By Colonel (Retired) Wes Martin, U.S. Army Military Police has served in law enforcement positions around the world and holds a MBA in International Politics and Business
Just over a year ago, Ukraine resoundingly ousted their president due to corruption, and elected Volodymyr Zelensky as a symbol of hope and change. Now however, Ukrainians are losing hope and beginning to wonder if things are changing for the worse. The current battle over green energy tariffs cuts is the case in point.
With reservations, and with holdouts, investors have begun to accept Draft Law 3658 compromise as their way ahead. The law’s provision of solar investors accepting a 15% cut (and wind investors accepting 7.5%) in payments is significant, and has been reached after 9 grueling months of negotiations with the government. Accepting the Law also allows the restructuring of the banks loans, which most investors used either to finance their projects or to later refinance.
The other issue that must be settled is the half billion dollar payments to the energy investors that have been withheld intentionally by the Ukrainian government since March 2020 in order to force the investors to accept their terms on green energy tariffs. It’s the equivalent of forcing a starving man to sign a questionable deal in order for him to be fed. The government is claiming that if investors sign the compromise and parliament passes the law, then the government will be able to resume payments on a regular basis and settle all arrears within a year. Naturally, the promises of a government which is not honoring its legal obligations already regarding payments, has led many international investors to consider filing trade disputes against Ukraine. These investors don’t believe Ukraine will honor its commitments even if the compromise law is passed.
The effort to convince investors who are mulling international trade disputes, is being undermined by members of Ukrainian Parliament, in particular Andriy Gerus, who is also one of the richest members of parliament. Gerus has been pushing for punitive and deep cuts that would bankrupt green energy, subsequently bankrupt state banks that financed green energy, and devastate the post-Covid economy in Ukraine. Investors must feel comfortable that the current deal being negotiated will be the final deal, not an agreement for the government to again renege on in the future due to the crusade of an unstable MP. So far the parliamentary energy committee which Gerus heads, approved the compromise draft law, rather than Gerus’s bill with punitive cuts. However the final version of the bill after amendments may well revert to Gerus’ goals.
Ukraine looks to the United States for military and humanitarian assistance and support. However it should also look to America for lessons in history and economics. The Great Depression started in 1929 due to the collapse on Wall Street, protectionist trade policies, and banking failures. The Freddie Mac and Fannie May collapses in 2008 resulted from long-term bad investment decisions and inability to cover loans. Parliamentarians in Ukraine are whistling past the graveyard if they believe Ukraine can get different results from harmful economic policies and still count on the US to bail them out.
The ability to compromise always results in various interest groups giving something up for the better interest of all participants and ultimately, the country. If Draft Law #3658 compromise fails to be become law, it will not be the fault of the investors who propped up Ukraine’s economy when the Russian army was occupying territory in Crimea and the Donbas. It will be because of the greed of rogue Ukrainian Parliamentarians and the failure of President Zelensky to maintain discipline within his governing faction.
Ukraine’s Parliament is scheduled to go on break after July 16, 2020. If Parliament does not approve the initial Draft Law #3658 compromise and amendments by then, the ricochet of bankruptcies in the energy and banking sector will begin. The continued refusal of MP’s like Gerus and others to compromise will result in green energy investors being forced to write off their losses, being unable to pay their Ukrainian bank loans, the banks subsequently defaulting, the country’s economy spiraling downward into a depression, and foreign investors abandoning Ukraine as a country who’s leadership fails to honor their commitments. As with most of Ukraine’s independent history, it will ultimately be the Ukrainian people who will suffer the most.
This will not be a short-term problem. Breaking written agreements and bank defaults are bad enough to give future investors pause, but having a country’s parliament who can’t unite behind the president and prime minister to avoid a certain economic disaster will completely devastate future consideration of investments. Already Ukraine has a poor reputation for protecting investors, and making the situation worse will bury Ukraine’s economic hopes for the next decade. The only winner will be Vladimir Putin, who already seized the Crimean Peninsula from Ukraine and continues to support pro-Russian forces who control parts of the eastern regions.
The failure to resolve economic problems being created by the “green tariffs” disputes will feed into another ongoing crisis. COVID-19 in Ukraine is expected to result in an 8 percent gross domestic product drop in this year (or worse). Most citizens throughout the country are already struggling to ensure the health and economic welfare of their families. The last thing Ukraine needs on top of this is a worsening of the recession due to the personal agendas of rogue MPs. At a time when the world is making compromises to improve a difficult situation, sadly Ukraine appears ready to go the other direction to make their situation worse. President Zelensky may yet pull a rabbit out of his hat to save the day on green energy and Ukraine’s economy. He has recently declared the compromise bill a national ‘priority’. Let’s hope he realizes how important of a priority this green energy compromise is before July 16.