OVERSEAS PRIVATE INVESTMENT CORPORATION
(OPIC) STILL CLOSED FOR UKRAINE
Settle the claim now and open OPIC for Ukraine

U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Friday, July 25, 2008

WASHINGTON, D.C. - One of the top issues for the U.S.-Ukraine
Business Council (USUBC) over the past several years has been the closure
for Ukraine of the major economic and business development support
programs of the U.S. government's Overseas Private Investment Corporation
(OPIC) (http://www.opic.gov/).  OPIC's programs ares still not open for
Ukraine in July of 2008.  The government of Ukraine should settle the small
OPIC claim immediately and get OPIC programs open for Ukraine. This is
a win-win for everyone.

USUBC has been speaking out about this critical issue at meetings, in
Washington and Kyiv, with every top Ukrainian and U.S. government
official who has some responsibility regarding this major problem for a
long time.

USUBC was told directly in several meetings this year by top officials in
the Ukrainian government and in the U.S. government that resolving the
OPIC issue was a top priority.  Strong indications were given to USUBC
that the OPIC issue would be solved by late March or certainly by May 2008
at the latest.  But, now in late July 2008 endless meetings are still be held
between the two government about how to resolve the claim OPIC has with
the government  of Ukraine. A claim which has been around since 1999. 

USUBC urges the two governments to find a way to settle the issue now
and get the OPIC working once again for the benefit of American businesses
and for Ukraine.  The dispute has gone on long enough.  Many business
development and expansion programs for Ukraine are on hold because OPIC
is closed...jobs are being lost, tax revenue is not being generated, investment
and economic growth suffer as a result.

An article about the OPIC issue, written by Jim Davis and published by the
Business Ukraine magazine in Kyiv back in February 2008, is still very
relevant:

UKRAINE'S OUTSTANDING OPIC DEBT: A
BARRIER TO INTERNATIONAL INVESTMENT

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
------------------------------------------------------------------------------
U.S.-Ukraine Business Council (USUBC)
1701 K. Street, Suite 903
Washington, D.C. 20006
mwilliams@usubc.org; www.usubc.org
==============================================