Finland–Ukraine Investment Facility
The Finland‒Ukraine Investment Facility (FUIF) is one of Finland’s development policy instruments, created to support the reconstruction of Ukraine.
The Finland‒Ukraine Investment Facility supports public sector investments in Ukraine based on the priorities for Ukraine’s reconstruction and Finland’s national plan for the reconstruction of Ukraine(Link to another website.). Investment projects must also support the UN Sustainable Development Goals and must make use of Finnish products, services, expertise and technology.
Ukraine bears the main responsibility for the costs of the project. FUIF as a Finnish Official Development Assistance instrument finances all interest payments on the loan taken by Ukraine to finance the project as well as part of the investment cost itself. Thereby the costs of the investment for Ukraine will be significantly reduced.
The Ministry for Foreign Affairs of Finland is responsible for granting financial assistance from the FUIF instrument. Finnvera, Finland’s official export credit agency, takes responsibility for granting buyer credit guarantees to the investment loan. Finland’s support requires clear development impacts.
The FUIF is also one of the Team Finland funding mechanisms of the Ministry for Foreign Affairs and is used in close cooperation with other Team Finland operators.
Principles of support
The Finland‒Ukraine Investment Facility is regulated by the Act (1114/2000) and Government Decree (1253/2000) on concessional credits granted to developing countries, the Act on the State's Export Credit Guarantees (422/2001) and OECD guidelines on export credit.
The FUIF instrument can be used to finance public sector projects in Ukraine. Eligible public sector actors include ministries, state agencies, municipalities, state-owned companies and other public enterprises.
Ukraine will take an investment loan from a commercial bank, and the Ministry for Foreign Affairs will pay the interest on the loan and part of the cost of the investment so that the 35 % grant equivalent required by the OECD is met. Finnvera will give a 100 % guarantee to the loan.
FUIF projects must be economically, socially and ecologically sustainable and compatible with the priorities of Ukraine’s reconstruction and overall societal development. The investments also need to be support the achievement of the UN Sustainable Development Goals (Agenda 2030).
FUIF investments must contain Finnish products, services, technology, solutions and expertise. The share of Finnish content approvable to Finnvera is 33 %. The company offering Finnish content must be registered in Finland.
Support can be given to investments in, for example, renewable energy, electricity grids, digital services, meteorology, education, health, circular economy, water supply and waste treatment, or other sectors eligible for development cooperation. The projects must be in line with Finland’s development policy priorities and guidelines (including guidelines on human rights-based and results-based approaches, tax responsibility as well as guidelines on cross-cutting objectives). The projects to be funded must also meet Finnvera’s criteria on export credit guarantees.
How to proceed?
In the preliminary stage, the project idea and basic information can be presented to the Ministry for Foreign Affairs in the form of a concept paper. Concept papers can be submitted by Finnish businesses interested in implementing of a project, other Finnish organisations as well as a public sector entity in Ukraine.
Template for the Concept Paper (word document).
Project concepts are being assessed based on eight criteria, which are:
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The sustainable development goals (SDG) and Finland's development objectives as well as the priorities of Finland national Ukraine reconstruction plan
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Ukraine's ownership and national priorities and the need from Ukraine's perspective
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Ukrainian project owner's capacity
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Export company's capacity and readiness to carry out the project
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Suitability of Finnish products and services and Finnish technology and expertise for Ukraine
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Level of readiness of the project concept for financing
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Risk assessment from environmental, social and human rights perspectives
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Finnish added value of the project
Project concepts will be assessed in cooperation between the Ministry for Foreign Affairs of Finland and Ukraine. A precondition for the project to be shortlisted is that Ukraine places the project high on its own national priority list for reconstruction.
The minimum requirement is a letter of support from the Ukrainian public sector entity responsible for the project. Nevertheless, it should be noted that it is not a guarantee of a high priority of the project at the national level in Ukraine. Ukraine will make the final selection of the projects to be funded.
In addition, the number of supported projects depends on the financial resources of the Ministry for Foreign Affairs.
The Ministry for Foreign Affairs negotiates credit lines in international credit institutions. The exporter is therefore expected to negotiate a financing agreement with the international credit institutions that have decided to participate in the FUIF financing arrangement.
