UKRAINE GOVERNMENT MAKES PROGRESS ON RESOLVING LONG-STANDING CLAIMOF U.S. GOVERNMENT'S OVERSEAS PRIVATE INVESTMENT CORP (OPIC),FINAL RESOLUTION NOTCOMPLETED
OPICStill Closed for Ukraine: Jobs Lost, Income Lost, Investment Lost
U.S.-Ukraine Business Council (USUBC)
Wash, D.C., Monday, June 22, 2009
WASHINGTON, D.C. - The government of Ukraine has madereal progress in the past few weeks on resolving the long-standing claim, ten years, of the U.S. Government's Overseas Private Investment Corporation (OPIC). But the final resolution documents needed to settle the OPIC claim has not yet been completed by the government of Ukraine so OPIC is still closed for business in Ukraine.
This major problem continues to cause Ukraine to lose much needed jobs, income and investment during these most difficult economic times. Hundreds of millions in potential U.S. investments are being held up because OPIC is still closed for Ukraine.
VPM HRYHORIY NEMYRIA
Dr. Hryhoriy Nemyria, Vice-Prime Minister of Ukraine for European and International Integration, has been leading the efforts by the Ukraine government to finally resolve the OPIC issue. "The over 100 members of the U.S.-Ukraine Business Council (USUBC) are most appreciative of VPM Nemyhria's strong support and work to resolve the OPIC claim," said Morgan Williams, USUBC president.
VPM Hryhoriy Nemyria has been working closely with PM Yulia Tymoshenko, U.S. Ambassador William Taylor (before his tour of duty as Ambassador was completed in late May) and with William Klein, Deputy Counselor for Economics at the U.S. Embassy (whose tour of duty at the U.S. Embassy in Kyiv is over at the end of June).
U.S. Ambassador William Taylor and Deputy Counselor for Economics, William Klein, had several key meetings with PM Yulia Tymoshenko and VPM Hryhoriy Nemyria in April and May about the OPIC issue. These meetings produced very positive results and the OPIC issue was moved forward. VPM Nemyria also met personally with USUBC president Williams and William Klein in Kyiv on April 13th about the OPIC matter.
The U.S-Ukraine Business Council (USUBC) had a working luncheon meeting with VPM Hryhoriy Nemyria in Washington on April 24th, 2009. The VPM reported to members of USUBC about a resolution passed by the Cabinet of Ministers on Wednesday, April 15, 2009, that would move the OPIC issue closer to resolution. Nemyria said that a private business entity in Ukraine was appointed on Friday, April 17thto implement the Cabinet of Ministers resolution.
CABINET OF MINISTERS RESOLUTION OF APRIL 15
VPM Hryhoriy Nemyria personally led the effort which resulted in aresolution by Ukraine's Cabinet of Ministers dated Wednesday, April 15, 2009. The Defense Ministry and the Economy Ministry were instructed to appoint an institution to provide for the implementation of a memorandum of mutual understanding laying the grounds for the return of Overseas Private Investment Corporation (OPIC) to Ukraine. The memorandum was signed by the governments of Ukraine and the United States on November 10, 2008. (See news articles number one, two, four, five and six shown below.)
It has now been over two months since the Cabinet of Ministers passed the April 15 resolution.Recent reports from Kyiv indicate the private business entity in Ukraine appointed by the government on April 17 still needs some further authoritization documents from Ukraine'sMinistry of Defense before it can continue the work to complete the agreements with OPIC so OPIC can finally be open for business in Ukraine.
COMPLETE THE NEEDED WORK NOW
"USUBC, once again, strongly urges the government of Ukraine to complete the final authorization documents this month so the OPIC issue canfinally be resolved and OPIC can be open for business in Ukraine," according to Morgan Williams, Director, Government Affairs, Washington Office, SigmaBleyzer, who serves as USUBC president. "USUBC is pleased to know that VPM Hryhoriy Nemyria is still supportive and is working to get the various ministries within the government to complete the needed documents."
One of the top issues for the U.S.-Ukraine Business Council (USUBC) for the past several years has been that all the outstanding economic and business development programs of the U.S. government's Overseas Private Investment Corporation (OPIC) have been closed for Ukraine (http://www.opic.gov).
