ISSUE 27
01 - 07. 05. 2023
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- Security situation update
- Risks of Chinese Mediation in the "Settlement" of Russia-Ukraine War
- Closing tax loopholes for Ukrainian Oligarchs
- Russia is destroying Ukrainian cultural heritage
- A biomethane boom is expected in Ukraine
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You can find a PDF version of this issue suitable for printing at the bottom of the newsletter.
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SECURITY SITUATION UPDATE |
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Over the past week, Russia achieved minor territorial gains near Bakhmut, though with significant losses. Russians continued their attempt to take full control of Bakhmut by 9 May, deploying Wagner private military company (PMC) mercenaries from other directions for this purpose. Leader of Wagner PMC Yevgeniy Prigozhin complained publicly that his personnel did not receive enough munitions, and threatened that his people would withdraw from the Bakhmut direction by 10 May.
He later stated that the Russian military command agreed to increase the level of supplies to his mercenaries, but also noted that the main goal of the operation in Bakhmut was not the seizure of the settlement itself, but freeing up operational space in the direction of Sloviansk and Kramatorsk, which, he said, had already been achieved. The Ukrainian military still controls some supply and evacuation routes to Bakhmut, but Russian forces are intensifying shelling in Bakhmut, particularly using heavy weapons and more advanced equipment, and are regrouping, according to Oleksandr Syrskyi, Commander of Ukraine’s Ground Forces. Russians have also been pummelling Bakhmut with phosphorus and incendiary projectiles for several nights in a row. These shells cause massive fires that are almost impossible to extinguish, Ukrainian Special Operations Forces reported, publishing the video footage of such an attack.
In anticipation of a Ukrainian counteroffensive, Russians also began evacuations from the occupied territories in the Zaporizhzhia region, including Melitopol and Enerhodar. International Atomic Energy Agency (IAEA) experts present at Ukraine’s Zaporizhzhia Nuclear Power Plant (ZNPP) are closely monitoring the situation for any potential impact on nuclear safety and security. ZNPP is the largest nuclear energy facility in Europe, and its location in the frontline where the fighting is likely to intensify in coming weeks raises concerns, IAEA Director General warned.
Russia has also intensified missile and drone attacks. Within a week, Kyiv was attacked by drones four times. During the night of 7-8 May, Russia deployed 35 Shahed-136/131 drones, which were all destroyed by the Armed Forced of Ukraine. It was the most intensive drone attack on Kyiv since the beginning of the war, experts assess. Several residential buildings in Kyiv were damaged, and emergency services also reported five civilians being injured. The same night, Russian strategic aircraft deployed Kh-22 missiles to carry out a missile strike on Odesa oblast, destroying a warehouse with humanitarian aid and causing massive fires in a resort area. The main purpose of such intensive attacks, Ukrainian military leadership believes, is to identify and locate Ukraine’s newly-acquired air defense capabilities. Last week, Ukrainian Air Force commander Mykola Oleshchuk confirmed earlier media reports that a U.S.-supplied Patriot battery was used on 4 May to intercept an incoming Russian hypersonic missile over the capital, Kyiv, in what is believed to be the first downing of the sophisticated Russian weapon and Ukraine's first use of the U.S. defense system. The hypersonic missile was identified as Kinzhal, a type of missile that can travel up to ten times the speed of sound to evade air defenses.
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Ukraine's top officials are trying to lower expectations, fearing that the outcome of the counteroffensive may not meet the expectations of their allies, media reported this week. According to Ukrainian military intelligence, Russia has tried to accumulate a certain supply of missiles to disrupt the Ukrainian counter-offensive. However, amidst general fears that Russia may escalate following the alleged drone flight over the Kremlin, the Ukrainian military intelligence assessment is that Russia has no military, economic, or political potential to create another attempt for a serious offensive anywhere in Ukraine.
