When such great friends of Ukraine as Norway are unhappy with the investment climate in Kyiv, the nation’s leaders have a big problem to fix.
Two of Norway’s leading renewable energy companies, Scatec and NBT, made big investments in solar and wind power in recent years on the Ukrainian government’s promise of a high guaranteed payment for the electricity generated, known as a feed-in tariff.
The government not only reneged on the promise. It retroactively cut the rates in a compromise reached last summer with the energy companies. Then it reneged again on the promise of lower payouts on time.
Ukraine’s government today is hundreds of millions of dollars in debt to energy providers such as Scatec and NBT who are, of course, telling fellow Norwegians about the raw deal they are getting from Ukraine’s government.
Since his arrival last August, Ambassador Erik Svedahl has devoted most of his attention to trying to get the Ukrainian government to live up to its commitments.
His first-year agenda
“I haven’t had a lot of choices other than to focus on renewable energy,” Svedahl said. “The government is paying but it is still behind on the debt from last year and not paying according to the schedule. It has taught me that you need to be very careful and if something sounds too good to be true, maybe it is. I’m talking about feed-in tariffs. You should be able to trust what the government signs off to.”
Even the intercession of Norway’s longtime Prime Minister Erna Solberg with Ukraine’s top leaders has not helped. “We have tried everything from the top down,” he told the Kyiv Post in an interview at the Norwegian Embassy on June 7. “All to no avail.”
Consequently, new investment from Norway has dried up as word spread in the country’s newspapers that the Ukrainian government doesn’t honor its commitments to investors. The Nordic Environment Finance Corporation, known as NEFCO, which has financed $56 million in Ukraine’s renewable energy sector, has frozen new investment in the sector, citing the unresolved situation. The projects that NEFCO financed had a total capacity of 155 megawatts from solar energy and 266 megawatts from wind energy.
“NEFCO has already in 2020 decided to stop investing in new projects in the renewable energy sector in Ukraine due to the green tariff situation, which hasn’t been solved yet. NEFCO is disappointed that the Ukrainian government is cutting the green tariffs retroactively for projects already approved. This has a negative effect on attracting new investments and on Ukraine’s transition to clean energy and energy independence. A predictable and sustainable framework is needed,” the finance corporation said in a June 4 statement.
A surfer looks at Northern Lights on March 9, 2018, in Utakleiv, northern Norway, Lofoten islands, within the Arctic Circle. (AFP)
Reputational damage
There are other problems, however.
“In addition, NEFCO believes that introducing an excise tax on renewable energy is a step in the wrong direction. In fact, clean energy should be subsidized, whereas fossil energy should be subject to a CO2 tax,” the statement said. “The reason for not investing in new renewable energy projects is, however, based on the green tariff agreements not being fulfilled.”
Svedahl said Ukraine is suffering a lot of damage because of the unfulfilled promises. “It’s a short-term (financial) gain for Ukraine, but it’s a long-term loss because of the lack of confidence in the investment climate,” he said. “This is something that people know about in Norway. It gives Ukraine a bad name.”
While no new investors are coming, at least current investors have not left the market yet and some Norwegian companies – such as those who sell seafood, Norway’s biggest export to Ukraine – are doing well.
“The interest is there. Ukraine is a country with huge potential and a lot of opportunities,” the ambassador said. “But if there’s not stable and predictable framework for them to operate, they will go somewhere else.”
1980 border guard
Svedahl is a seasoned diplomat, with a diverse service record that has sent him to Beijing, Bangkok and London, among other destinations. But he’s specialized in former Soviet republics.
This geopolitical interest was kindled more than 40 years ago when, because of Norway’s obligatory military service back then, he became a guard along the country’s 200-kilometer border with Russia – which was then, of course, the commanding nation of the Soviet Union.
“I found it very exciting. It was the height of the Cold War. Everything was tense,” he recalled. “So I decided to learn Russian.”
As the Soviet Union started opening up with Mikheil Gorbachev’s glasnost in 1985 until the collapse of the Moscow empire in 1991, Svedahl discovered that his Russian-language skills were in demand by the Norwegian foreign service.