The claim came as the result of OPIC paying a political risk insurance claim to a U.S. business that invested in Ukraine in the early 1990's.
Such settlements of claims between government are rather normal in the international community of nations when government backed political risk insurance programs pay out claims. Governments usually settled such claims rather quickly, but this has not happened in the case of Ukraine.
OPIC being closed for Ukraine has stopped and is stopping many U.S. businesses from investing in Ukraine or from expanding their investments in Ukraine. OPIC being closed has thus cost Ukraine hundreds of millions of dollars of badly needed private business investments and thousands upon thousands of jobs.
An article about this important outstanding issue, written by Jim Davis in Kyiv (see article three below) appeared in the Business Ukraine magazine in Kyiv on February 11, 2008. Such an article, for the most part, could have been written most anytime during the past few years.
NOVEMBER 2008 MEMORANDUM OF UNDERSTANDING
The U.S. government and the government of Ukraine signed a Memorandum of Understanding about this issue in Kyiv on November 10, 2008 (see news releases number four and five three below from the Embassy of the U.S. in Kyiv and from the Ministry of Economy of Ukraine).
The Memorandum of Understanding (MOU) was a step forward but it just laid a foundation for a future agreement that would actually lay out the details of exactly how, when and for how much the outstanding OPIC claim would be resolved between the two governments. The steps specified in the memorandum have never been fulfilled though progress was made in April of 2009.
As the news release from the Ministry of Economy of Ukraine said, "The signing of the MOU between the two governments is considered to be the first step in establishing practical mechanisms of dispute settlement with the Overseas Private Investment Corporation." (Item number six below shows a copy of the draft of the MOU).
Many observers thought the MOU signed in November between the two governments actually resolved the issue and that OPIC was then going to open for business in Ukraine early in 2009. Unfortunately this was not the case. There have been several reports at various business meetings since November of 2008 that OPIC is actually open for business in Ukraine. Again this is not the case.
WIN-WIN FOR UKRAINE AND FOR U.S.
This is a win-win for Ukraine and the U.S. USUBC urges both governments to keep working together to move this issue to final completion now. Both countries, now more than ever with the world financial crisis, need to be able to say that OPIC is "OPEN FOR BUSINESS IN UKRAINE."
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SIX ATTACHED ARTICLES ------
1. GOVERNMENT INSTRUCTS DEFENSE, ECONOMY MINISTRIES
TO SETTLE SITUATION WITH OPIC ACTIVITIES IN UKRAINE
Interfax Ukraine, Kyiv, Ukraine, Thursday, April 23, 2009
KYIV - Ukraine's government has instructed the Defense Ministry and the Economy Ministry to settle the situation with the U.S. Overseas Private Investment Corporation's activities in Ukraine.
According to the resolution by the Cabinet of Ministers dated April 15, the Defense Ministry and the Economy Ministry should appoint an institution to provide for the implementation of a memorandum of mutual understanding laying the grounds for the return of Overseas Private Investment Corporation (OPIC) to Ukraine. The memorandum was signed by the governments of Ukraine and the United States on November 10, 2008.
As reported, OPIC suspended its activity in Ukraine in September 1998 in connection with the payment of insurance coverage to Alliant Techsystems (the United States).
As the issue has remained unsettled for over 10 years, the governments of Ukraine and the United States have decided to accompany the settlement of the dispute between the two economic entities - OPIC and CJSC Alliant Kyiv.
The Government of Ukraine and the Government of the United States signed a memorandum of understanding in November 2008 enabling OPIC to resume activity in the country, with a stipulation that the parties help settle an insurance claim on an OPIC-supported project in Ukraine.
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2. UKRAINE: CABINET ORDERS DEFENCE MINISTRY AND ECONOMY
MINISTRY TO ENSURE FULFILLMENT OF OPIC AGREEMENTS WITH USA
Ukrainian News-on-line, Ukrainian News Agency, Kyiv, Ukraine, April 23, 2009
KYIV - The Cabinet of Ministers ordered the Defence Ministry and the Economy Ministry to ensure fulfillment of agreements with the United States of America to settle problems with the Overseas Private Investment Corporation (OPIC), reads the Cabinet directive No. 425 issued on April 15.
