24 OCTOBER 2023
Newsletter 21
Ukraine's development. Wartime reforms and institutions. Key actors.
WARTIME REFORMS AND INSTITUTIONS. KEY ACTORS.
Who Is Responsible For The Reconstruction In Ukraine, Or Who Is The Favorite Minister of Volodymyr Zelensky
In November 2021, at a press conference President Volodymyr Zelensky was asked who is the best Minister of Ukraine. He named Oleksandr Kubrakov.
"Not only because he is my favorite minister, but also because he shows results," Zelensky said.
In December 2022, Oleksandr Kubrakov became Vice Prime Minister for Reconstruction of Ukraine. As a head of the wartime Ministry, Kubrakov has been keeping the country's post-war reconstruction process in his hands. At stake is potential control over the distribution of more than $400 billion, which is what the World Bank estimated the country's postwar reconstruction would cost.
"Not only because he is my favorite minister, but also because he shows results," Zelensky said.
In December 2022, Oleksandr Kubrakov became Vice Prime Minister for Reconstruction of Ukraine. As a head of the wartime Ministry, Kubrakov has been keeping the country's post-war reconstruction process in his hands. At stake is potential control over the distribution of more than $400 billion, which is what the World Bank estimated the country's postwar reconstruction would cost.
Who is Oleksandr Kubrakov?
Oleksandr Kubrakov is a Ukrainian politician, entrepreneur, IT and telecom expert. A native of the Dnipro region, he graduated from Kyiv Economic University with a degree in marketing and a short stint at Harvard Kennedy School.
Since the beginning of Russia's full-scale invasion of Ukraine, Kubrakov has been involved in organizing exports despite blocked ports and then participated in negotiating the grain corridor.
Oleksandr Kubrakov has become a kind of 911 service for Zelensky: the minister was in charge of military logistics in the first days of the invasion, the grain deal, building bridges and roads in the liberated territories, villages in the Kherson region, water pipelines to Kryvyi Rih, and protecting power substations from missiles.
Since the beginning of Russia's full-scale invasion of Ukraine, Kubrakov has been involved in organizing exports despite blocked ports and then participated in negotiating the grain corridor.
Oleksandr Kubrakov has become a kind of 911 service for Zelensky: the minister was in charge of military logistics in the first days of the invasion, the grain deal, building bridges and roads in the liberated territories, villages in the Kherson region, water pipelines to Kryvyi Rih, and protecting power substations from missiles.
Source: Міністерство відновлення України
A new strategy for Ukraine’s defense system or sacrifice of the reconstruction budget ?
In the first year of the full-scale invasion, Kubrakov's ministry received more than €1.5 billion from the state’s budget. In 2023, funding for the Ministry of Infrastructure was cut by €150 million. By the end of 2024, the ministry risks losing more than 80% of its usual budget, or nearly €1.16 billion, impacting the political weight of Kubrakov.
The fundamental reason for such changes is Zelensky's decision to redirect funds from construction to defense, the ultimate priority, within the state strategy evolution towards a long-term war. In particular, Ukraine’s objective to reach autonomy in weapons production takes money.
The first and most significant loss for the Ministry is the closure of the Road Fund. Excise taxes on vehicles and fuel, which used to go to this fund, will now be directed to the general "pot."
Secondly, the Fund for the Department Elimination of the Consequences of Armed Aggression, established in 2023, is canceled. It funded reconstruction projects and the “eRestoration” program, which provides for the construction of war-damaged housing for internally displaced persons (IDPs).
That is, not all of the Fund's money is used by the Ministry of Reconstruction, some of it goes to local budgets, which finance reconstruction projects in the regions, as well as compensation programs for damaged housing.
The Liquidation Fund is replenished with 50% of the National Bank's profit and assets confiscated from Russians and Russian businesses in Ukraine. According to the latest data, the Liquidation Fund amounted to UAH 61.7 billion (€1.59 billion), of which UAH 35.9 billion (€930 million) came from the NBU and UAH 25.8 billion (€670 million ) from confiscation.
The fundamental reason for such changes is Zelensky's decision to redirect funds from construction to defense, the ultimate priority, within the state strategy evolution towards a long-term war. In particular, Ukraine’s objective to reach autonomy in weapons production takes money.
The first and most significant loss for the Ministry is the closure of the Road Fund. Excise taxes on vehicles and fuel, which used to go to this fund, will now be directed to the general "pot."
Secondly, the Fund for the Department Elimination of the Consequences of Armed Aggression, established in 2023, is canceled. It funded reconstruction projects and the “eRestoration” program, which provides for the construction of war-damaged housing for internally displaced persons (IDPs).
That is, not all of the Fund's money is used by the Ministry of Reconstruction, some of it goes to local budgets, which finance reconstruction projects in the regions, as well as compensation programs for damaged housing.
The Liquidation Fund is replenished with 50% of the National Bank's profit and assets confiscated from Russians and Russian businesses in Ukraine. According to the latest data, the Liquidation Fund amounted to UAH 61.7 billion (€1.59 billion), of which UAH 35.9 billion (€930 million) came from the NBU and UAH 25.8 billion (€670 million ) from confiscation.
