bne IntelliNews – A downbeat Berlin Recovery conference highlights Ukraine increasingly in survival mode

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It is time for Ukraine’s partners and allies to provide Ukraine with “all the weapons necessary for the Ukrainian defence forces to carry out the full de-occupation of the country’s territory,” President of Ukraine Volodymyr Zelenskiy said at the Berlin Recovery Conference on June 11.

“Hasn’t the moment come for the partners to provide us with all the weapons needed to throw the Russian forces away? It has come,” he said at a joint press conference with Chancellor of Germany Olaf Scholz.

The annual event is a chance for Zelenskiy to address the international community in a forward looking event, but Ukraine has been bogged down in an increasingly difficult position as Ukraine runs low on men, money and materiel and is losing ground to an intensified assault by Russian forces.

As bne IntelliNews reported, the Western strategy has to make sure Ukraine does not lose the war but it has not given it the support to win. Zelenskiy has clearly become increasingly frustrated and continues to demand “Israeli levels of support,” an appeal that has been falling on deaf ears. The deteriorating situation Kyiv finds itself in was reflected in the agenda of the conference, which focused more on Ukraine’s survival than gathering resources for the eventual rebuild that was the theme at last year’s London Recovery conference last June.

Zelenskiy told delegates that he was confident that the country can restore energy facilities that have been damaged and destroyed by Russia since the start of this year before the winter sets in.

As bne IntelliNews reported, 35 GW of Ukraine’s 55 GW of installed capacity of power generation has been destroyed or put out of action since the start of this year, raising fears over how the country can get through the coming winter. As many of the facilities cannot be fixed by the start of the heating season in November, Ukraine will be forced to increase imports of power from the EU, but the size of the energy deficit is such that even with preparations before the winter, the most the EU can do is halve the number of blackout hours in the high demand period of the day.

Thanks to tardy US financial support that ended with a new $61bn aid package on April 20, Ukraine has almost run out of air defence ammunition that has left its power sector unprotected and vulnerable to attack. Russia launched a barrage in March that has destroyed half of Ukraine’s power sector and rolling blackouts have already been introduced in a dozen regions.

Zelenskiy emphasised the urgent need for more air defences to protect Ukraine’s power infrastructure, but according to battlefield reports, the new ammunition is only arriving slowly. In particular, Bankova has called for fresh batteries of Patriot missiles, but rather than taking replacements from its stockpile, the US has simply ordered more from manufacturers that are working to fulfil those orders now, but will take months to fulfil.

Scholz said that Germany will soon provide Ukraine with a third Patriot system, IRIS-T installations, Gepard (Cheetahs), missiles and ammunition.

“Ukraine’s most important need right now is ammunition and weapons, especially air defence. Therefore, over the coming weeks and months, we will supply Ukraine with the third Patriot system, IRIS-T installations, Cheetahs, missiles and ammunition,” he said at a conference on the reconstruction of Ukraine. Since February 24, 2022, Germany has provided Ukraine with €30bn of military aid, as well as billions in humanitarian aid.

Zelenskiy highlighted Russia’s air superiority as its “greatest strategic advantage” in the ongoing conflict and reiterated his appeal for at least seven Patriot defence systems. German Chancellor Olaf Scholz announced that Berlin would send its third Patriot air defence system to Ukraine, alongside IRIS-T and Gepard anti-aircraft systems, missiles and ammunition in the coming weeks and months. However, these fresh supplies will not be enough.

Zelenskiy repeated earlier comments saying that Ukraine needs at least seven Patriot air defence installations in order to close the main cities in the near future, but Ukraine’s Foreign Minister Dmytro Kuleba said earlier this year that Ukraine actually needs a total of 22 to provide adequate protection. The contrast between the two numbers was another confirmation of the survival mode thinking that marred the Berlin conference discussions.

“80% of thermal generation in Ukraine, and one-third of hydroelectric generation, have been destroyed by Putin. And this is not the limit of his terror,” Zelenskiy told delegates, adding that Russian missile and drone attacks have destroyed 9 GW of Ukraine’s energy capacity. Last winter, peak energy consumption reached 18 GW, meaning “half of that is gone now,” according to Zelenskiy.

Zelenskiy said that Ukraine, with the help of partners, intends to build up to 1 GW of gas-fired flexible generation in 2024 and another 4 GW in the coming years, which will only partially close the gap Russia has created.

More recently Russia has started to target Ukraine large underground gas storage tanks that link Ukraine’s energy system with Europe’s. However, as these tanks are underground they are almost impervious to attack, although the pipeline links and compressor stations have been damaged.

“We must also implement a quick and inexpensive restoration of all energy facilities that can be restored before winter… We know how to ensure this,” Zelenskiy said. He asked allies for equipment from decommissioned power plants and direct financial support to “preserve normal life.” Kyiv plans to sign hundreds of agreements worth billions of euros with partners in the defence and energy sectors, Zelenskiy added.