In particular, the government instructed the Defence Ministry jointly with the Economy Ministry to determine a company which will ensure the fulfillment of the memorandum of understanding signed by the Ukrainian and US government on November 10, 2008.
The Defence Ministry was also instructed to submit proposals to the Cabinet, in case of necessity, on making amendments to the legislation for the fulfillment of the memorandum provision.
As Ukrainian News earlier reported, Economics Minister Bohdan Danylyshyn and United States Ambassador to Ukraine William Taylor on November 10, 2008 signed a memorandum of understanding between Ukraine and the United States, which lays the foundation for re-start of OPIC's operations in Ukraine.
Taylor forecast that investments totaling USD 500 million will flow into Ukraine during the period of 2009-2010 following the resumption of the OPIC operations in Ukraine.
In 2007, the Overseas Private Investment Corporation offered that the Ukrainian government pays USD 34 million as reimbursement for losses of Alliant Techsystems which with Alliant Kyiv serving as intermediary was engaged in recycling of Ukrainian ammunition from 1993 to 1999 when it left the Ukrainian market following business disagreements with the Ukrainian side.
The money invested by Alliant Techsystems into the project had an insurance cover from OPIC. OPIC has for a long time requested the Ukrainian government to compensate for these losses.
OPIC is an independent agency of the federal government of the United States that provides commercial services, including insurance of American companies operating abroad against political and economic risks.
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3. UKRAINE'S OUTSTANDING OPIC DEBT: A BARRIER TO FOREIGN INVESTMENT
U.S. Overseas Private Investment Corporation (OPIC)
By Jim Davis, Business Ukraine magazine, Kyiv, Ukraine, Monday, February 11, 2008
Amid all the fanfare that has accompanied the signing of a protocol which will bring Ukraine WTO membership, it is worth noting that a disagreement over a relatively small amount of money has made it impossible for Ukraine to enjoy the benefits of an obscure but extremely important agency of the United States government, the Overseas Private Investment Corporation (OPIC).
Estimates made by well-informed persons involved in the process relating to OPIC would suggest that had the problem could have been resolved when it
first arose in 1999, Ukraine could have gained an absolute minimum of an additional USD 5 - 10 billion in foreign direct investment - and probably a lot more than that.
The issue could have been solved years ago, but it was as is so often the case it is a problem for which no one had primary responsibility on the Ukrainian side.
All those, i.e. the various ministers, who had parts of the responsibility within their jurisdictions failed to understand the overall importance of the issue and therefore guarded their own turf rather than that of the state as a whole.
The end result has been to deny the Ukrainian economy one of the tools that could have been attracting investment into the country ever since, with a potential opportunity cost running into the billions of dollars.
A SIMPLE PROBLEM MADE COMPLEX
The matter involves the non-payment of a state debt incurred by the Ministry of Defence about ten years ago at a time when the needs of various ministries were seriously under-funded and ministers were prone to making deals first and worrying about payment later.
The debt in question was covered by OPIC political risk insurance. OPIC paid the claim to the insured U.S. supplier and looked to Ukraine to ultimately
make good on the original agreement, as was called for in the Ukraine-OPIC agreement.
The amount of the claim, approximately USD 17 million, is quite small when viewed in the light of the overall budget of Ukraine. For the uninitiated, USD 17 million might appear to be a sum that could be dealt with in a simple meeting among ministers of any government.
However, there is no single ministry nor any single minister who has ever been tasked with dealing with the problem in a priority manner, so time and time again the issue has been discussed at seemingly high-level meetings between U.S. ambassadors and embassy staff on one side and various ministers and prime ministers on the other.
The matter is further complicated by the nature of Ukraine's budget process. No government has wanted to debate the debt in parliament so it has never
been made a part of any annual state budget.
With no line item listing of the debt, some other mechanism would need to be found in order to keep a payment from being illegal under the existing
legislation of the state budget act. So far, no creative payment mechanism has been found that would meet the needs of both sides of the disagreement.
The most recent top-level discussions came during a visit to the United States by then-Prime Minister Viktor Yanukovych in late 2006. At the time Yanukovych promised U.S. officials during discussions that the matter would have his personal attention and would be settled in a very short time. However, the Yanukovych government neither paid the amount owed nor requested or agreed to negotiations to adjust the amount owed.