Meanwhile, the expected timelines of the Ukrainian offensive are again being speculated, currently estimated as the end of spring. Ukraine still lacks significant capabilities to ensure success, experts believe. Amongst those, the key need, according to the Ukrainian General Staff remains multi-purpose aircraft of the F-16 type and attack aircraft, including the A-10 Thunderbolt. To reliably protect the sky from Russian shelling, Ukraine still needs to build up air defense forces with the help of modern Western air defense systems: Patriot, SAMP/T, HAWK, NASAMS, IRIS-T, Crotale, Aspide, Gepard, Avenger, MANPADS and ammunition replenishment. And to increase firepower at the front, more MLRS HIMARS, M270, as well as artillery systems and 155 mm, 122 mm, and 105 mm calibers ammunition are needed.
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RISKS OF CHINA'S MEDIATION IN THE "SETTLEMENT" OF RUSSIA-UKRAINE WAR |
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On 26 April, Chinese leader Xi Jinping and Ukrainian President Volodymyr Zelenskyy spoke by phone for the first time since Russia's full-scale invasion. The Ukrainian President stressed that there can be no peace through territorial compromises, called for support of the Ukrainian Peace Formula, and asked the Chinese leader to refrain from military cooperation with Russia, including through supplying weapons. Xi said China's main position is facilitating peace talks between Kyiv and Moscow. Following the conversation, Zelenskyy appointed Pavlo Riabikin, a former minister of strategic industries, as Kyiv's new ambassador to China. In turn, China will send Li Hui, its special envoy to Eurasia, "to Ukraine and other countries to have in-depth communication with all parties on a political settlement of the Ukraine crisis," the Chinese Foreign Ministry said. On the same day, China, CSTO (the Collective Security Treaty Organization) members Armenia and Kazakhstan, as well as Russia-supporters Brazil and India, voted in favor of a UN General Assembly resolution calling Russia the "aggressor in the war against Ukraine." However, a week later, the Chinese Mission to the UN stated that it did not support describing "the conflict in Ukraine" as "aggression by the Russian Federation." The Permanent Mission of China to the UN stated that "China's position on the Ukraine issue has not changed, and the voting position has nothing to do with the phone call between the two heads of state."
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In recent months, China has sought to become an active player in the processes related to the war in Ukraine and is pretending to be a mediator in the "settlement of the conflict". The long-awaited talks between the two leaders did not lead to a significant breakthrough at this stage, but this communication may have an impact on the future negotiation process. The parties have fixed their positions and agreed to intensify dialogue. This is evidenced by the appointment of a Ukrainian ambassador to Beijing and a Chinese special envoy who will focus on "peacekeeping efforts."
For Kyiv, this call is important in its policy of balancing between global players and the containment of Sino-Russian cooperation. Instead, Xi tried to reassure Zelenskyy that China refrains from taking any sides in the war, positioning itself as an independent actor rather than an ally of Russia. Despite China's claims of neutrality, rapprochement with Beijing carries certain risks for Europe and Ukraine. Firstly, China called for a ceasefire and negotiations but not for withdrawing Russian troops and did not condemn Russia's invasion, which is crucial for Ukraine. Secondly, China's peacekeeping role does not look very convincing after the scandalous statements of Chinese Ambassador to France Lu Shaye, who questioned Ukraine's sovereignty and said that "all former Soviet countries do not have valid status under international law." Thirdly, China's strategic ties with Russia and the increase in trade relations between them call into question the objectivity of Beijing's peacekeeping efforts. There is therefore a strong risk of promoting a pro-Russian agenda in the negotiation process.
If a successful counter-offensive by the Ukrainian army creates the preconditions for serious negotiations between Kyiv and Moscow, China will actively try to force its mediation position. In this context, China's peacekeeping rhetoric is primarily aimed at promoting its own geopolitical interests: strengthening its economic and political expansion across the world, particularly in the EU, spreading discord in Europe, and weakening the position of the US.
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CLOSING TAX LOOPHOLES FOR UKRAINIAN OLIGARCHS |
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Ukraine has committed to approve the National Revenue Strategy (NRS) for 2024-2030 in December this year as part of the agreement with the IMF on the Extended Fund Facility worth $15.6 billion. The IMF expects Ukraine, among other things, to revise its simplified tax regime; align VAT and excise duties with the EU acquis; and strengthen anti-corruption measures to address integrity risks. At the same time, in light of discussions it is becoming clear that the “liberal tax reform” 10/10/10 proposal will not be green-lighted by the IMF and other donors.
