BUSINESS

ANALYSIS: Ukraine cannot afford financial sanctions for expropriation of Motor Sich

Ukraine faces possible multi-billion dollar claim in international arbitration over plans to return Motor Sich plant to state control

Business Ukraine magazine
Monday, 15 March 2021 17:00

Ukraine could face financial sanctions of USD 3.6 billion over the expropriation of aerospace manufacturer Motor Sich from Chinese investors, according Ukrainian-Chinese investment club board member Andriy Pilipenko. The China-Ukraine trade relations expert predicts that the US may step in to compensate Kyiv for losses incurred in international arbitration.

“The possible cost is too much for a country whose economy is highly reliant on exports to China and dependent on IMF financing. This means that Washington may have to compensate Ukraine for the possible USD 3.6 billion losses that may result from arbitration proceedings,” commented Pilipenko.

The China trade specialist claimed that by expropriating Motor Sich from Chinese investors, Kyiv was seeking to “buy the loyalty” of the new US administration. He argued that this approach went beyond American expectations, given the measures imposed by the US on China’s Skyrizon, which is the shareholder of the Ukrainian engine-building plant.

Pilipenko speculated that recent developments tied to Motor Sich could be an attempt by the Ukrainian authorities to divert US attention away from failure to fulfill demands for progress in the fight against corruption. "A March 13 op-ed in the Washington Post made clear what Washington is looking for from its Ukrainian partners. This includes de-oligarchization, overcoming corruption, judicial reform, and support for state institutions capable of consolidating these objectives. There was no mention of the expropriation of Motor Sich in the list of priorities, or any objections to commercial cooperation between Ukraine and China. The Ukrainian authorities have chosen to persist with the Motor Sich issue, while failing to make progress on the key US priority of reforms which would actually benefit Ukraine itself.”

The Chinese shareholders of Motor Sich are seeking international arbitration in a bid to recover USD 3.6 billion from Ukraine over the what they term as the “illegal expropriation” of the asset. Ukraine’s parliament and the country’s National Security and Defense Council have announced plans for the nationalization of Motor Sich, which was privatized about twenty years ago.

Former Ukrainian Deputy Prime Minister Pavel Rozenko has branded the nationalization of Motor Sich as an example of high-level political corruption and claimed that state funding for the aircraft industry has created an entire caste of corrupt officials and lobbyists. Meanwhile, financial analysts have warned of a threat to the hryvnia if Ukraine loses its international arbitration case over Motor Sich. The issue also promises to fuel tensions with China, which has emerged in recent years as Ukraine’s largest trade partner.

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