13:48 23.09.2013

U.S. Ambassador: Signing of EU-Ukraine Association Agreement to Be Positive Signal for American Investors Wanting to Work in Ukraine

10 min read
U.S. Ambassador: Signing of EU-Ukraine Association Agreement to Be Positive Signal for American Investors Wanting to Work in Ukraine

An exclusive Interfax-Ukraine interview with U.S. Ambassador to Ukraine Geoffrey Pyatt

Question: How do you see the current investment climate in Ukraine, what do U.S. companies operating in the country come up against in this respect, and what do they complain about most often?

Answer: Let me speak about both the opportunities they see, and the challenges they identify. On Friday [September 13, 2013] I attended an event together with President Yuschenko [ex-president of Ukraine Viktor Yuschenko] to open a large new Kentucky Fried Chicken (KFC) restaurant. That's part of an investment by a group of Americans that will rise to millions of dollars as they open what they hope will be about a hundred new restaurants of various brands over the next two years.

In the case of KFC, all the chicken will be sourced locally. And 70% of other food and beverages they serve will also be sourced locally. They're moving ahead with this because they see Ukraine as a very large market underserved by western-style fast food restaurants. They see an opportunity here with ample sources of supply, excellent natural resources – again the chicken example, a very positive experience in human resources, and an ability to retrain and motivate staff in a good way. I hear things very similar from companies in the energy field, and it isn’t just Chevron and ExxonMobil, but also medium-sized companies, and, of course, from big agro-industry companies. Given all this potential, our trade investment relationship is much smaller than it should be.

It's especially important if we're successful and Ukraine is successful in moving ahead with the European Association Agreement in November. For American investors, a Deep and Comprehensive Free Trade Agreement with Europe would be a game changer, as the doors will wide open for sales from Ukraine into the European market at the moment, when economic growth in Europe has resumed, while we're negotiating ourselves a Free Trade Agreement with Europe under the Transatlantic Trade and Investment Partnership.

So, in the language of Bloomberg and the people of New York there's a lot of headroom in the U.S.-Ukraine economic relationship.

The obstacles are the familiar ones: concerns about the rule of law, concerns about the activities of financial raiders, concerns about being able to operate in a transparent environment free of corruption and rent-seeking by officials. There is nothing that I can do as American ambassador to change these issues, those are issues the Ukrainian system has to come to terms with. But I'm impressed that the concerns that I've just flagged, which I hear from American companies, are exactly the same concerns that I hear from Ukrainian companies and from Ukrainian business people. I also have heard a very consistent message from the senior levels of the Ukrainian government, including the Prime Minister and Deputy Prime Ministers, that they're interested in growing our economic relationship. And this is where I'm also a committed to partnering strongly.

Question: At what stage are the negotiations with Chevron regarding strengthening Ukraine’s energy security?

Answer: Let me start with the principle, which is my very strong commitment to working with the Ukrainian government to help to advance the goal of greater energy independence. There are multiple lines of effort in furtherance of that goal.

We're working through USAID to strengthen the energy efficiency of Ukraine’s economy. The cheapest energy is the energy that you don't have to use because you have improved the efficiency of your economy. And since the Ukrainian economy is very energy intensive with lots of antiquated Soviet-era technologies, there is significant scope to improve efficiency.

We're also committed, in a second line of effort, to working with Ukraine to help strengthen and improve the efficiency of the Ukrainian market, including for re-importing gas from Europe to develop Ukraine’s role as an energy hub.

Third, we're committed to continuing to partner with Ukraine on renewable, unconventional energy sources like wind and solar, when there is significant possibility over the long term.

The fourth is nuclear power, which today generates 50% of Ukraine's domestic electricity supply. Here we see significant potential to help Ukraine diversify its sources for the supply of nuclear fuel away from sole dependence on Rosatom [the Russian state nuclear corporation] and Atomstroyexport [Russia's general contractor for nuclear power plant construction abroad] to develop the opportunity to supply fuel assemblies from Westinghouse. And we hope that Energoatom will be able to move ahead with Westinghouse in a way that will give you access to another potential supplier and drive down the price you get from Russia.

And the fifth element, and the most revolutionary perhaps, is the re-emergence of Ukraine as a major producer of oil and gas. The two big initiatives here are Chevron and ExxonMobil Corporation, both of which are very serious companies, who are committed to bringing the very best technologies to Ukraine in a way that is sensitive to the environment, and in a way that will drive employment, drive product activity and improve the competitiveness of the Ukrainian economy. Both are private companies who are negotiating directly with the Ukrainian government. Two weeks ago [September 2, 2013] I met with deputies from Lviv Regional Council and other officials to discuss Chevron's proposal for Lviv and Ivano-Frankivsk regions. I was encouraged by the genuinely democratic character of the debate that was going on in Lviv around these issues. I told the regional council that I could speak about the American experience with shale gas. We have dug about 1.2 million shale gas wells, with zero evidence of leakage into the ground water. This industry has generated close to 700,000 new jobs in America. And has created a situation where gas in America today costs about 33%, 1/3 of the cost in Europe. Our Department of Energy has begun to authorize the export of gas from America to other markets. So we're going to benefit from energy independence. And we hope Ukraine will be able to enjoy the same.

