Interview with Yulia Shevchuk, Chief Investment Advisor at the Nordic Environment Finance Corporation (Nefco), by Interfax-Ukraine

 

Nefco launched the Green Recovery Programme for Ukraine in 2022 in response to Russia’s aggression. What are the results so far?

We are very active in this programme, which currently includes more than 60 projects, with several more anticipated. Despite the war, we have already managed to complete some 30 projects.

The main areas of focus are increasing the energy efficiency of public sector buildings, renovating and constructing new housing for internally displaced persons and improving critical infrastructure. We have been working to modernise systems for water and heat supply, as well as waste management, contributing to sustainable development.

We have now managed to attract over EUR 330 million for this programme. Of this, approximately two-thirds was provided by the European Union and one-third by our Nordic donor countries (Denmark, Finland, Norway, Sweden) and the Eastern Europe Energy Efficiency and Environment Partnership (E5P).

 

As far as I remember, one of the first projects under this programme was for the restoration of critical infrastructure, primarily in the liberated Kyiv region.

That’s right. The first phase is a EUR 50 million initiative aimed at restoring key municipal infrastructure, including water supply, sewerage and heat supply systems, in 12 communities in the Kyiv region (Borodyanka, Borshchahivka, Dmytrivka, Dymer, Gostomel, Irpin, Ivankiv, Kalynivka, Nemishayeve, Piskivka, Slavutych and Velyka Dymerka). Most of these are small communities, and together with the community support consultant we have made significant efforts to implement these projects.

 

What is the status of the projects at this stage?

All tenders have been held, contracts have been signed and work has begun on almost all of them. There were 48 contracts in total, of which 30% have already been completed. Among the completed projects are related to water and heat supply systems in Borodyanka, the replacement of sewage infrastructure in Dymer and the water supply in Ivankiv. A hospital has already been put into operation in Nemishaeve.

In Borodyanka, work is still underway, including on the installation of a water de-ironing system. In Dymer, we are upgrading three boiler houses, sewage pumping stations and a water de-ironing system.

 

Is the problem with water quality in Kyiv Region so severe that the restoration requires additional treatment systems?

The work on de-ironing systems was requested by the communities, and our water experts supported this, as Nefco finances environmental projects.

Another important environmental problem that these projects address is the lack of water supply and sewerage systems in some villages and cities. In such settlements, these systems had to be built from scratch.

These will significantly improve the living conditions of the local population.

Projects aimed at improving the quality of drinking water are not only environmentally friendly, but also resource efficient, as they reduce plastic waste. Improving water quality reduces dependence on bottled water, which in turn reduces plastic production, waste and pollution.

There are also other benefits, such as more efficient use of water, as modern filtration and purification technologies reduce water consumption, optimising resource usage.

These projects are in line with the goals of sustainable development as they conserve natural resources, reduce waste and ensure a cleaner and healthier environment for current and future generations.

In Nemishaeve, a comprehensive project is currently being undertaken that involves the construction of new water treatment facilities.

In Ukraine, it is not easy to find contractors capable of implementing complex projects such as for water treatment plants or wastewater treatment plants. There are literally only a handful of such companies, and we are very happy to have them involved in our projects. Unfortunately, foreign companies have not yet entered Ukraine in significant numbers.

 

Have you discussed this problem with Ukrainian authorities to try and make it easier for foreigners to enter the market? Is this a global problem and do you use a significant percentage of local contractors in other countries?

No, other countries do not have such a large local component. Such complex projects require innovative foreign technologies and well-resourced contractors. However, attracting new foreign companies remains a serious problem for Ukraine.

As far as I know, many countries are working on solving this problem. For example, Ukraine and Denmark recently signed an agreement that simplifies the conditions for Danish companies to enter the Ukrainian market. However, the main systemic problem is that foreign companies often do not have Ukrainian partners. Without them, it is impossible to take on the role of a general contractor, as the project implementation depends on construction permits and the availability of local staff to actually perform the work.

We constantly emphasise this during conferences and seminar we participate in: foreign companies should look for Ukrainian partners to engage in infrastructure projects.

Some countries see Ukraine’s market prospects more actively. For example, the Baltic states have already organised business delegations to Ukraine even during the war. But in general, the problem remains complex.

But we do have an example of successful cooperation – engineering and consulting companies. Across a number of projects, including some operated by Nefco, Ukrainian consultants and designers are working together with international experts. This partnership ensures full support for the development of design and estimate documentation and project implementation.

We work with consulting companies from Austria, Denmark, Finland, France, Norway, Sweden and other countries.

 

Isn’t this a global phenomenon, the monopolisation and localisation of the construction market, especially the housing market?

But it is critical for Ukraine to bring in new technologies and better-resourced companies to cover all needs during the recovery phase.

 

Nefco has two programmes to help solve the problem of housing for IDPs – renovation of existing buildings and construction of new ones.

