EBRD (European Bank for Reconstruction and Development) senior counsel, James Wilson, speaks to Ben Naylor about the bank’s work in Russia and the CIS

Can you briefly outline the EBRD’s objectives in the CEE/CIS?

Firstly, all the debt and equity financings we do have to be in accordance with the principles of sound banking - money calculated to be adequately secured that has an appropriate risk and return for EBRD. Our main aim is to help the countries in the EBRD make the transition from state-planned to open market economies and we do this primarily by supporting and encouraging local companies in our regions to adopt best practices and develop important businesses for the local economy through EBRD debt and equity financings.

What energy or infrastructure projects have you worked on in the CEE or CIS?

Recently I’ve worked on wind, solar, biomass and hydro power plant financings in Ukraine and gold and copper mine financings in Bulgaria and, indirectly, in Armenia.

So would it be fair to say you have a strong focus on renewable energy in the CEE/CIS region?

We are very focussed on it. We are an international financial institution and not just European: despite our name, EBRD has significant non-European shareholders including the US (our largest shareholder), Japan and Australia as well as the EU itself and the individual EU member states. All of EBRD’s shareholders have a say in setting EBRD’s strategy in each country in EBRD’s region as well as the conditions, which should be imposed on EBRD clients in connection with EBRD financings. All of EBRD’s shareholders recognise that developing renewable energy and energy independence and efficiency is very important for everyone – and particularly so for the countries in EBRD’s region. This translates into renewable energy being an important and growing sector for EBRD investment as well as EBRD imposing high standards of corporate governance, environmental and social behaviour standards on its clients because those EBRD standards need to be satisfactory to EBRD’s shareholders as a whole.

Do you finance conventional energy projects in the CEE/CIS region too?

We could and we do but conventional energy projects tend to be more controversial and difficult for a number of reasons: first, some soviet era coal mining companies for example are not able to transform themselves sufficiently so that they would be able to meet the EBRD reporting, governance and environmental and social standards and become an EBRD client; other potential EBRD clients have been granted a concession from the government without the government having followed open tender procedures and this means that the EBRD would not be able to provide financing because the project would not meet the requirements of EBRD’s concessions policy. Finally, EBRD also has an internal requirement that EBRD must be “additional” in the sense that if other commercial banks are willing to provide financing then EBRD should not become a financier and thereby exclude them. There must be a development role for EBRD to play in any project. In the case of a high profile conventional energy project in EBRD’s region, the argument for EBRD being involved in the financing tends to be different and more complex because it is based on the fact that it would lead to tighter IFI covenants being imposed on the operator rather than the need for financing itself from EBRD.

Is Russia an active market for EBRD and you personally?

Russia is our largest and most active country of operation (by volume and amount), but I personally have many projects in Ukraine. Ukraine is and has been for the last few years the second or third largest and most active country of operation after Russia and comparable to Poland and Turkey.

How important a role do PPPs (public-private partnership) play in achieving the EBRD’s objectives you outlined earlier?

Part of our role is to help countries make this transition to free market economies and on the legal side, we have a team who help legislators within governments design their PPP laws. It is seen as a key component, if you can eliminate corruption at that level and make engagement with the private sector cleaner and more transparent, then that’s a very positive thing. We are very supportive of PPPs at the point of changing laws to provide for them but also at the level of financing PPP bidders.

Are you involved in any PPP work in Ukraine?

The country has a new PPP law but unfortunately for Ukraine the country is in a very difficult situation at the moment so no one is thinking about PPPs.

How have the recent events in Ukraine affected existing EBRD projects in Ukraine and Russia?

The EBRD projects which have been most affected have been Ukrainian projects with a Crimean element where there are now two competing legal regimes. In March 2014, the Russian Federation entered into the agreement to incorporate the Republic of Crimea and the city of Sevastopol as new subjects into the Russian Federation. Meanwhile, in April 2014, Ukraine has passed the law on ensuring protection of the rights and freedoms of citizens and legal regime on the temporarily occupied territory of Ukraine. For Crimean businesses and people, this has led to great uncertainty over such basic issues as whether the applicable local currency should be the Rouble or the Hryvnia.

We have a large EBRD office in Kiev. While the protests in Kiev were ongoing, it’s been difficult to get around for many EBRD staff members who live in areas where they have had to get through the protests in order to travel to and from the office. We have also had restricted travel to various areas within Ukraine recently; we had to get special permissions to travel to affected areas and this of course makes it very difficult to do business in certain areas. 

What impact will the recent events in Ukraine have on future EBRD projects in Ukraine and Russia? 