The exporter or credit institution submits an application for buyer credit guarantee to Finnvera. The application form and information on buyer credit guarantees are available on Finnvera’s website(Link to another website.).
The Ministry for Foreign Affairs assesses the project's viability and makes the decision on granting FUIF funding. Credit risks are guaranteed by Finnvera.
Procurements made in the project, including from a Finnish export company, will be carried out in accordance with Ukrainian legislation.
The final funding decision for the project requires:
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Project plan prepared by a Ukrainian public sector entity together with a Finnish company and with the support of consultants hired by the Ministry for Foreign Affairs;
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Positive assessment of the project document by the Ministry for Foreign Affairs;
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Approval of the project by the Ukrainian administration;
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Completed tender process by the Ukrainian project owner and a signed commercial agreement;
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Finnvera's guarantee decision; and
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Finance agreement between the bank financing the project and the Ministry of Finance of Ukraine.
A commercially non-viable project is a project that does not generate enough revenue for the borrower to be able to cover all the payments of the commercial loan out of that revenue. In some cases, commercial non-viability may also mean that commercial funding is simply not available to finance the project.
Questions and answers on the Finland‒Ukraine Investment Facility (FUIF)
How does FUIF differ from the Public Sector Investment Facility, PIF?
The FUIF has been developed to meet the investment needs of Ukraine's reconstruction. FUIF is also an objective of Finland's national reconstruction plan for Ukraine.
The FUIF is regulated by the same principles of the OECD Arrangement on Officially Supported Export Credits (the so-called OECD Consensus) and the Finnish legislation on concessional credits and state’s export credit guarantees as PIF. The operation and financial structure are very similar in the both instruments.
The biggest difference in FUIF is the aim for rapid processing and start of the implementation of projects. In practice, the differences are as follows:
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Concept papers can only be submitted to the MFA by Finnish companies and other Finnish actors as well as public sector entities in Ukraine;
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The project document for projects approved into the project pipeline is drawn up by a Ukrainian public sector entity together with a Finnish company and with the support of consultants hired by the Ministry for Foreign Affairs. The consultant's role is to help prepare the project document as complete as possible and, hence, make the process faster;
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No separate external appraisal is carried out for the projects as it is included in the project document drawn up with the support of the consultant;
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Ukraine's ownership is evidenced by a letter of support from a Ukrainian public sector entity (not necessarily the ministry responsible for the sector);
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The international credit institutions participating in the FUIF programme will open up credit lines for financing at the funding stage;
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The construction costs may not exceed 40%. FUIF funding can also be used for planning and monitoring construction. Commission payments to agents preparing the project may not exceed 5% of the project's total costs.
The minimum level of funding for capacity building and ensuring the overall sustainability of the investment is 10%.
How does FUIF ensure development impacts?
Decisions to grant funding for FUIF projects are preceded by a thorough assessment of their possible development impacts. The development impacts are enhanced by Ukraine’s strong ownership and the allocation of FUIF credits: projects help Ukraine to implement public sector investments in line with the reconstruction and national priorities and the Sustainable Development Goals.
Human rights, social and environmental impact assessments are conducted by external experts, using development cooperation funds.
The maximum level set for construction costs reduces the risk of corruption in local subcontracting while the minimum funding for capacity building improves the long-term sustainability of investments.
What is meant by Finnish content in FUIF projects?
The company implementing the project must be registered in Finland, and the project’s Finnish content must meet the level approved by Finnvera amounting to 33 % of the value of the investment. Finnish content can be products, services, technology, solutions and expertise.
What is the size of projects funded through the FUIF?
FUIF projects are funded through loans granted by an international credit institution to Ukraine. Due to transaction costs, banks do not grant loans of less than EUR 10 million, which therefore sets a minimum size for the projects. The resources available in the Ministry for Foreign Affairs, for its part, sets the maximum size at approximately EUR 20 million
Has FUIF funding been limited to some sectors?
FUIF funding can be used to finance public sector projects that are beneficial for Ukraine’s economy and that promote socially, environmentally and economically sustainable development in Ukraine but that are simultaneously commercially non-viable. Sectors with a high probability of Finnish expertise include renewable energy, electricity networks, digital services, meteorology, education, health, circular economy, water supply and waste management, among others. It should be noted, however, that no sector eligible for development aid has been excluded.