Question: What about cooperation with the IMF? You know the signing of the Association Agreement with the EU could cause certain problems with Russia, and Russia basically is speaking openly about that. You recall the actions in August of the Russian customs office: What can Europe and the United States offer as a support for Ukraine in that potentially difficult period?

Answer: Let me answer in two ways. First, the IMF's criteria will be technical and unfortunately, as many countries had discovered, there are no political shortcuts in that area. That said, for the United States, as well as for our European partners, it is unacceptable for any country to suggest that it should have an ability or right to dictate the choices that the Ukrainian government and Ukrainian people have made. The United States will be very supportive of the Ukrainian people's choice to move ahead with a deeper institutional relationship with Europe.

And the greatest benefits of moving ahead with that institutional relationship with Europe will come because of the phenomena that I talked about at the very beginning, which is the degree that success with the Association Agreement will stimulate investments, will build confidence in the Ukrainian economy, and will help to drive economic growth.

And it's very interesting for me that a debate has begun in Kyiv about the economic downsides to the Eurasian Customs Union. Looking specifically at the example of Kazakhstan, which is the country I know well from my previous assignment, which has had a non-positive experience in economic and macroeconomic terms as a result of its membership of the Eurasian Customs Union.

But as regards the IMF, we hope Ukraine will be able to have a successful negotiation focused on the familiar issues of conditionality, including in energy prices, currency exchange rates and fiscal policy. The United States has a very strong stake in Ukraine's economic success.

Question: What about the Tymoshenko case? You've stated you intend to visit Tymoshenko, so at what stage are your preparations? How much does the "Tymoshenko case" impact the process of the potential signing of the Association Agreement?

Answer: I’ll say three things: We’re completely committed to the success of the Cox-Kwasniewski mission [European Parliament's mission of former European Parliament President Pat Cox and former Polish President Aleksander Kwasniewski]. And that is a principal channel for the negotiations with Ukraine's government around this issue. We hope very much that the negotiations will be successful.

Second, for the United States, as I’ve already said, the "Tymoshenko case" is not about a personality, but of principle. We're concerned about the principle of the selective prosecution of a former head of government for actions conducted in his/her official capacity. This kind of selective prosecution isn't good for the long-term health of Ukraine's democracy, which is a foundation of our strategic partnership.

And lastly, concerning the question about specific timing: I want to coordinate very closely with Ambassador Tombinski [EU Ambassador Jan Tombinski], because as with my predecessor, my role is to be supportive of Europe's efforts. We'll pursue further the interest in going to see Ms. Tymoshenko at a moment that will most effectively support America's and Europe's shared interest in the success of the Association Agreement, and the success of Ukraine's deeper institutional relations with Europe.

Question: Shortly President Yanukovych will go to the United States to take part in the session of the United Nations General Assembly. Are there any meetings scheduled with the officials of the U.S. administration during this visit?

Answer: I just don't know what the plans are for New York has at this point. But I'm very confident that you will see continued intensive engagement between America and Ukraine, including in Yalta, where Mr. Pinchuk [Victor Pinchuk, a Ukrainian businessman and philanthropist, the founder of the Victor Pinchuk Foundation, which organizes Yalta European Strategy Annual Meetings] has attracted a very-very senior assortment of distinguished Americans.

One of the things that’s been interesting me as I got ready for this job and went through the process of Senate confirmation is the very large number of senior American officials, in government and outside, who have a direct personal experience working with Ukraine in furtherance of our goal of deepening Ukrainian democracy. Some of my most useful conversations were with people whose first involvement with Ukraine was one or two decades ago. Those were the people from whom I heard appreciation for all that Ukraine has accomplished. They pointed out that 22 years ago there were many people who doubted whether Ukraine would succeed as a sovereign and independent entity. Today nobody asks that question. We have very high expectations for Ukraine's democratic future because that is what the Ukrainian people deserve. But we can also appreciate what you've accomplished already in terms of elections, civil society, free media, the energy and optimism of young people. It seems to me that the challenge for my tenure in this job is to capitalize on that potential and continue to work towards the very ambitious vision that we have set for Ukraine as a democratic European state.

The potential is very clear, the decisions have to be made by the people and the government of Ukraine. And the most important decisions in the short term are those relating to the Association Agreement, meeting the conditions that Europe has established, including the end to selective prosecutions, and closing the deal on oil and gas product sharing agreements that have such an important potential impact on the perception of Ukraine as a place to do business.

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