Far from disaster: Ukraine's energy sector seeks investment and growth.

 
I.   INTRODUCTION 
II.  RECENT DEVELOPMENTS 
     A. Trade Law 
     B. Corporate Law 
     C. Finance 
     D. Energy 
III. GENERAL POLITICO-ECONOMIC ENVIRONMENT 
IV.  DOING BUSINESS IN UKRAINE    A. Joint Stock Companies 
     B. Limited Liability Companies 
     C. New Law on Joint Stock Companies 
     D. Investment through Offshore Structures 
V.   ENERGY SECTOR DEVELOPMENT 
VI. CONCLUSION 

I. INTRODUCTION

Twenty-two years ago, the explosion at the Chernobyl nuclear power plant in present-day Ukraine and the initial attempt by the Soviet Union to cover up the scale of the disaster exemplified the futility of the secretive Soviet regime and its flawed visions for a nuclear-energy dependent future. Since gaining independence some five years later, Ukraine has worked to shed the vestiges of its oppressive Soviet past by opening up to a market-based economy, creating entirely new business, cultural, and economic environments, and reformulating an energy future that includes a diversified portfolio of on and offshore petrochemical operations. Ukraine, like other countries in Eastern Europe and Central Asia, continues to welcome Western capital and business investment, and offers unprecedented access to its markets. Furthermore, Ukraine's strategic location between Europe and Russia allows it to control gas shipments from East to West. However, the ongoing challenges of privatization and the political and economic changes that resulted have been made far more difficult by the ongoing global financial crisis that emerged in 2008.

Ukraine's problems from the financial upheaval to some extent reflect the success of its integration into the world economy. The country formally became a member of the World Trade Organization (WTO) in 2008, (1) which led to negotiations with the European Union (EU) (its largest trading partner) to replace the myriad of fragmented trade and tariff agreements in place with a more comprehensive free trade agreement--a move that should strengthen EU-Ukraine business relations at the expense of Russia. (2) Since 1999, Ukraine's average annual economic growth of 7.3% was exceeded only by that of Kazakhstan among Eastern European and Central Asian countries, (3) and growth was on track for another 7.0% increase before the financial crisis ravaged Ukraine's stock exchange, causing the government to close down the stock exchange temporarily and dropping the hryvna, Ukraine's currency, to a record low against the dollar, depleting the country's already diminished foreign currency reserves. (4)

Added to this economic tension is the pro-Western government's political stalemate between President Viktor Yushchenko and Prime Minister Yulia Timoshenko, and the government's on-again, off-again relationship with neighboring Russia. It is important to note, however, that the political difficulties do not indicate opposition to Western economic ideas. On the contrary, all political factions united to help Ukraine secure a $16.5 billion loan from the International Monetary Fund (IMF) in late October 2008, (5) and the passage that same month of a long-awaited Joint Stock Company Law by Ukraine's national parliament (the Rada) presages an improved foreign investment climate once the immediate economic crisis passes. (6) Once the global economy emerges from crisis, Ukraine's emergent energy sector should form the basis of a renewed attractiveness to foreign investors.

In recognition of Ukraine's strategic importance to Europe as the energy gateway to Russia and Central Asia, the West has a vested interest in developing Ukraine's energy sector. As a result, investors in the energy sector should be aware of recent developments that are affecting investments, as well as have some basic familiarity with Ukrainian legal entities through which to structure investments. Part II of this Article canvasses several recent developments in the trade, corporate, finance, and energy sectors of Ukraine. Part III explores the general politico economic environment in which Ukraine finds itself currently. Part IV discusses the major business entities utilized in Ukraine for conducting business. Part V discusses recent energy sector developments.

II. RECENT DEVELOPMENTS