategic natural gas reserves, decarbonization and improving energy efficiency. In parallel, the U.S. Government announced $520 million to help overhaul Ukraine's energy grid and the UK and Ukrainian governments signed a £62 million memorandum on energy partnership with respect to modular nuclear power plants, green hydrogen, and onshore and offshore wind energy, among other initiatives. As regards the nuclear power sector, there may be opportunities in either repairing/upgrading or decommissioning existing facilities (which have suffered under Russian occupation), improving nuclear fuel supplies and corporate restructuring so as to segregate liabilities.

  • Tech/Telecoms

Another area of strategic focus is to develop digital infrastructure to ensure fast connectivity and transform Ukraine to a digital hub for European and Asian traffic, digitalizing public services and introducing digital public health care initiatives. At the URC, Ukraine's partners announced new tech partnerships to help realize the potential of Ukraine's burgeoning tech ecosystem, including a TechBridge between the UK and Ukraine to facilitate investment and support talent. In parallel, Ukraine will look to strengthen the cybersecurity and resilience of its digital infrastructure.

  • Construction

The Ukrainian Government laid out its plan for infrastructure and housing reconstruction at the URC. Amongst other projects, this will include rebuilding damaged infrastructure and housing, extending railways to the EU border and Danube, EU cross-border agricultural storage facilities and terminals, extending port infrastructure and constructing a high-speed rail between Kyiv and Warsaw.

Legal Challenges

Despite the opportunities, foreign businesses must also consider the potential legal challenges and take steps to mitigate relevant risks.

  • Identifying Opportunities: State procurement platforms like Dream (gov.ua) and ProZorro (www.prozorro.gov.ua/en) may look technically advanced, but at the heart of all procurement procedures there is a risk of uncompetitive behavior and specially tailored terms that favor certain market players. Such behaviors should be watched for to take legal action, where necessary. There is also a risk of missing the opportunities when failing to comply with rigid procurement requirements, and support of international and local counsel is usually required to cross the finish line.
  • Identifying Financing Sources and Collateral: Financing sources may be available at the local or international level depending on the type of the project. A combination of multilaterals like EBRD and EIB and private banks/funds is expected in the first years of reconstruction with so-called A/B structures, where A tranche is provided by multilaterals institutions on better terms, and B tranche is provided by commercial banks on market terms. Local collateral may present challenges due to the evolving nature of Ukrainian commercial law and related court practice.
  • Contract Drafting and Negotiations:  Choice of law and jurisdiction forum are one of the key starting legal points in negotiations. For many contracts with international parties, for the foreseeable future this is likely to be English law and to some extent New York law with international arbitration as a preferred option for dispute resolution with Ukraine being a signatory to the New York Convention on the recognition and enforcement of foreign arbitral awards. Certain contracts will be required to be subject to Ukrainian law before Ukrainian courts, which brings with it legal and enforcement risks.
  • Corruption and Transparency Issues: Businesses should be aware of the risks of corruption and bribery associated with conducting business in Ukraine, and ensure compliance with applicable international anti-corruption laws (including obligations derived from the U.S. Foreign Corrupt Practices Act and UK Bribery Act).
  • Sanctions and Export Controls:  Engaging in reconstruction projects and financing may present compliance risks with respect to complex U.S., EU and UK sanctions laws and Ukrainian national sanctions laws, particularly where there are potential direct or indirect touchpoints with Russian-controlled embargoed Ukrainian territories. In addition, businesses should be mindful of export controls on goods, software and technology, in particular with respect to nuclear and tech sector projects.
  • Changing Domestic Regulations:  As Ukraine undertakes regulatory reforms in an effort to align with EU requirements, businesses may face difficulty in tracking relevant developments and ensuring compliance.
  • Post-Reconstruction Investigations: As with prior reconstruction efforts in conflict zones, such as Iraq and Afghanistan, those who participate in reconstruction efforts using public money will be subject to scrutiny from various U.S., EU, UK, and other government agencies or legislatures or international bodies such as the EBRD, EIB and World Bank.
  • Litigation Risks:  Proceedings are contemplated or underway against insurers providing cover for foreign-owned assets in Ukraine/affected by the invasion, particularly aircraft. There are numerous potential high-value claims by Ukrainian and foreign entities for assets destroyed, damaged, expropriated in the invasion, or impacted by sanctions. The main risk in claims against Russian state/entities is enforcement. It remains to be seen how assets of the Russian state or sanctioned oligarchs frozen/seized outside Russia will be distributed—whether to Ukraine for reconstruction, pooled for use in a type of war claims tribunal system, or something else.

Our Rebuild Ukraine team combines international and regional experience to assist clients at international, regional and local levels and create seamless cross-border advice. Our integrated global team encompasses multiple practice areas to comprehensively assist your organization and Ukraine in the efforts to “build back better.”

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.