According to Minister of Finance Serhiy Marchenko, the strategy for domestic revenue mobilization will be based on improving tax administration and lifting preferential economic treatment for certain businesses. Will this target the big fish receiving state subsidies while avoiding taxes in Ukraine?
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The Minister of Finance mentioned that the government is considering the revision of the existing tax privileges and exemptions for Ukrainian businesses. He added that “sectors or businesses must be identified which for some reason received benefits and exemptions and determine whether they need to be reviewed, canceled or extended”.
The question in this regard is whether this revision of tax policies will be applied to oligarchs’ businesses that receive massive subsidies while avoiding taxes. Some Ukrainian businesses, especially big agro holdings, may be exempt from taxes such as corporate income tax, VAT (for single taxpayers at the rate of 5%), and land tax. Some of them, such as MHP (Myronivskyi Hliboprodukt) owned by oligarch Yuriy Kosiuk, offshore their businesses abroad to avoid paying taxes at home. On top of that, those same big-agri firms receive various tax refunds from the state as national exporters. In the same way, Ukrainian oligarchs such as Rinat Akhmetov largely benefited from green energy subsidies. As a result, the taxes paid by those oligarchs are in no way proportionate to their profits.
Extending those policies will definitely not help to maximize Ukraine’s domestic revenues needed for successful economic recovery. On the contrary, it will allow big money to remain concentrated in the pockets of oligarchs who successfully offshore it abroad.
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RUSSIA IS DESTROYING UKRAINIAN CULTURAL HERITAGE |
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According to Deputy Minister of Culture and Information Policy of Ukraine, Halyna Hryhorenko, 1,300 facilities of cultural infrastructure have been so far damaged or entirely destroyed by Russian forces over the year of the Russian full-scale invasion of Ukraine. UNESCO has verified damage to 254 cultural sites such as churches, museums, theaters, universities, libraries, and other sites since 24 February 2022. The drama theatre in now-occupied Mariupol, destroyed by an airstrike, became one of the most egregious symbols of Russian war crimes. The Ivankiv Historical and Local History Museum near Kyiv which was home to Maria Prymachenko’s paintings; the Hryhoriy Skovoroda Museum near Kharkiv and a major part of historical Kharkiv city; and the Museum of Ukrainian Antiquities in Chernihiv are among the long list of sites damaged or ruined by Russian bombardments. Other than eradicating Ukraine’s cultural heritage by wiping it off the map, Russians are also looting invaluable historical artifacts.
According to local Ukrainian authorities, Russian forces smuggled all the valuable exhibits from the Kuindzhi Art Museum in Mariupol. Kherson also became the site of mass looting. The exhibits of the Scythian, Cimmerian, and Sarmatian cultures have been abducted from the two biggest museums in Kherson. Russian war crimes against cultural heritage have been recorded in 13 regions of Ukraine and in the city of Kyiv. The most damaged objects were reported in Kharkiv, Donetsk, Mykolayiv, Sumy, Zaporizhzhia, Kyiv, and Kherson regions. The exact amount of cultural heritage destroyed in Ukraine is unknown, due to the lack of access to the occupied territories. The way these destructions have happened proves that such acts are not collateral damage, but rather deliberate and ideologically-driven assaults intended to eradicate the Ukrainian identity and collective memory.
The Ministry of Culture and Information Policy works on documenting the destruction of cultural heritage sites in order to have evidence for international proceedings.
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The destruction of cultural heritage sites is a war crime under the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict. Raphael Lemkin, who introduced the term of genocide, indicated that the cleansing of cultural heritage is a part of genocide.
In short-term perspective, Russian war crimes are aimed at diminishing Ukrainian resistance. The destruction of buildings and places that are symbolic of Ukrainian cultural heritage is supposed to undermine people’s morale. The ‘great’ far-reaching purpose of deliberate destruction is depriving Ukrainians of national identity and collective memory. Actually, the intended nature of the destruction of objects of cultural and historical significance is evident from the official statements of the Russian government. As an example, following the air bombardment of the Hryhoriy Skovoroda museum, the Russian Ministry of Defense reported of the elimination of military objects in Ukraine, in particular, "two control centers" in Skovorodynivka.
