War & Law: A leading lawyer in Ukraine reflects on plans for post-war recovery

The missiles strike

At the dawn of 2022 Adam had been looking forward to a season busy with client work peppered with a few short breaks to European beaches. On the morning of 24 February Adam had no inkling that the terrifyingly loud and indecipherable noises jarring him from sleep were missiles striking Kyiv. Not until he turned on the television did the realization hit him with stunning force that Russia had started its invasion of Ukraine.  For several minutes he was paralyzed with a fear unlike any he had ever known.   Luckily, the shock subsided just enough for him to spring into action to prepare for difficulties he might be facing in the minutes, hours and days ahead:  charging electronic devices and power banks, filling containers with water, preparing perishable foods in the refrigerator, replacing batteries in flashlights, making sure there were sufficient matches and candles in case the utilities were cut.  When the air raid sirens first sounded – in what felt as though he were still in a dream – Adam ran to repack the emergency ‘go’ knapsacks, making sure he had whatever essentials he (and his cat, Madonna) might need during a protracted period of time spent in a bomb shelter.  Running on adrenalin, Adam began reaching out to clients for whom he was handling matters to inform them that he was arranging for colleagues in other offices to step into their projects to ensure continuity during any period he or others in his team might be unavailable, asking for their understanding during this looming period of uncertainty. No doubt it was Adam’s Ukrainian heritage and his 28 years spent in the country which instilled the spirit to take the practical steps that he did. Six months after that first missile strike on Kyiv, Adam and his team (both those remaining in Ukraine and those who have temporarily located abroad) continue to advise and support clients notwithstanding their appalling circumstances, including in many cases separation from their families
 

Ukraine’s National Recovery Council

Ukraine’s valiant battle in the face of insurmountable odds now involves planning for the future.  Adam’s optimism is bolstered by the plans for post-war recovery in which Dentons will surely be deeply involved.  But is it not too early to start work in earnest on such plans, given that no end to the war is in sight?  “No”, says Adam. “As my personal experience demonstrates, when missiles strike, a country and its people must act immediately not only to defend itself but more importantly to plan for its ongoing survival.”

Earlier this summer, the Kyiv School of Economics (KSE) issued a report in which it indicated that the amount of damage to Ukraine’s economy from the damage and destruction of residential and non-residential buildings and infrastructure was at least $95.5 billion, of which $36.6 billion on residential buildings and $31.3 billion on infrastructure.  KSE notes that: “since the beginning of Russia’s war against Ukraine, at least 388 enterprises, 18 civilian airports, 779 medical institutions, 1,371 educational institutions, 690 kindergartens, 23 shopping centers, 28 oil depots, 105,200 private cars, 563 cultural and religious facilities have been damaged, destroyed or seized. At the same time, as of July 5, 43 bridges have already been restored and 941 km of state roads have been demined...”(Ibid) KSE recently updated this figure, noting that “[a]s of August 22, 2022, the total amount of damage to Ukraine’s economy from the damage and destruction of residential and non-residential buildings and infrastructure (in monetary terms) increased to $113.5 bln.”

President Volodymyr Zelensky issued a decree in the spring establishing the National Council for the Recovery of Ukraine from the Consequences of War (the “National Recovery Council”) as a consultative-advisory body.  The Council is composed largely of Ministers, their deputies as well as representatives from various Parliamentary profile committees. It receives input from 24 working groups and from a team of experts & representatives from private businesses and civil society.  Its mission is to develop a plan of actions for Ukraine’s post-war recovery, including steps to restore and rebuild damaged infrastructure and housing, revive Ukraine’s military infrastructure and develop its military-industrial complex, reinvigorate its economy through structural modernization, provide social support to those affected by the war and renew and preserve Ukraine’s cultural heritage (as the Russians have damaged or destroyed hundreds of cultural sites, including monuments, libraries and museums). 

The Lugano Conference

In July the Council unveiled a draft of Ukraine’s National Recovery Plan to an international conference of allied nations in Lugano, Switzerland (“the Lugano Conference”).  Attended by representatives from over 40 countries and numerous international organizations, the conference participants issued a “Lugano Declaration” in which they declared, amongst other points, their support to Ukraine from early to long-term recovery, their commitment to ensuring that the implementation of the plan is guided by the principles of integrity, transparency and accountability, and their recognition that the plan is a “living document” that must adapt over time to address the ongoing effects of the war.