Minister’s plans for 2024
The main plan is to engage international partners to invest in the reconstruction of Ukraine. The reconstruction plans are being bent to the needs of a long-term war.
On September 26, 2023, Vice Prime Minister for Reconstruction of Ukraine Oleksandr Kubrakov presented Ukraine's recovery priorities for 2024, in particular in the area of reforms important for Ukraine's economic sustainability:
(1) Implementation of the best international practices in public procurement;
(2) Preparation of amendments to the laws on public-private partnerships (PPPs) and concessions;
(3) Digitization of services and procedures in construction, strengthening liability for violations;
(4) Strengthening of regional policy instruments;
(5) Accountable reconstruction, including through the introduction of the DREAM electronic reconstruction management ecosystem (OECD+CCIFU, RISE platforms).
On September 26, 2023, Vice Prime Minister for Reconstruction of Ukraine Oleksandr Kubrakov presented Ukraine's recovery priorities for 2024, in particular in the area of reforms important for Ukraine's economic sustainability:
(1) Implementation of the best international practices in public procurement;
(2) Preparation of amendments to the laws on public-private partnerships (PPPs) and concessions;
(3) Digitization of services and procedures in construction, strengthening liability for violations;
(4) Strengthening of regional policy instruments;
(5) Accountable reconstruction, including through the introduction of the DREAM electronic reconstruction management ecosystem (OECD+CCIFU, RISE platforms).
Oleksandr Kubrakov
Source: Міністерство відновлення України
In the upcoming newsletters, we will do a deep-dive into some of these reforms, starting with public procurement and PROZORRO.
UKRAINE'S DEVELOPMENT UPDATE. INTERNATIONAL AID
USA
- After having seen its request for $24Bn in military aid to Ukraine lowered to $6Bn, then denied by Congress, the US President combined requests for urgent assistance for Israel and arms Ukraine into one aid package, which may further expand to $100Bn and include budget for Taiwan and domestic issues. The “opening of the second front” in Israel for the US increases the strain on US stockpiles, and Israel's demand for the supply of 155-millimeter high-explosive shells is in direct competition with Kyiv. Thus, Biden’s reiteration of continuous long-term support of Ukraine is crucial at the moment when both Europe and the US realize that the war will be long and require long-term commitment. All congressional decisions remain blocked however, before a new House speaker is approved. In the meanwhile, the US Defense Secretary Lloyd Austin committed $200 million in military aid for Ukraine at October 10 Ramstein meeting.
EU
- In the beginning of October, France introduced a bilateral investment war insurance mechanism for the French companies investing in Ukraine. Without waiting for the end of the war, BPI France Assurance Export will insure any French or Ukrainian company or bank operating under French law and making long-term investment in Ukraine or extending credit to a Ukrainian subsidiary. This war insurance protects up to 95% of the loss of assets or receivables against the risks of property damage, non-payment, non-transfer, expropriation and political violence.
- The EU High Representative Joseph Borrell proposed an additional €20Bn in military support for Ukraine, on top of the €50Bn financial support over 4 years through the European Peace Fund, announced at an informal meeting of the Council of the EU in Toledo, Spain, in late August. During his visit to Kyiv on 2 October 2023, Borell said that together with €25Bn of military support already provided, the total aid by the EU to Ukraine amounts to €85Bn since February 2022. He emphasized the EU to support Ukraine regardless of the course of the war and of the budgetary or political choices of the US. The victory of three opposition parties who together gained 54% majority at the parliamentary elections in Poland on October 15 promises to reinforce European support of Ukraine by its key allies.
- Belgium committed to send several F-16 fighter jets to Ukraine in 2025, according to the country's Defense Minister. The number of fighter jets will depend on the number of F-35 delivered to replace them.
- Germany is preparing a new winter aid package for Ukraine worth about €1 billion, which will include Patriot, IRIS-T and Gepard systems, Leopard A15 tanks, armored personnel carriers, equipment and military supplies worth €20 million. (Source: German Ministry of Defence; issued Oct. 10, 2023)
- On 11 October 2023, the President of Finland proposed to the government to increase defense equipment shipments to Ukraine within the 19th package of military aid worth €95 million.
Register on our next conference on Ukraine, 30.10
For Ukraine, the EU accession has been an existential issue since 2013 Revolution of Dignity at EuroMaidan. It has gained a new dimension in Ukrainian identity and self-determination since the full-scale invasion by Russia in February 2022. For the EU, the accession of Ukraine is becoming tied to the vision of Europe's own future, as it raises the question about the accession of other candidate countries. The accession is also increasingly tied to the EU member states' transforming foreign policy priorities, as the EU has become number one provider of financial aid to Ukraine in Kyiv's battle against Russia. Today, the accession hinges on the political will of European decision-makers on the one hand, and on the progress Ukraine makes in the realm of political reforms.
- What are the key reforms for the EU accession, and what has been Ukraine's progress in implementing them?
- What are the main challenges and obstacles, and what do the government and the civil society of Ukraine do to overcome them?
Read other newsletters here