Ukraine—Recent Developments and EBRD’s Operational Strategic Response for

the Near Term

29 May 2009

1. Recent development2. EBRD Strategic Operational Priorities for the Short Term4. Risks, Mitigants and Impact of the EBRD Response

1. Output fell sharply and labour market conditions deteriorated

1. Expectations as for private sector external debt roll-over

1. Positive news: IMF review to be completed

Better cooperation of the MOF and NBU in crisis management in recent weeks;

Adoption of a series of difficult fiscal measures by the Cabinet of Ministers

Trade balance proficit;

Bank recapitalization programme is broadly on track;

Pace of IMF disbursements somewhat accelerated (next 2 tranches to be at $2.8 billion each).

EBRD’s role is part of a stepped up and closely coordinated international support to help address the country’s challenges.

EBRD operational response for 2009 targets about €1 billion in new commitments, focused on the Banking sector (around €500 million), Energy and Infrastructure (around €350 million), and Enterprises (around €150 million).

Current project pipeline in Ukraine amounts to €2.3 billion. The continuation of disbursements under current un-drawn

EBRD commitments (€ 1.1 billion). Total annual gross disbursements planned are estimated at €750 million. By year end, operating assets would be around € 2.05 billion.

2. Strategic Operational Priorities in 2009

EBRD in Ukraine: Project Pipeline Sectorial Overview

31 March 2009

Financial Institutions,

€ 998m(43%)

Infrastructure, € 329m(14%)

Corporate, € 550m(24%)

Energy, € 439m(20%)

€2.3bn

EBRD in Ukraine: Project Pipeline Readiness Overview

mid April 2009

Board Approved € 291m

Structure & Final Reviewed

€ 460m

Concept Reviewed, € 1,550m €2.3bn

Strategic Operational Priorities in 2009 (Cont’d)

Four pillars:

a) Financial Sector

– Systemic role in the stabilization of the country’s financial sector: (1) the recapitalisation of the foreign and locally owned banks, (2) long-term credit lines (SME, EE) and Trade Credit lines to MSMEs and local corporates. Priority is given to existing clients (13 representing 35% of total Banking assets).

– 7 transactions worth about €520 million (as equity or subordinated debt) (including a EBRD direct funding of US$ 300 million subordinated/syndicated loan package to Ukreximbank, a systemic client).

– Facilitation of coordination among the international banking groups, home and host supervisors and IFIs.

– Technical cooperation, providing advisory support to the Ministry of Finance.

– Continued push for EBRD participation in the local currency markets for post-crisis development of long term hryvnia market.

b) Energy/Energy Efficiency

– Financing two new major high voltage grid (sovereign guaranteed) projects worth €450 million, 50% co-financed by EIB.

– Proposed 2009-2010 Sustainable Energy Action Plan (SEAP) under final approval.

– Prospective projects in the power, oil and gas sectors in coordination with the European Commission, EIB and WB.

c) Corporate Sector

Balance sheet restructuring (including equity), refinancing and working capital loans in strategic industry sub-segments where Ukraine has regional competitive advantage.

Strategic Operational Priorities in 2009 (Cont’d)

d) Transport and Municipal Infrastructure

– New projects (around €100-150 million in total).

– Improve the governance of the key remaining public enterprises.

– structure the priority transactions either under a sovereign guarantee or non-sovereign where still feasible and appropriate.

– The EIB is the co-financier “par excellence” for new sovereign guaranteed and hopefully remains on the already jointly identified non-sovereign transactions.

Strategic Operational Priorities in 2009 (Cont’d)

Higher than usual risks in achieving transition objectives and higher country risk exposure. Political and economic uncertainty in the country increases the probability of default of individual projects.

The risks are partially mitigated by:

– Coordinating and co-financing with other IFIs;

– Commitments of continued support by strategic foreign banks;

– Securing sovereign support;

– Foreign and local corporate clients with sustainable operations in the long run;

– Intense and constant policy dialogue at the highest level;

– Bigger share of equity and quasi equity product mix.

The main short-term priority is to help prevent the deep recession from transforming into a systemic collapse. The medium term is to ultimately continue to foster transition progress and impact.

3. Risk Assumption, Mitigants and Expected Impact of the EBRD Strategic Operational Response

EBRD must assist Ukraine by a deeper, broader and more significant new funding commitment.

EBRD is integral part of the solution under a coordinated high stakes international response with all major IFIs, bilateral donors and strategic owners.

EBRD shareholders must be fully aware that the risks are high.

EBRD management will do its utmost to steer, adapt and implement the response in the most efficient, relevant and appropriate manner and to mitigate the risks.

Conclusions

Thank you for attention!

How to contact us

Tel: +380 44 270 6132

Fax: +380 44 270 6813

Email: kiev@kev.ebrd.com

www.ebrd.com/ukraine

Kiev Resident Office

27/23 Sofiyvska Street

Kiev 01001 Ukraine