Julia Shevchuk, Chief Investment Advisor at Nefco in Ukraine, is the guest of the second episode of the European-Ukrainian Energy Agency ‘EUEA Dialogue’ podcast

The podcast is hosted by Olena Rybak, Vice Chair of the Board of the European-Ukrainian Energy Agency, Managing Director at iC consulenten Ukraine.

For many years, Julia has been involved in investments in Ukrainian communities in different areas: infrastructure, buildings, critical infrastructure sector, therefore, is proficient therein. With the outbreak of Russian aggression, Nefco’s portfolio in Ukraine showcases a unique experience. It is no longer just about investments, investment portfolios, but also about rebuilding the country – recovery of critical infrastructure, housing for internally displaced persons and, of course, improving the energy efficiency of public sector buildings in municipalities in Ukraine. 

In the podcast, Olena Rybak addressed several relevant questions to Julia Shevchuk to provide insight into enhancing the investment sector in Ukraine.

Julia, you have been working in the investment sector in Ukraine for about 20 years. Nefco has invested in many projects. I believe, you are involved in implementation of investment projects in over 100 Ukrainian communities. What is the most challenging part of the investment process for an international financial institution like yours? 

Indeed, Nefco has a lot of projects in Ukraine. Summing up private and municipal projects brings the total to about 300. In Ukraine, we work with a small team, though. There were 8 people in the office before the war, but now we have a few more. However, the workload is still heavy. Our unique strength is in the ability to work more quickly than other international financial organisations. This is partly because the projects are small. They are more localised compared, for example, to World Bank projects worth several hundred million euros. The smaller project sizes allow for quicker implementation. 

At the same time, we know that regardless of the size, each project requires a similar level of preparation – administrative, technical, etc. In fact, this may be our biggest challenge – striving to work very quickly while managing the workload from a large number of projects.

Regarding external factors, we should mention the bureaucracy in Ukraine. The system has always been overregulated, a situation that existed before the war and unfortunately persists today. I can provide some examples of the bureaucracy we are currently facing.

Great, that was one of the next questions. Do you see any changes in the investment cycle? What are the prerequisites for attracting investment faster and easier? And if not, what exactly should be changed at the country level?

Indeed, at the beginning of the war, we were hopeful and inspired that things in Ukraine would change rapidly, allowing us to develop more projects and make even more investments. In the first six months after the full-scale invasion, there were indeed some simplifications and innovations in legislation. However, that seemed to be the extent of it. Regrettably, there have hardly been any major simplifications or a transition to turbo mode, as required by the situation.

Look at bomb shelters, for example. Ukraine introduced new standards for shelters as a prerequisite for both construction and reconstruction of buildings. For example, no daycare centre or school may operate without a bomb shelter. While we understand and accept this, the construction standards being applied can be problematic. Sometimes, the construction of a bomb shelter may be more expensive than the reconstruction itself. Whether the country, and communities in particular, can afford the construction of such bomb shelters is questionable. We have learned that in the Kyiv region, in particular, some public sector facilities are unable to start up due to the lack of funds for constructing bomb shelters.

Donors have different views on funding shelter construction. Some believe they can finance it and allocate grant funds, while others strictly prohibit such activities. Accordingly, there might be some limitations. From my assessment, we may expect delays of three to six months in the implementation of projects under our programme of construction of new housing for IDPs, due to the new construction norms for the bomb shelters.

Another example: in August, one city finished the construction of a house for 500 IDPs. However, due to the requirements for a bomb shelter, this project will be postponed. In the worst case, they will only be able to commission the building in the spring of 2025. While the need for quality shelters is obvious, the government needs to apply a more flexible approach in this area.

You mentioned the delays of three to six months per project due to new urban planning conditions. Please tell us about the duration of the general project cycle you are currently facing. What kind of project cycle are we talking about in general, when it comes to construction of housing or reconstruction of a school or daycare centres?

When we signed the agreements between one of our donors and the cities, we indicated that the “net” construction period, meaning the construction starting after all permits have been obtained, would be six months. Now we see that this deadline will be very difficult to meet. As I said before, we experience small delays at each stage. We are often requested to provide numerous explanations and support to communities and state authorities regarding the fact that international procurement rules prevail over local procurement rules in our projects. We must explain at every step that the project is important because it provides urgently needed housing for internally displaced persons. Unfortunately, project cycles will be extended compared to the initial plan.

We have just discussed the situation with the project cycle at the national level. If we slightly go down to your direct beneficiaries, Ukrainian communities, how do you see the dynamics there? What has changed in recent years? Is there any positive development?

