Various aspects of the ongoing conflict in Ukraine are the subject of much debate at perhaps all levels of society. From a business perspective, however, we will try to focus on the objective facts.
According to a report by the International Energy Agency (IEA), Ukraine lost more than 9 GW of electricity production capacity between March and May this year alone. Compared to the situation before 2022, only about one-third of Ukraine’s energy infrastructure was in working order in the first half of 2024. “More than half of the high-voltage substations managed by Ukraine’s state-owned utility UKRENERGO are damaged, and an acute shortage of spare parts makes it virtually impossible to repair them in a timely manner. The IEA estimates the cost of restoring Ukraine’s energy infrastructure at more than $30 billion,” says Matthew Sharsky, Eximbank’s director of international relations, in the final episode of HN’s I Want to Be an Exporter series.
Stabilization of the Ukrainian transmission system and ensuring the availability of electricity is, according to him, one of the key prerequisites not only for the further recovery of the Ukrainian economy, but also for the creation of basic conditions for the life of the population and the economic activities of business entities in Ukraine during the ongoing conflict.
Stability is a priority
Security and energy stability is a priority not only for Ukraine, but also for the European Union. These priorities are of strategic importance for the EU countries in Ukraine’s immediate neighbourhood. This includes Slovakia, which is already taking concrete steps in this regard in cooperation with its Ukrainian partners. In particular, the modernisation and increase of the capacity of the transmission system between Slovakia and Ukraine through the construction of a new interconnection in the section Veľké Kapušany – Mukačevo.
In order for this project to deliver the expected results, work on critical energy infrastructure on the Ukrainian side also needs to be carried out. “It is the implementation of complex projects of projection, construction and modernisation of the power system in the western part of Ukraine that represents an opportunity that Eximbank, in cooperation with its partners, wants to convey to Slovak companies,” Šársky explains to HN.
According to him, the strategic advantage of Slovak companies is the knowledge of local Ukrainian partners, environment and related specifics. Slovak companies still employ a strong generation of top experts who have gained experience, among other things, within the generation and transmission system in Ukraine. They are an equal partner for their local counterparts with an excellent knowledge of the issues and needs of the Ukrainian energy market and, last but not least, with good language skills.
Proximity to Transcarpathia
Moreover, Slovakia has an exceptional position in relation to Ukraine, especially its western part, i.e. Transcarpathia, defined by its cultural and historical proximity, as well as the potential for the development of interconnections and Transcarpathia itself, where financial and human capital is currently flowing in from all over the country.
From a commercial point of view, the current situation in Ukraine should be seen as high-risk due to both commercial and political risks. Both of these types of risks are linked by a common denominator – the possibility of non-payment for goods and services supplied due to insolvency or unwillingness of the customer on the Ukrainian side. “The probability of such a scenario can be very high, especially given the unpredictability of the further development of the conflict and the related poor economic situation of Ukrainian entities, which cannot carry out their activities in the standard mode,” says Sharsky.
Investment and business transactions into a country within which conflict is taking place are, in his view, not feasible on commercial terms in standard business practice. In the current situation, commercial and even state and development finance institutions have very limited appetite for conducting operations in the Ukrainian market.
In the case of Ukraine, an unprecedented situation is emerging – the international community and states are making coordinated efforts to mobilise investment and financial operations to support and stabilise the country. However, the resources of institutional and state budgets are insufficient to cover the massive investment needs. “One solution, therefore, is to mobilise additional investment from financial institutions and private capital through guarantee and grant schemes and instruments financed from institutional and state budgets,” adds Sharsky.
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Photo source: Eximbanka (photographer: Silvia Slafkovská)