Just before coming to Ukraine, the married father of three adult children served for three years as consul general in northern Russia’s Murmansk near the Barents Sea. Of the outreach, he said: “The economic aspect is not as well developed as cultural exchanges and people-to-people contacts — sports clubs, librarians, people getting to know their colleagues on the other side of the border.”
With Russia, Norway and its Scandinavian neighbors have intensified cooperation in the Barents region. He also characterizes the situation in the Arctic Ocean area as “peaceful and quite regulated. It’s an area of low tension.”
Cooperation will be even more important in the far north because “the Arctic is where you can see the effects of climate change most visibly and notably. The ice is shrinking. The fish are migrating to where they haven’t been before. The whole ecosystem is in play. It’s a very serious development that you can see if you go there.”
Ambassador of Norway Erik Svedahl talks with the Kyiv Post on June 7, 2021, in the courtyard of the Norwegian Embassy in Ukraine. (Volodymyr Petrov)
Changes coming
For Norway, which has made a tremendous fortune from its oil and natural gas reserves, the future means replacing fossil fuels with renewable energy.
In this transition, Norway has big advantages. Its economy is 2 ½ times the size of Ukraine’s – despite having less than 6 million people compared to 42 million in Ukraine. The Nordic nation has also invested wisely. It has a sovereign wealth fund with an estimated $1.32 trillion in assets, virtually assuring that future generations of Norwegians will live well.
“I think sooner or later the demand for oil and gas will disappear,” Svedahl said. “We will have to find other ways to secure our income. I don’t think we have any choice. We are working hard at finding green alternatives for our economy.”
Norway’s largesse
Ukraine and Norway had extensive top-level political meetings and economic conferences, in Kyiv and in Oslo, before COVID-19 curtailed traveling. The last big event was the Norwegian-Ukrainian Business Forum in Oslo on Jan. 28, 2019.
It’s not clear when such events will resume. Norway coped well with the virus, suffering less than 1,000 deaths compared to Ukraine’s more than 51,000 already. Norway, which relies on tourism as well, has restricted entry to most foreigners.
The pandemic has forced Svedahl to cut back on travel around Ukraine, although he’s been able to get to the eastern Donbas a couple of times and other cities, such as Odesa and Kharkiv. He’d like the Norwegian government to take on a greater role in helping to de-mine the war zone. He also wants to step up cultural exchanges as travel restrictions ease.
Norway has also had a remarkably long-serving government, with Solberg at the helm for the last eight years. Parliamentary elections are in September but don’t expect many foreign policy changes no matter who wins.
“We have a very stable and predictable foreign policy irrespective of who is in charge of the government,” Svedahl said. “Ukraine will continue to be a priority for us. We are in it for the long term.”
Ukraine has been the beneficiary of roughly $25 million in annual bilateral aid from Norway. It’s focused on democracy, human rights, free speech, corporate governance, energy efficiency, and other projects, including possible help by Norway’s Petroleum Geo-Services in locating Black Sea oil and gas deposits.
Norway has since 2014 also funded a Young Entrepreneurs exchange program. It also teaches the Norwegian language in Kyiv and Lviv, among other endeavors. An estimated 7,000 Ukrainians live in Norway.
Even more importantly, Norway – a member of the 30-nation NATO military alliance – supports economic sanctions against Russia because of its war against Ukraine, including the illegal seizure of Crimea by the Kremlin’s military in 2014.
Russia retaliated by banning Norwegian seafood imports, but the sanction hasn’t done lasting damage, the ambassador said.
“We will not change our position,” Svedahl said. “The demand for Norwegian fish and seafood is more than we can supply. It’s our biggest export to Ukraine.”
Erik Svedahl
Position: Norway’s ambassador to Ukraine since August 2020.
Personal: His wife is Australian and his three adult children have settled in Sydney, Australia.
Did you know? The Trondheim, Norway, native is an avid football fan.
How to succeed in Ukraine? “Persistence, long-term approach and cultural awareness.”