The positive development is that people have undergone significant changes since the beginning of the war. They now identity strongly as Ukrainians and patriots. At the community level, there is optimism about forthcoming improvements and new projects. Nefco receives 3–4 enquiries from Ukrainian cities every week because communities know that we work fast and pay special attention to small and medium-sized communities.

Nefco has developed the Green Recovery Programme in Ukraine to finance projects for the construction of new housing for IDPs and the renovation of public sector buildings to help western regions host internally displaced persons. We also have projects in Kyiv region and Central Ukraine. I believe that people are becoming more enthusiastic about transforming Ukraine, and that’s a good thing.

Could you please explain what is the main request of the communities while applying to the Green Recovery Programme? How are the trends and demands for renewable energy changing? Has the community request for renewable energy changed due to the critical situation with energy supply?

There are a lot of requests that include so-called “green” components, namely: solar energy, biofuels, and heat pumps. There is also a push for the decentralisation of the heat supply system, so there are requests for funding for bio-boilers and individual heating stations. These “green” components are now present in all applications from cities. 

The primary motivation behind the cities’ requests for investment is to manage the influx of internally displaced persons. Previously, the main reason was the desire to reduce energy consumption.

And what about the capacity of communities? As far as I know, it was often said that communities were struggling to implement projects with international financial organisations due to lack of awareness, certain difficulties in the procedures of international organisations, procurement, monitoring, reporting, etc. Compared, for example, to the situation 10-15 years ago, are communities doing better today? This is the first part of the question. The second is: What do communities need to improve in project management on site, where there is community influence on accelerating investment?

This issue is among my top concerns when it comes to the local level of investment project implementation. I believe that weak project implementation units are the major obstacles to attracting further investment and cooperation. 

At Nefco, we actively utilise technical assistance and engage project consultants. Typically, this involves a partnership between an international and a local consultant, and this model has proven highly effective. However, it is worth noting that our consultants often end up doing a significant portion of the work instead of the cities themselves. This underscores the lack of necessary human resources and professionals within the cities to implement projects.

Before the war, the situation had shown some improvement, but with the onset of the full-scale invasion, it has deteriorated. Many professionals have been mobilised to the army and numerous specialists, especially those fluent in English, have moved abroad. Moreover, municipalities are mainly preoccupied with humanitarian issues, making cooperation more difficult.

However, there are positive examples. Firstly, it’s important to note that there are two forms of community-based project implementation units. The first involves cities hiring individuals dedicated to managing progressive international projects on a full-time basis. The second form assigns existing employees to handle project management, procurement, and other functions. This latter approach is more common in Ukraine but is often less effective, necessitating the assistance of our consultants hired with technical assistance funds. 

Nevertheless, the first form has gained traction in Kyiv, Zhytomyr, and Lviv – mainly in regional centres. Municipal enterprises, such as the City Development Agency or Project Implementation Units, have been set up there. Their employees are dedicated to project implementation, focusing particularly on international projects due to their complexity. 

Such examples are inspiring, and hopefully, small and medium-sized communities will also be encouraged to shift to this form of project implementation in the future. This shift could alleviate the bottleneck that currently hinders communities’ capacity to engage effectively in investment projects.

And what defines a successful community from the point of view of an international financial organisation providing a loan or grant? What kind of community should it be? Is it about a great mayor or a chairman of the city council or about the community, the city, its financial capacity? What are the criteria? Let’s tell you so that communities know where to go.

I believe everything you have mentioned in your question constitutes the components of a successful community – a little bit of everything. It all starts with the city’s administration: a strong leader, backed by local politicians and a motivated project implementation unit. This is the formula. The financial capacity of the community is also very important, especially in times of war, also plays a crucial role.

As I said earlier, a strong team is one of the most important elements of a good project. There are indeed communities in Ukraine that have managed to do this, to bring all these factors together and achieve significant efficiency.

Each project has a share of local government responsibility. To what extent have legislative changes affected the standard investment projects?

In fact, very strongly. We are currently under martial law, which has affected all processes within city councils. Many mayors complain about the lack of investments in their cities. Even during more peaceful times, the state still wielded a strong influence on communities. Regulatory authorities are also a contentious issue.

Let’s take a closer look here. What exactly do they have control over?

When we launched projects to build and reconstruct housing for IDPs following the start of the full-scale war, our aim was to showcase European-quality housing, advanced technologies, and energy efficiency. While these initiatives were slightly more expensive, we also understood the impracticality of overly expensive projects during wartime. However, our goal remained to demonstrate that it is possible to rebuild better and greener. 

This immediately caught the attention of regulatory authorities, who accused communities  of potential violations of Ukrainian law. 

While the bravest cities were undeterred by such accusations, most cities were cautious. They had heard about numerous criminal cases opened due to anti-corruption efforts. This environment dampened the enthusiasm of cities to implement new technologies. 