For EBRD, the country strategy and pipeline for Russia and Ukraine are very important and politically sensitive matters. As well as Russia and Ukraine themselves, EBRD’s shareholders include the G7 countries, the EU, and the individual EU states but not India or China and they all have different views.

With respect to Ukraine, it has been agreed recently that the EBRD will increase its investments in Ukraine, including a return to sovereign lending for public sector projects, as part of an international economic support package for Ukraine. The EBRD could invest around €1 billion a year over the next few years, significantly raising its investments from the range of €550 to €750 million contemplated earlier in 2014. This increase is envisioned in the context of the response of the international community, including Ukraine’s agreement announced with the IMF for a macro-economic stabilisation programme.

With respect to sanctions imposed on Russia by the EU and the US, these sanctions do not apply directly to EBRD as an international financial institution although they can be very relevant to EBRD’s clients - borrowers and investee companies- as well as their business counterparties such as their suppliers or customers. They will also naturally be an important matter for Russia, the EU and the US individually as shareholders of EBRD.

What are the most common problems you face when investing in Ukraine?

There are general macroeconomic issues such as Hryvnia devaluation. We can’t lend in Hryvnia. We can lend in the local currency in most jurisdictions: we can have Rouble loans, Turkish Lira loans etc, and that’s obviously good for our local clients. But for Ukraine, it’s very difficult for the clients because they receive hard currency loans from EBRD, they generate revenue in local currency and then they have this obligation to repay EBRD in hard currency, and there’s no derivatives market: it’s not yet possible to enter into derivatives in Ukraine.

Are there any regulatory issues that frequently arise when you are working on Ukrainian energy projects?

In most cases, the client has obtained all the construction and supply contracts, all the equity money, then EBRD lends its money and they go ahead and complete the construction and operation of the new renewable power plant. Then they enter into a grid connection agreement and a power purchase agreement, when the state energy market, the state offtaker, buys the power from this new power plant. At the end of this process, the last step for EBRD is to receive an assignment of the money that is coming in from the state offtaker so that if there’s a problem for the plant operator in repaying the loan, EBRD can just receive the money directly from the state offtaker. At that point we would allow the guarantee that we’ve had from our main shareholder - our sponsor - to fall away because we have this additional security, which should be sufficient to support our loan. But the problem for our clients - and for EBRD because this was always part of the project - is that the state offtaker in Ukraine won’t allow, for technical reasons, an assignment whereby it can just be informed by EBRD that it should start paying EBRD instead of the power plant. Our challenge is to convince the state offtaker in Ukraine that they should allow financiers, not just EBRD and other development banks, to have rights to be paid directly because that allows these power plants to be properly financed and improves the whole sector. But we haven’t managed to do this yet.

Are there any specific laws or regulations that make energy projects more difficult to finance for EBRD?

We have encountered problems in Ukraine with the National Bank of Ukraine (NBU) introducing new regulations, which interfere with the administration and operation of our hard currency loans. In Ukraine, they currently have a control regime and we understand that the NBU is trying to shore up the banks in Ukraine but quite frequently they introduce a new regulation that really gives us serious concerns about all our existing and future exposures, and we always have to revert to the NBU and to demand, at the very least, an exemption for EBRD loans from the new regulation.

Can you give me a recent example?  

Recently the NBU has said that no hard currency lender is permitted to impose an uncapped floating interest rate component (e.g. Libor or Euribor) in a loan to a Ukrainian borrower. In the loan registration certificate the NBU wanted to be able to say that the maximum interest payable by any Ukrainian borrower is X, and obviously if there’s no cap and the loan rate is floating, they can’t include such a figure. However, almost every EBRD loan starts off at least as a floating rate - sometimes the rate is fixed later - and we have had problems in convincing the NBU and gaining an understanding that this floating rate we were providing for in our loan agreements would be respected, recorded and a borrower could pay it. After many discussions, the NBU confirmed that it didn’t apply to EBRD. That’s an example of where there’s a lot of noise, a lot of uncertainty, projects or disbursements were postponed because we couldn’t enter into a new loan agreement or make a new disbursement when it was not clear what loan terms would be recognised and effective within Ukraine.


James Wilson

Senior counsel





Since he joined EBRD in 2005, James Wilson has advised on over 150 signed debt and equity financings mostly in the areas of mining and natural resources, renewable energy, real estate, distressed assets, private equity funds and shipping finance. Prior to joining EBRD, Wilson was a corporate M&A lawyer focusing on private equity transactions and fundraisings at legacy firm Lovells in London. He has an LLB Honours in Scots law from the University of Aberdeen, an LLM in maritime law from the University of Southampton and was admitted as a solicitor in Scotland in 1996 and England in 1998.