ABOUT OPIC
OPIC is an independent U.S. government agency whose mission is to mobilise and facilitate the participation of U. S. private capital and skills in the
economic and social development of less developed countries and areas, and countries in transition from non-market to market economies.
OPIC assists U.S. companies by providing financing (from large structured finance to small business loans), political risk insurance, and investment funds. OPIC complements the private sector in managing risks associated with foreign direct investment and supports U.S. foreign policy.
Since its establishment in 1971, OPIC programmes have grown and expanded to encompass the support of development in over 150 countries. In 2007, OPIC assisted 70 projects in 38 countries and regions involving a wide range of industries. Of all the projects underway around the world in 2006, 87% or 61 projects involved U.S. small businesses in 35 U.S. states.
Many OPIC projects involve U.S. procurements, but it is also small and medium-sized enterprise (SME) projects in recipient cooperating countries that receive the greatest benefits. For example, in Kazakhstan, OPIC provided debt financing for a USD 1.89 million investment in the Asian Credit Fund (ACF), a non-banking microfinance institution established by
the Mercy Corps.
In Azerbaijan, OPIC provided financing to SOAKredit LLC (SOA), an independent limited liability non-credit organisation. SOA's purpose is to implement an innovative finance programme primarily designed to stimulate local business growth and facilitate Azerbaijan's transition from a demand to a market economy.
In Russia, OPIC is providing financing to ZAO Europlan (Europlan), the leading leaser of equipment and vehicles to SMEs throughout the Russian Federation, to support a planned USD 450 million expansion.
CREATING CONFIDENCE, OFFERING SECURITY
Nadir Shaikh, Chairman of the Board of Citibank Ukraine, explained that SME firms and medium-sized projects are the ones that would benefit most if
Ukraine settles its dispute with OPIC.
Shaikh has been one of the persons most active in promoting a settlement with OPIC and as recently as two weeks ago participated in a meeting with
senior government officials where this matter was discussed.
"We know from experience that the largest foreign firms come here fully prepared to finance their own way into the Ukrainian market. Their investments are based on advice from the most sophisticated sources in their own companies or from professional advisors such as investment banks. It is the smaller foreign investors who need the type of help and risk coverage that OPIC is able to give.
"Making OPIC political risk insurance available would, for example, would give many smaller foreign investors the kind of backing that would first help convince their own boards of the viability of investments in Ukraine, and would also assist them in finding financing for projects here or in their home country.
"In addition, it would help Ukrainian companies to get access to financing that could be provided by such banks as Citibank, based on OPIC risk coverage programmes. Settling the current dispute requires a firm decision and political will on the part of government to find a financing mechanism to pay the current claim. I am optimistic that the efforts of the current government are more likely to find a solution to this problem," Shaikh concluded.
A RELATIVELY TRIFLING DEBT
One of the most interesting elements in the OPIC-Ukraine issue is the flexibility exhibited by OPIC in attempting to settle the claim. On several occasions various Ukrainian governments have been told that while USD 17 million is the amount actually owed, OPIC is willing to engage in negotiations that could lead to a solution that would mean a substantially reduced settlement.
Even with the clearest signals possible from OPIC, no Ukrainian government over the last ten years has been willing or able to find the will to effect a settlement.
The issue has not been filed away in a long forgotten filing cabinet, either. Morgan Williams, president of the U.S.-Ukraine Business Council (USUBC) said that the OPIC issue has been a matter of discussion between the two governments in every meeting that he has attended in Washington or Kyiv in recent years.
"On January 31, while addressing a meeting of the USUBC that included representatives of the American Chamber of Commerce and U.S. embassy officials, Vice-Prime Minister Nemyrya made a point of telling the audience that he was fully aware of the problem and that he expects a solution to be found soon. We sincerely hope that is correct.
"OPIC programmes are being used all over the world to spur development and USUBC thinks that the inability of Ukraine to solve its OPIC problem has
cost the country at least one billion and perhaps several billions of dollars in lost investment opportunities. In effect, a failure to solve the OPIC issue has a negative effect on Ukraine's ability to create jobs and wealth for all of Ukraine's citizens.