As guiding themes for Ukraine’s recovery process, the Lugano Declaration endorsed seven key principles to be followed (the “Lugano Principles”), :

1. Partnership: Ukraine must lead the process in partnership and consultation with its international partners;
2. Reform focus: given Ukraine’s own declaration of its European path, and having been recently granted EU candidate status, Ukraine must commit to achieving the reforms consistent with achieving EU membership;
3. Transparency, accountability and rule of law: corruption must not taint this process, which must be transparent and accountable to the people of Ukraine;
4. Democratic participation: the engagement of civil society in the process is paramount;
5. Multi-stakeholder engagement: the process must involve a cross-section of actors, both within and outside of Ukraine, from the private sector, civil society, academia and local government
6. Gender equality and inclusion: the process must include all segments of society so that no one is left behind, and must ensure respect for human rights; and
7. Sustainability: the process should be driven by principles of sustainability, including a green transition.

Plainly the National Recovery Plan is ambitious.  Intended to cover the period between 2022 – 2032, the plan currently estimates a need of $750 billion, covering 850 projects within 15 national programmes.

Implementation of short- and long-term actions

Encouragingly, steps are already underway to help Ukraine in its recovery efforts and to provide Ukraine with some relief in the short-term. The European Investment Bank announced at the Lugano Conference that it will set up a EU-Ukraine Gateway Trust Fund to support the short-term financial position of Ukraine and to pay for long-term rebuilding projects.  This fund is expected to have an initial capitalisation of €20 billion in the form of grants, loans and guarantees from EU countries, with the goal of attracting another €80 billion in matching funds. More recently Canada, France, Germany, Japan, Britain, and the United States announced that they would support Ukraine’s request to its international creditors to freeze its debt payments for two years, a move that – if supported by creditors – is estimated to save Ukraine around $5 billion over that period. 

An immediate implementation plan is proposed to begin in 2022 by carrying out urgent infrastructure repairs, such as restoration of water supplies and bridges, and preparing the energy system for the winter, with a cost estimated at roughly $65 billion.  In the next ‘fast recovery’ phase, planned for 2023 to 2025 (assuming that the war has ended), the plan focuses on revitalizing communities through the reconstruction of schools, hospitals and housing at an estimated cost of $350 billion. The third and longer-term portion of the plan for 2026 to 2032 is transformational in nature, envisioning a sustainable modern economy paving the way for EU membership.

Funding sources for the implementation of the plan are thus intended to be provided through a combination of grants, debt and equity, primarily from international financial institutions and donors, private investments and budgetary sources, with official Kyiv eyeing assets confiscated from Russia and from its oligarchs as a potentially large component (assuming the numerous legal hurdles can be overcome by countries currently considering doing so).  

Facing post-war Ukraine: too soon to plan?

At no time since the end of World War II has the developed world been faced with such a monumental challenge as that now facing a post-war Ukraine.  Commentators assessing the bold draft National Recovery Plan highlight some immediate concerns that can effectively be boiled down to timing:  it’s simply too early to be formulating a concrete plan.  The concerns are:

• Reluctance on the part of investors and donors to commit to any long-term investments or rebuilding efforts while hostilities are ongoing and may well escalate.  The duration of the war is uncertain and the outcome is unclear;
• An over-arching trust issue, stemming from Ukraine’s long history of corruption, as well as concerns regarding Ukraine’s institutional capacity to effectively manage and, more importantly, to monitor such a massive undertaking;
• Questions regarding the ability of civil society, as a key stakeholder in the process, to serve both as a partner to and a check on the government; and
• Ukraine’s somewhat lackluster efforts since independence to commit to and implement reforms required by international donors and foreign investors to further liberalize (and de-oligarchize) its economy and strengthen the rule of law.
  
  

An independent & democratic future in Europe

Whilst the concerns now being voiced about Ukraine’s “Marshall Plan” are certainly valid, Adam is clear that it is not too early for the planning to begin. No one knows better what monumental challenges lie ahead for Ukraine (and what systemic problems need to be overcome) in any post-war recovery scenario than Ukraine itself.  As Adam says: “I, for one, fully believe that all Ukrainians understand that Ukraine has reached a turning point - perhaps even a point of no return. No longer is it possible for Ukraine to straddle the fence between the familiarity and comfort of its historical “eastern” past, on the one side, and the allure and promise of a rules-based democratic “western” future, on the other side”.  President Zelensky has stated that Ukraine’s recovery should be a “common task of the entire democratic world” allowing Ukraine to deepen its integration with Europe. The National Recovery Plan provides a bold comprehensive framework for Ukraine - together with all of its stakeholders - to begin laying the groundwork for a stronger “European” state, finally independent from Russia and firmly rooted in the geographical centre of Europe.

Adam will keep a very close eye on Ukraine’s National Recovery Plan and the associated developments. Furthermore he will continue his work for Dentons as well as his contribution to Corporate Acquisitions and Mergers in Ukraine.