As a result, our projects were significantly impacted. Certainly, addressing corruption is necessary, but excessive measures can be counterproductive. This situation has instilled a fear of responsibility, greatly affecting project effectiveness.

We are all working in an enormously uncertain environment. What is behind Nefco’s motivation to help Ukraine? Are there any signs of losing interest in cooperation with our country? What message would you convey to convince more donors and potential investors to invest in Ukraine right now, in this time of uncertainty?

In fact, it is very difficult to present financial arguments to donors and investors, because everyone knows that any infrastructure in Ukraine can be destroyed at any time. However, investments are still coming in. I see, for example, that my colleagues are guided, first and foremost, by the intention to help the country to rebuild and make it greener. 

The projects also bring future economic benefits, have political implications, and ultimately aim to help people. These are essentially the main guiding factors for us now. 

What message could be used to attract new investors and reduce their fear of this uncertainty?

We recently had a meeting with the Estonian support agency for Ukraine, and I was surprised to learn that delegations from the Baltic countries and business groups are visiting Ukraine and have already established partnerships and joint ventures. 

Companies from Nordic countries are also eager to work in Ukraine, although no business delegations have arrived yet. At this point, Ukraine needs to pay a little more attention to developing a framework for foreign businesses to connect with Ukrainian partners, as infrastructure projects, for instance, require a local presence. 

For example, a construction company cannot operate without permits and local employees in Ukraine. Unfortunately, our country lacks a mechanism to support these private business networks. This is now very important.

You mentioned construction companies. Please tell, what is the situation with construction companies in Ukraine now? Are they sufficient for your projects? Many complain about mobilisation, but at the same time, we all understand the need to rebuild the country, and there are fewer and fewer people to do that.

The issue with construction companies in our projects is quite evident. We compiled information from over 300 contractors who participated in our tenders during the war. 

Upon analysing the data, it became clear that these contractors mostly have turnovers of up to EUR 10 million from projects also below EUR 10 million. However, our projects and investments require larger-scale capabilities. Therefore, there is a pressing need for companies with greater turnover and experience in handling larger projects. Alternatively, foreign companies could enter the market and collaborate with Ukrainian contractors. Otherwise, recovery will be very difficult. 

And, of course, mobilisation plays a big role. Approximately 50 contractors working on our projects, are facing manpower shortages due to mobilisation. We understand that mobilisation is a priority for Ukraine, but a balanced approach is also crucial. After all, if there is no workforce to build infrastructure, there will be no housing for IDPs will have no place to live, potentially prompting them to seek better opportunities in Europe. 

Nefco is known as a high-speed organisation with a very small team. In the beginning, you said that it is partly due to the fact you work with small projects. Nevertheless, what is the secret to implementing your small but very important projects so quickly and efficiently? 

(I think there are several secrets.) I have been thinking a lot about what makes us different. As an international financial organisation, we communicate directly and extensively with project participants, particularly communities.

We remember all of our renovated buildings and objects almost by heart, including the Barvinok Daycare Centre and the Sun of the Carpathians Daycare Centre. Despite the increasing number of projects, we strive to remember all our renovated buildings and facilities.

We are familiar with all our consultants and the communities they serve. Unlike most financial institutions that rely solely on reports, we prioritise face-to-face meetings. Reports can often paint a different picture from reality. Understanding a person’s motivations requires direct communication, which is why we make it a point to meet them in person. Our team consistently holds regular online meetings, and before the war, we conducted numerous site visits. This regular live communication significantly speeds up projects. 

If we look at the next 5-7 years, what should be addressed by Ukraine now to have strong decisions in the context of rebuilding the country in the future? 

I think it will be very challenging, but very exciting. Investments will come to Ukraine, I am certain of it, and we will not be abandoned – it is already evident. However, with Ukraine’s current ability to digest or effectively utilise these funds, implementing large-scale investment projects will be challenging. I am confident that donors, international institutions, and citizens themselves will exert pressure on the state to bring about change, and we will witness these developments. 

I would advise government officials to start making changes now, as delaying them will only make things more difficult later. Now, it seems that many in public service suffer from some kind of amnesia. They express willingness to rebuild the country but soon forget. This is the attitude that must be changed now.

Nevertheless, I hope that work in Ukraine will be very exciting despite the difficulties. I believe we will rebuild the country, despite the current challenges that seem insurmountable. 

Imagine us meeting in a few years, and you are implementing your dream project. What will it look like?

It will be a project supported at all levels – by the state, community, and donors. We will operate within an environment that prioritises community investment projects. The community will implement the project independently, with consultant solely monitoring its progress. under such conditions, we can expand and scale our projects. This is my ultimate dream.