"For example, in the autumn of 2005 OPIC conceived and was ready to implement a USD 100 million private equity fund programme for Ukraine. I have been told on the back channel by top U.S. government officials in Washington that the total value of OPIC programmes that could be implemented here within a relatively short time might have a total value of as much as USD 500 million."
"However, it is the government of Ukraine that must turn the key to open what is literally a treasure trove of new investment and risk guarantee opportunities. I hope it will make the effort necessary to find the solution needed," Williams concluded.
LINK: http://www.businessukraine.com.ua/ukraine-s-outstanding-opic-debt
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4. UKRAINE AND U.S. GOVERNMENT SIGN MEMORANDUM OF UNDERSTANDING
FOR RETURN OF U.S. OVERSEAS PRIVATE INVESTMENT CORPORATION TO UKRAINE
Public Affairs Section, United States Embassy Kyiv, November 12, 2008
KYIV, Ukraine - The U.S. Government and the Government of Ukraine signed a Memorandum of Understanding (MOU) on November 10, 2008. The signing of this MOU lays the foundation for the return of the U.S. Overseas Private Investment Corporation (OPIC) to Ukraine. William Taylor, U.S. Ambassador to Ukraine and Ukraine's Minister of Economy Bohdan Danylyshyn acted as the signing parties of this agreement.
Ambassador Taylor believes the signing of the MOU is an important step toward securing OPIC’s return to Ukraine and an important sign of the faith the United States has in Ukraine and the Ukrainian economy. Once the steps specified in the memorandum are fulfilled, over $500 million of new investments that will be made in Ukraine in the next 12-18 months with OPIC’s help, he says.
Ambassador Taylor underscores that OPIC's return, like the IMF support package and other positive economic news such as the widely unheralded recent passage of a Joint Stock Company Law, is evidence Ukraine can take steps to improve the economic and investment climate if the leadership of the major political forces work together for the good of the country.
OPIC was established as an agency of the U.S. government in 1971. It helps U.S. businesses invest overseas, fosters economic development in new and emerging markets; complements the private sector in managing risks associated with foreign direct investment; and supports U.S. foreign policy. OPIC has been absent from Ukraine for several years over the failure to resolve an insurance claim dating from the 1990s. This MOU paves the way for a resolution of that issue.
The American Chamber of Commerce (AmCham) in Ukraine and the U.S.-Ukraine Business Council (USUBC) welcomed the news. AmCham President Jorge Zukoski said he is pleased that concrete steps are being undertaken to re-establish the operations of OPIC. Mr. Zukoski noted that the MOU signing sends a positive signal to the business community that Ukraine is open for business, and that it will assist in attracting additional strategic investment into the marketplace.
"One of the top priorities of the U.S.-Ukraine Business Council (USUBC) the past few years has been to support the return of OPIC's outstanding business and economic development programs to Ukraine." said Morgan Williams, SigmaBleyzer, who serves as President of USUBC. "USUBC members certainly welcome the signing of the MOU and hope all issues will be resolved quickly so OPIC can once again support U.S. businesses doing business with Ukraine.
LINK: http://kyiv.usembassy.gov/infocentral_eng.html
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Public Affairs Section, United States Embassy Kyiv
4 Hlybochytska St., Kyiv 04050 Ukraine
(380 44) 490-4026, 490-4090; Fax (380 44) 490-4050
http://kyiv.usembassy.gov/; info@usembassy.kiev.ua
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5. U.S. GOVERNMENT & UKRAINE GOVERNMENT SIGN OPIC
MEMORANDUM OF UNDERSTANDING, THE FIRST STEP
Signing of the Memorandum of Understanding (MOU) between the Government of Ukraine and the
Government of the United States of America on Overseas Private Investment Corporation activities in Ukraine
Ministry of Economy of Ukraine, Kyiv, Ukraine, Monday, November 10, 2008
KYIV - A Memorandum of Understanding [MOU] between the Government of Ukraine and the Government of the United States of America, which makes an important foundation for Overseas Private Investment Corporation (OPIC) to resume its work in Ukraine, has been signed on November 10, 2008.
