Ukraine Facility: State of play

Written by Tim Peters.

The Ukraine Facility is the EU’s flagship programme to support Ukraine’s recovery, reconstruction and modernisation following Russia’s full-scale war of aggression. The facility as defined by Regulation (EU) 2024/792 consists of three pillars and will mobilise up to €50 billion to ensure stable and predictable financial support for Ukraine between 2024 and 2027 and assist the country on its path towards EU membership. The Ukraine plan guides implementation of the facility’s Pillar I: it sets the conditions and serves as framework for disbursing funds, and outlines the reform pathway for Ukraine’s reconstruction and EU accession. Two tranches of exceptional bridge financing totalling €6 billion and pre-financing worth €1.9 billion have so far been transferred to Ukraine. Regular transfers of quarterly instalments from the Ukraine Facility are planned until 2027. Disbursal is conditional on Ukraine implementing the Ukraine plan quantitative and qualitative reform steps, and adhering to EU values.

Ukraine plan

The Ukraine plan sets out a coherent approach and clear priorities for reform in Ukraine. Its structure is defined by Article 17 of Regulation (EU) 2024/792. The plan ensures Ukraine’s ownership of implementation of the Ukraine Facility, as it was the responsibility of Ukraine’s government to draft it. Ukraine’s parliament, the Verkhovna Rada, and Ukrainian civil society were consulted by the government during the plan’s drafting and it was then assessed by the European Commission. The plan constitutes the basis for support provided under Pillar I of the facility – covering direct financial support. However, all measures financed under Pillar II (investments) and Pillar III (accession assistance) should equally support the objectives and implementation of the Ukraine plan.

The Commission endorsed the plan on 15 April 2024 on the basis of the criteria set out in Article 18 of Regulation (EU) 2024/792. On 14 May 2024, the Council adopted an implementing decision approving the plan. Payments to Ukraine will be disbursed by the EU subject to the implementation of the 69 reforms and 10 investments agreed, on the basis of 130 reform indicators and 16 investment indicators set out in the annex to the Council implementing decision.

The plan’s first part defines basic reforms that lay the foundations for accelerating economic recovery and strengthening institutional capacity in the areas of public administration reform, public financial management, the judicial system and the fight against corruption and money laundering. The second part outlines the reforms needed to develop the economy and improve citizens’ welfare in areas such as financial markets, human capital and decentralisation and regional policy. The third part focuses on priority sectors whose rapid development will stimulate broad economic growth, such as the energy sector, the agri-food sector, the green transition and environmental protection.

Ukraine Facility payments

Pillar I of the facility consists of €33 billion in loans and €5.27 billion in grants. Grants are paid out through the EU budget, through a new thematic special instrument, the Ukraine Reserve, set up over and above the EU’s budget expenditure ceilings. The loans will be guaranteed by the EU budget ‘headroom’. Funds from Pillar I are dedicated to providing Ukraine with direct financial assistance. At least 20 % of investments under the Ukraine plan must support climate change mitigation, adaption, environmental protection or the green transition. Furthermore, at least 20 % of Pillar I grants must go to sub-national authorities and local self-government.

Two tranches of exceptional bridge financing – consisting of €6 billion in loans – were disbursed in March and April 2024. On 28 June 2024, the Commission disbursed almost €1.9 billion in pre-financing to Ukraine, bringing total EU support transferred to Ukraine under the Facility to €7.9 billion in loans.

On 22 May 2024, the EU and Ukraine signed a framework agreement in accordance with Article 9 of Regulation (EU) 2024/792. The agreement stipulates the terms for management, control, reporting, auditing and information sharing in relation to the Ukraine Facility funds. The EU and Ukraine also signed a loan agreement setting out the provisions for the management and implementation of funding borrowed by the Commission. Grant payments will be based on financing agreements. Each quarter, the Commission will pay funds to Ukraine subject to the qualitative and quantitative reform steps being fulfilled and a positive Council implementing decision. Table 1 outlines the heavily frontloaded preliminary annual payment schedule for Pillar I grants and loans.

Table 1 – Ukraine Facility Pillar 1 preliminary annual financing schedule (2024–2028)

Scrutiny mechanisms

Transfers of the quarterly tranches are conditional on implementation of the Ukraine plan quantitative and qualitative reform steps during the previous quarter. The Commission assesses their fulfilment before proposing a Council implementing decision. Following Council approval – or amendment – the Commission adopts the financing decision authorising disbursement of the non-repayable support. The Commission also monitors the facility’s implementation against the indicators defined in the Ukraine plan, and will track progress on a publicly available Ukraine plan scoreboard, at the latest from 1 January 2025 (Article 21, Regulation (EU) 2024/792). The Commission will inform Parliament on progress, reforms and payment scheduling, including through the Ukraine Facility dialogue (Article 37 of Regulation (EU) 2024/792).

Ukraine investment framework

Pillar II is the Ukraine investment framework, which provides grants and guarantees to de-risk private and public investment. That pillar is equipped with €6.97 billion in grants and is expected to incentivise investments of up to €40 billion. Micro-, small and medium-sized business will receive a minimum of 15 % of those guarantees. A first round of guarantee and grant agreements were signed during the 2024 Ukraine Recovery Conference in Berlin and comprised €1.4 billion in blended finance grants and loan guarantees, seeking to unlock €6 billion in investments.

Use of immobilised Russian assets

Parliament has insisted repeatedly that Russia must pay for the massive damage caused by the war and that immobilised Russian assets should be confiscated. On 21 May 2024, the Council adopted a set of legal acts ensuring that the net profits generated from extraordinary revenues accruing to central securities depositories (CSDs) in the EU, as a result of the implementation of the EU restrictive measures, will be used for further support for Ukraine. These profits will be used to support Ukraine’s defence industry capacities and the country’s reconstruction, according to the following key: 90 % to the European Peace Facility, an off-budget instrument, and 10 % to programmes financed from the EU budget. This would give Ukraine revenue of approximately €3 billion per year. On 14 June 2024, G7 leaders agreed to launch ‘extraordinary revenue acceleration (ERA) loans’ for Ukraine, in order to make available approximately US$50 billion in additional funding for Ukraine by the end of 2024. Those loans would be serviced and repaid by future flows of extraordinary revenues stemming from immobilised Russian sovereign assets held in G7 jurisdictions. The implementation of that agreement would require the EU to draw up new and amended rules.

A set of draft legal acts from the European Commission and the European External Action Service is expected in the coming months, to implement the most recent G7 leaders’ agreement on the use of extraordinary revenues from immobilised Russian assets.

Read this ‘at a glance note ‘on ‘Ukraine Facility: State of play‘ in the Think Tank pages of the European Parliament.