“Russia is trying to destroy not only the cultural heritage of Ukraine but also national uniqueness, tradition and ultimately, the Ukrainians’ right to exist”, said MEP Sabine Verheyen, Chair of the European Parliament’s Culture and Education Committee.
On 26 February 2022 at 8am, Russian news agency RIA Novosti published the article ‘The arrival (attack) of Russia in a new world’, prematurely praising Russia's victory. The need to destroy Ukrainian national identity was also mentioned in the article. "Vladimir Putin has assumed, without a drop of exaggeration, a historical responsibility by deciding not to leave the solution of the Ukrainian question to future generations," was stated in the article. ‘Solution of the Ukrainian question’ implied erasing of national identity and, instead, forming of a “single Russian World nation”. Putin’s actions demonstrate striking similarity to the actions of other dictators, e.g. Hitler in his striving ‘to resolve the Jews question’ or Pol Pot with the idea of Year Zero on destroying and then creating of a new society with a new culture from scratch.
Such elements of Russian colonialism were not only present in Central and Eastern Europe, but also in Central Asia, Siberia, the Caucasus, and the Far East.
As well as eroding religious objects of historical value during Stalin's Purge, Russia also destroyed mosques in Grozny during both Chechen wars, bombed the UNESCO heritage sites in Aleppo, Syria, and now commits the war crimes of destroying the cultural sites and objects in Ukraine, which are of wider historical importance to also Central and Eastern Europe.
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A BIOMETHANE BOOM IS EXPECTED IN UKRAINE |
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A month ago, the first plant for the production of biomethane with a capacity of 3 million cubic meters per year was connected to the grid in the Chernihiv region. In the second half of 2023, the investors plan to install another biomethane production module of the same capacity in the Kyiv region. A few weeks later, another ten companies applied for connection, planning the construction of 31 biomethane plants with a capacity of 225 million cubic meters per year.
This way, biomethane can be supplied to Ukrainian consumers or exported to Europe. The development of this business and the entry of Ukrainian biomethane into the EU markets requires a detailed approach. A mechanism for cross-border trade in biomethane is needed, in particular, the removal of restrictions in EU on trade of biomethane transported by the gas transportation system. There is also a need for common regulatory requirements for biomethane with EU countries and the elimination of internal restrictions for its export.
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Biomethane is no different from natural gas and can be immediately consumed by households and industries. The raw material for its production is waste from the agricultural sector and landfills. Farmers and renewable energy enthusiasts assure that in a few years, biomethane can completely replace Ukraine's need for imported gas, and then become a powerful export industry. In pre-war times, Ukraine consumed 30 billion cubic meters of natural gas every year, of which 20 billion cubic meters were domestically produced, and 10 billion imported. According to the experts of the Bioenergy Association, the capabilities of Ukraine's agro-industrial complex allow annual production of at least 20 billion cubic meters of biomethane. This would allow the country to abandon the import of natural gas.
Biomethane export gives the owners of biogas plants and farmers a new lease of life. After all, in addition to the market price (€600), suppliers will also receive a premium from the EU (€600 per 1,000 cubic meters). That is, for 1,000 cubic meters of biomethane, a biogas plant can receive more than €1,200. In this case, demand for plants for energy crops will increase sharply.
Currently, the biomethane industry is only in its infancy. The EU currently produces approximately 3.5 billion cubic meters of biomethane per year but plans to produce 35 billion cubic meters by 2030, and 120 billion by 2050. For this, the EU plans to allocate €85 billion. In order to reach the level of 20 billion cubic meters, Ukraine needs to re-equip hundreds of factories, but currently only one is working, with a capacity of 3 million cubic meters per year. For obtaining 1 billion cubic meters of biomethane, at least 330 plants with this capacity will have to be built.