On behalf of the Government of Ukraine the Memorandum has been signed by Bohdan Danylyshyn, the Minister of Economy of Ukraine, and on behalf of U.S. Government the MOU has been signed by the Ambassador of the United States of America to Ukraine William Taylor.
CONSIDERED TO BE THE FIRST STEP
The signing of the MOU between the two governments is considered to be the first step in establishing practical mechanisms of dispute settlement with the Overseas Private Investment Corporation.
Ukraine has a very strong interest in the further attraction of private American investors that can insure their risks with OPIC, stated the Minister of Economy of Ukraine.
At the same time, Ambassador William Taylor underlined that sighing of the MOU is a very important step for the return of OPIC to Ukraine and an important sign that the United States of America believes in Ukraine and its economy.
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6. LATEST AVAILABLE DRAFT OF THE MOU ON NOV 10, 2008
May not be the final copy that was signed.
MEMORANDUM OF UNDERSTANDING
between the Government of Ukraine and the Government of the United States of America
The Government of Ukraine and the Government of the United States of America (hereinafter “the Parties”),
Confirming their intention to cooperate with the aim of developing relations between the two countries in the area of investment;
Desiring to ensure favorable conditions for investment including the principles of equality and mutual benefits and the provisions of the Treaty Between the United States of America and Ukraine Concerning the Encouragement and Reciprocal Protection of Investment, with Annex, and Related Exchange of Letters, signed at Washington March 4, 1994; and
With regard to the situation which has developed in connection with the investment of Alliant Techsystems Inc. to ensure operation of closed- end Joint Stock Company Alliant Kyiv;
Achieved the following understanding:
Section 1
The Parties welcome and admit the importance of the agreements that are envisioned to be concluded between the U.S. Overseas Private Investment Corporation (hereinafter: OPIC) and an economic entity (hereinafter– the Enterprise), selected by the Government of Ukraine with OPIC’s approval, as described in Section 2 of this Memorandum of Understanding, and, in accordance with their respective national laws, intend to facilitate the implementation of these agreements.
Section 2
The Parties take into account the agreements (hereinafter – Agreements) regarding resolution of the situation involving the investments of Alliant Techsystems Inc. into Alliant Kyiv. These Agreements envisage that:
(i) OPIC would transfer to the Enterprise the rights assigned by Alliant Techsystems Inc. to OPIC in connection with the payment made by the latter (hereinafter – the Rights). The transfer of rights would be made in accordance with the legislation of Ukraine.
(ii) The Enterprise, in its turn, would transfer money in favor of OPIC in the amounts and during the time period specified by the Agreements.
The Parties support OPIC’s willingness to consider the full and proper performance by the Enterprise of the payment and due implementation of other obligations under the provisions of the Agreements, as mentioned in the paragraphs (i) and (ii) of this Section as final resolution of the situation that emerged in connection with the investments of Alliant Techsystems Inc. in Alliant Kyiv.
Section 3
The U.S. Government confirms that OPIC will resume support of investment projects implemented in Ukraine by U.S. private investors, upon satisfaction of the conditions outlined in the Agreements for the resumption of such support.
Section 4
The Parties acknowledge that the provisions of this Memorandum of Understanding do not constitute and should not be considered as constituting any admission on behalf of the Ukrainian Side of any commitment, debt, complaint or other claim of any company, including those involved in the resolution of the situation with regard to the investments of the Alliant Techsystems Inc.
Section 5
Each Side will endeavor to resolve any differences regarding the interpretation and/or application of provisions of this Memorandum of Understanding by holding consultations between the Parties.
Section 6
The Memorandum of Understanding enters into force upon signature by authorized representatives of the Parties.
Modifications and additions that are integral part of this Memorandum of Understanding can be incorporated into it upon mutual written consent of the Parties.
Signed in duplicate at Kyiv on November 10, 2008, in the Ukrainian and English languages. Both copies have equal value.
For the Government of Ukraine:
For the Government of the United States of America:
Minister of Economy of Ukraine
U.S. Ambassador to Ukraine
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LINKS: http://www.mfa.gov.ua/usa/en
http://www.me.gov.ua/control/uk/publish/article?ar
http://www.kmu.gov.ua/control/uk/publish/article;jsessionid=