Nefco has two programmes aimed at addressing the issue of housing for internally displaced persons (IDPs): renovation of existing buildings and construction of new ones.
The first is a completed programme: Support for Urgent Housing Needs for Internally Displaced Persons (IDPs; NIP III), which received a EUR 19 million grant from the European Union. The programme was re-profiled in 2022 from Waste Management to Urgent Housing for IDPs. It involved the renovation of municipal buildings in ten communities in Western Ukraine, such as Chernivtsi, Chortkiv, Ivano-Frankivsk, Khmelnytskyi, Kivertsi, Kovel, Lutsk, Rivne, Zolochiv and Zvyahel. Thanks to this programme, some 1,500 internally displaced persons have gained access to accommodation.
The second is an ongoing programme: Construction of housing for IDPs with a EUR 100 million grant from the European Union. This programme, which covers 11 cities in nine regions of Western and Central Ukraine, envisages the construction of new social housing buildings and the renovation of destroyed public sector buildings in liberated cities in the Kyiv region. A total of 9,000 people will receive assistance, including 4,000 IDPs who will receive housing in new buildings and 5,000 who will receive services in renovated public sector buildings. As of today, 32 residential buildings and 55,000 m² of new flats are planned for construction under the programme. In Lviv, a contract was signed in November 2023, and the first building was completed in February 2025.

We expect that the next housing projects to be completed under this component will be in Kovel and Novovolynsk, where housing may be delivered during the summer 2025.

 

Are there any plans to expand this programme?

Nefco is more focused on the renovation and repair of existing buildings than on the construction of new ones; the construction of new facilities is predominantly the focus of social development, while we are primarily focused on environmental and energy-efficient projects. That is why our activities will mostly focus on building repairs.
A new programme is likely to be launched, possibly with the support of the European Union, and we are already working on its development. It will comprise various types of projects, including the repair of buildings for internally displaced persons as well as administrative and social facilities such as schools, nursery schools and hospitals.

 

Social infrastructure was the focus of your work before the war. Among the projects completed during the war was the restoration of the hospital in Nemishaeve. What other medical infrastructure projects are currently being reconstructed?

Since the beginning of the full-scale invasion, Nefco has completed one project, in 2024 (Primary Healthcare Center in Nemishaeve, Kyiv region).
Nefco is currently managing two projects that are in the implementation stage in Makariv (Kyiv region) – the reconstruction of a hospital’s therapeutic building (total project financing of EUR 2.1 million) and the reconstruction of a polyclinic (total project financing of EUR 630 thousand). Both projects are funded by the European Union under the Housing for Internally Displaced Persons and Rehabilitation of Liberated Cities in Ukraine – IDP I programme.
Projects currently under preparation include one for the comprehensive renovation of two buildings of the Ovruch City Hospital and Ovruch Lyceum No. 3 (expected funding of EUR 3.4 million) and one for an energy-efficient reconstruction of the Krasyliv Primary Healthcare Center (expected funding of EUR 2.1 million).

Projects in the preparation stage will be funded by grants with the support of Norway.

 

Is the number of communities you work with increasing?

We have a lot of requests from communities – we receive several new requests every week, and this has been the case for three years. This is because Nefco has developed a highly effective model of rapid project implementation, which has been improved over several years. It allows projects to be completed in an average of 1-2 years, even during the war, while the quality of work remains high. This is ensured through the involvement of highly qualified local specialists and consultants who actively support communities at all stages of implementation.

As for the selection of communities, there is a division into rear and frontline areas. As far as I know, Ukraine wants more grant funding to be directed to frontline and near-frontline communities, while the rear areas should be more active in attracting credit resources to address their needs.

 

This is what Ukraine wants, but are donors willing to provide taxpayer money for risky projects?

Donors assess risks first, so I don’t think a lot of money will go to those communities that are near the red line. I saw, for example, in Izyum, an administrative building that had been restored and then destroyed again.  And I read the comments from locals about priorities, what exactly it makes sense to spend aid on.

So, we are still considering projects that are located either in the western or central parts of the country.

 

How have the framework requirements for communities changed during the war in terms of the funding they have to cover on their own?

The financing terms depend heavily on the specific project. For example, there is a project to supply equipment for the dismantling of destroyed buildings and waste management in Irpin. Everyone understands that this project is not commercially viable, so it would be too difficult to ask the community for a significant contribution. That is why some grants are awarded without a fixed share of co-financing.

However, even in such cases, there is still a community contribution – someone has to manage the project, coordinate the work and handle other organisational issues. For projects that offer a higher payback, such as energy efficiency in social facilities, the conditions are different. If the community is in a rear area, its contribution usually ranges from 10% to 30%.

 

In terms of inquiries, what kind of assistance is most often requested?

Most of the requests relate to internally displaced persons and the growing burden on communities due to increasing numbers of residents. These projects can cover a range of focuses, including the construction of housing for IDPs as well as water supply, heating and waste management systems. In terms of project readiness, the situation varies: some communities already have ready-made project documentation, while others are at the initial stages of preparation.

 

And how do you choose projects? By the quality of the documentation? By the community’s readiness to accept help?