More than 100 biogas plants are operating in Ukraine, producing electricity. It is planned to switch all of them to biomethane production. Biogas contains 60% methane and 40% carbon dioxide. A special installation allows the separation of carbon dioxide from methane and pumps the obtained biomethane into gas pipelines. It can be used not only for electricity, but also for heating, industrial, and communal needs - just like natural gas.
Such a transition requires multimillion-dollar investments. Investors are ready to invest only if the state revokes the ban on the export of biomethane to Europe. Europe has already opened its market for Ukrainian biogas. In 2022, a memorandum was signed between the Ukrainian company RGK and STX - a European trader in the biomethane market, for the purchase of biomethane from Ukraine. However, domestic producers cannot yet take advantage of this opportunity, as the export of biomethane and natural gas from Ukraine is currently prohibited. Government officials agree that the problem needs to be solved, but the process is still delayed due to the need to go through the approval of many institutions.
In February, the Government of Ukraine and the European Commission concluded a Memorandum on strategic partnership in the fields of biomethane, hydrogen, and other synthetic gases. It is planned that the partnership on renewable gases will become a significant addition to the Strategic Energy Partnership between Ukraine and the EU, as well as the Ukraine-EU dialogue on the Green Deal. By the end of the year, with the support of the European Investment Bank, which plans to allocate $50 million to support agro-processing, particularly, the development of biomethane and bioethanol production, Ukraine plans to build five plants for the production of biomethane, with five more to come. This will accelerate the substitution of natural gas imports. Recently, the energy regulator approved a decision to promote the development of biomethane production.
The GTS operator of Ukraine and the Polish GAZ-SYSTEM S.A. concluded a Memorandum of Cooperation that will contribute to the official integration of the gas markets of Poland and Ukraine, in particular, about renewable gas. The parties specifically agreed to both remove barriers to cross-border trade in renewable gases, which will require adjustment of gas quality parameters between the two countries; and implement pilot projects for the production and transportation of biomethane and hydrogen. In addition, the Ukrainian GTS will be connected to the EU hydrogen transport corridor.
Biomethane plants will make a significant contribution to improving the environmental situation. Crop and livestock production emits a lot of CO2 and leaves a lot of waste. The active operation of biomethane plants make almost complete use of all biological waste for fuel and will benefit farmers, as well as create related industries. Currently, it is useful for biogas plants to be converted to biomethane because their electricity will no longer depend on the "green" tariff, which the state hardly compensates. Biomethane can be exported as well as stored in gas storage facilities.
It is necessary to adopt amendments to some laws of Ukraine on the development of production and consumption of biomethane, which will help solve problems in the field of waste management. There are only 19 degassing stations for 6,000 landfills in Ukraine. If the law is adopted, landfill gas will be used as efficiently as possible. Currently, companies working with biogas can only burn it to produce electricity. The norms of the new legislation allow the transportation of landfill gas, after cleaning it and bringing it to the quality of natural gas. In 2020 alone, according to the Ministry of Regions, Ukrainians produced 15 million tons of household waste, and now produce from 10 to 12 million tons. The organic part of this waste would be the raw material for biomethane. Europeans who want to switch their energy to renewable energy systems are ready to buy Ukrainian biomethane if its origin and quality are confirmed by certificates. This means that Ukraine will not spend foreign currency reserves on the purchase of imported gas, but rather, will start earning foreign currency by degassing landfills.
After the adoption of the law, the state will have to solve the issues of certification, control over generating companies, payments according to the "green" tariff and the use of gas mains. Ukraine needs to overcome these challenges and create a functioning biogas market.
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WAR IN UKRAINE: LESSONS LEARNED |
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Russia's current war against Ukraine demonstrated the readiness of the democratic world to unite in the fight for freedom and liberal values. However, there are democracies all over the world in need of protection against autocracies willing to challenge international order. One year from the start of full-scale invasion, we introduce you the report “War in Ukraine: Lessons identified and lessons learned“, which analyzes policies and practices that have impacted Ukraine’s resilience in key sectors. Outcomes of this research can be used as recommendations for other democracies building resilience against conventional, hybrid, or other threats (e.g., natural disasters), from Europe to the Pacific.
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