European Commission President Ursula von der Leyen announced at the conference that Kyiv would receive €1.5bn from Russian frozen assets revenue in July, and €1.9bn under the Ukraine Facility this month. “About €1.5bn of windfall revenue will be available as early as July – 90% of them will go to defence, 10% to restoration,” she said.

“The new agreements consist of €1bn in credit guarantees and €400mn in mixed financial grants,” the Ministry of Economy of Ukraine said.

Change of tone

This year’s Recovery conference was a lot more downbeat when compared to the London recovery conference held in London last June. At that event several prominent international leaders attended including US Secretary of State Antony Blinken in a show of solidarity. This year’s attendance was much thinner.

The disappointing muted tone of the Berlin conference of the Berlin Recovery conference is a prelude to the Swiss international Ukraine peace conference to be held next month, that is already considered to be a flop after key players like China and the Kingdom of Saudi Arabia (KSA) have said they won’t attend and India has downgrade its presence to sending some low level diplomats. Even US President Joe Biden has skipped the event, preferring to do an election fundraising event in California instead and sending vice president Kamila Harris in his stead.

The theme of last year’s London Recovery conference was to persuade the private sector to step up and provide the hundreds of billions of dollars required to rebuild the country that has suffered around $450bn worth of damage. That effort appears to have been abandoned completely as unworkable and there was little emphasis on attracting the captains of industry to this event. Instead of talking about the hundreds of billions needed, the EU’s European Commission President Ursula von der Leyen offered a token €1.4bn that is less than the circa €5bn a month needed to cover the monthly budget deficits that Ukraine is currently running.

The parties also discussed Ukraine’s expectations from the results of the Peace Summit in Switzerland, Zelenskiy said on X on Tuesday.

In separate conversations, fund managers and multinationals have told bne IntelliNews that while they agree that Ukraine has massive potential and many attractive sectors, investors require predictability and worry about the risk of renewed war.

“I would love to invest into Ukraine, but if there is a ceasefire than I think most investors will wait at least five years before committing, as they need to be sure that the war won’t break out again in six months’ time,” one leading international fund manager told bne IntelliNews on the condition of anonymity.

Ukraine’s international partners also remain very reluctant to seize the $300bn of frozen Central Bank of Russia (CBR) reserve money, and earlier this year said that possibility was now off the table.

The US also seems to have accepted this decision and has proposed to use the profits earned by the frozen reserve money to back a bond issue of some $40bn – a scheme that seems to be moving ahead. Nevertheless, while $40bn is a significant amount, it remains well short of the hundreds of billions Ukraine will need to completely recover from the damage the war has inflicted on the economy.

Zelenskiy also said the shift to the right in the recent European elections was a problem for support for Ukraine as many of the right-wing parties are less keen to support Ukraine’s struggle against Russia.

“I think the most important thing is that when making their choice people do not just vote for some pro-Russian populist slogans. I think this is dangerous. Because this is dangerous not for Ukraine. We are already in the most dangerous situation: we are at war. The radical pro-Russian slogans also pose a threat to your own countries,” Zelenskiy said.

EU accession

The one positive development to have surfaced in recent weeks is the EU seems keen to accelerate the start of Ukraine’s EU accession talks.

Zelenskiy said that Ukraine has fulfilled all the conditions for the start of negotiations on membership in the European Union and formal negotiations should begin in June.

“No matter how the political mood in Europe changes, the fact of our reality is that all Europeans, without exception, and every nation that shares the common values of the whole of Europe and wants to live like us, live in peace,” he said during the opening ceremony of the Berlin conference. “Ukrainians are a nation like our neighbours in Moldova, like the people of Georgia, like the Balkan states and other states that respect Europe, freedom and the rule of law.”

Zelenskiy also expressed confidence that “the time will surely come for a free Belarus. Belarus in Europe.”

Short-term needs

The Berlin recovery conference has produced nothing concrete that will materially improve Ukraine’s position. The government is still living hand to mouth.

For the second year in a row, Ukraine is drawing up a budget with a record deficit, hoping to cover the bulk of this deficit with help from Western partners. This year it will amount to $43.9bn, which is becoming increasingly difficult to raise in the face of growing and palpable Ukraine fatigue; the IMF mission to Ukraine, Gavin Gray, noted, over time, international support for Kyiv will diminish and the country’s authorities need to “develop internal resources for self-financing.”

Ukraine’s recovery will require external investments in the amount of $10bn to $30bn per year over the next ten years, the country’s Prime Minister Denis Shmyhal said on social media following a Berlin meeting at the ministerial level for the first time.

“It is important for us that the support of partners is predictable, rhythmic and stable. We need restoration, access to foreign markets and improved logistics. We need external investment and technology transfer from our partners. Ukraine will need from $10bn to $30bn of annual investment in the next 10 years,” he wrote in his Telegram channel following his participation in the donor session in Berlin.





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