For us, one of the key conditions is knowing that there is confirmed funding from the donor. When such funds are available, the donor usually sets its own requirements and priorities, because taxpayers expect specific results. This is our starting point: if a donor states that schools are a priority, for example, we try to identify relevant projects among the submitted applications.

In the first programme, some donors, such as the European Union, selected communities through tender. The list was approved by the Ministry of Reconstruction, and we have already worked with the approved projects.

However, in most cases, we independently select projects among our community network. If the community is a new partner, we conduct a thorough check – we look at the reputation of the city’s leadership, the availability of political support and other factors that may affect the signing and implementation of the grant agreement. We also evaluate the importance of the project for the community: how critical is it, does the city have a team to implement it or is it ready to form one, and what level of cooperation is there between the community and us.

The environmental impact of the project is also an important selection criterion. As Nefco is a green bank, we only finance environmentally sustainable initiatives that maximise environmental benefits.

 

So, any political turbulence hinders project implementation?

Sometimes, yes. When there are changes in political leadership, it takes some time for the new person who takes over to learn about the situation and understand what stage the project is at. In addition, such changes may mean replacing a team that is working directly with a project. Therefore, unfortunately, the issue of political continuity is becoming important even for infrastructure projects. Our projects are dynamic, and any delay means that new initiatives for communities will start later.

 

From the donor’s point of view, what are the common problems that have not been solved during the war that delay implementation?

From a donor perspective, several common challenges have affected project implementation during the war. The first is the Soviet legacy in project management at the local level. For a long time, Soviet-era practices have delayed project implementation because they are driven by old standards and procedures that are often outdated and contribute to greater risk of corruption.

Changes introduced at the national level, such as to building standards or treasury rules, are also a significant factor in delaying implementation. If a community is not able to quickly resolve these issues, especially in small towns, there may be serious delays, and in the event of a change of leadership at the local level, the project may come to a stop altogether. In Ukraine, there is no single coordinator at the state level who can help solve project problems at the local level.

Another problem resulting from the Soviet legacy is that any changes to projects during the implementation phase need to be examined and approved by the Treasury. This significantly delays the progress of work. In other countries where we operate, the system is much more flexible, and there is more trust between the state and business. In Ukraine, however, the processes are more centralised and regulated, which slows down project implementation.

To change the situation, it is necessary to establish direct and constructive dialog with municipalities to:

• effectively address old, rigid administrative procedures and requirements
• raise awareness of the benefits of new and sustainable solutions, especially in the context of energy savings and improved public services
• create local political will to implement important reforms in Ukraine’s infrastructure sector

Although Ukraine officially supports the green transition, in practice, law enforcement agencies often require compliance with outdated building codes and standards, making it difficult to implement more advanced, energy-efficient technologies and European standards in grant projects. Almost all of Nefco’s partners have faced such requests from law enforcement authorities.

 

What are the other systemic problems?

An urgent problem is related to mobilisation.

 

But people who work on donor-funded projects have the right to be reserved, right?

This is a legal requirement, but to use this mechanism, the international technical assistance project needs to be registered and the contractor listed as such.

Registration is a joint effort: the community submits its required documentation, Nefco submits its documentation and the Cabinet of Ministers’ secretariat carries out the registration. However, sometimes government agencies register contractors not as contractors but as subcontractors, which makes it impossible to reserve employees.

We have dialog with the Cabinet of Ministers in each case, but it is not always possible to formalise the status of the contractor. The shortage of personnel on site, in turn, increases the risk of missing project deadlines.

The growing shortage of workers and consultants poses a serious risk to the continued successful implementation of infrastructure restoration projects.

 

Still, there are expectations that programmes will be expanded with the help of the European Union and other donors. What programmes are being discussed and in what areas?

We plan to continue our cooperation with donors, in particular with the Nordic countries and the European Union. Our key areas of focus remain energy efficiency, social infrastructure, renovation of housing for IDPs, water supply and sewerage systems, heat supply systems and waste management.

For example, in the area of waste management, we will start with small-scale projects such as those related to waste collection, sorting and recycling. In addition, we plan to continue a project to supply equipment for the dismantling of destroyed buildings and management of rubble waste. We will likely launch this project in one or two cities in 2025, possibly in the Kyiv region.

Nefco is currently working on an interesting project for which a grant from Finland is planned. It involves the construction of a near-zero energy school (NZEB) on the site of a building destroyed by the war. This school will be different from standard educational institutions. As far as we know, school buildings in Ukraine are strictly regulated, making it difficult to make changes to their designs. For example, certain large rooms, such as a gym, assembly hall and dining room, are mandatory.

However, for a building to achieve near-zero energy consumption, it is important to ensure multifunctional spaces. Otherwise, the heating costs will be too high and the required energy-efficiency indicators will not be achieved. That’s why we design multifunctional spaces. For example, an assembly hall can have movable walls, as in hotel conference rooms, which means it can be used for various educational purposes. This solution will help significantly reduce energy consumption.

This school is planned on a design-build concept. We already have a consultant preparing tender documents. We plan to procure a designer together with a contractor, but we have already received warnings about possible difficulties with the examination. This complicates the process, but the zero-energy school will still be built.