Businesses are ready to invest in BAT under understandable condition

Steel producers are ready to invest in environmental modernization as much as necessary, but they want political money back guarantees

Companies of the mining & metals sector are ready to invest in the best available techniques (BAT) as much as necessary. Though only on the condition of money back guarantees. As any business is based on mathematics, it can invest as much as an economic model allows.

Steel producers annually invest several billion dollars. Therefore, $6.6 billion required to launch the best available techniques is quite an affordable amount. The question is not the amount of investment, but investment period duration and guarantees that the Ukrainian steel industry will survive and flourish. We now witness excessive steelmaking capacities around the globe. Steel production exceeds the demand. Steel producers voice growing concerns over these issues.

I guess Ukraine’s mining & metals sector is ready to invest in BAT under understandable and predictable conditions. In other industries, the situation is about the same. If the government set clear development vectors and officially fixed the priorities of its progress for power engineers, glass and cement manufacturers and representatives of other sectors, this would obviously encourage investment, including in the best available techniques.

Yet unfortunately, 30 years of our independence prove that Ukraine’s ambitious goals and challenging strategies are compensated by the complete optionality of their performance. As soon as the government changes, all previous strategies are either neglected or canceled. Each new government considers it its duty to spend time and money on developing a new strategy, and the business community responds by freezing investments. Needless to say, the most experienced businessmen initially take account of uncertainty in their strategies. Yet this holds back investment anyway.

The second (after political uncertainty) important deterrent is a lack of cheap financial resources in the country. The National Bank has recently raised the interest rate again and made the domestic financial resource even more expensive. Large businesses obviously raise capital mainly from abroad, but they also use domestic resources. And, unfortunately, these resources are much more expensive than financial resources for our competitors in Europe, Russia and Asia. Our companies raise loans at 6–7% in Western capital markets on a good day, whereas European companies at around 1%. When money costs near-nothing to borrow, you risk nothing.

In this situation, the government could help businesses and support them with financial and tax incentives. Though our Ukrainian voter is a person with socialist, leftist views. People are extremely negative about any support or preferences for the business — they don’t understand that it is the business that creates jobs and pays taxes. As Margaret Thatcher once famously said, there is no such thing as public money — there is only taxpayers’ money. The business is the main taxpayer in Ukraine. Yet the government, acting within the populist trend, is very cautious about business support.

On the other hand, say, 20–30 years ago, when the environmental modernization of EU industries was under way, various forms of government support were actively used. The governments, through special supranational funds of the European Union and national funds of sovereign EU Member States, actively helped to repay loans, fostered investments in environmental modernization and the introduction of the best available techniques. There is nothing wrong with Ukraine embarking on this path. Especially because our public finance system is not very effective. I am sure that if, say, the Ministry of Finance and the Ministry of Environment thoroughly explore the state budget, they could find huge reserves to boost environmental modernization and best available techniques.

Moreover, Ukraine has a very important, but not obvious advantage: our technological backwardness. Many deem this to be a disadvantage, but there is a downside to the coin. The more one falls behind, the more growth potential one has. For instance, in terms of a cut in greenhouse gas emissions, a $1 million investment in Germany could produce a 100-fold weaker effect compared to a $1 million investment in the same area in Ukraine. It is because in Germany, almost everything has already been done, modernized, developed, and made energy efficient. We are lagging behind in this respect. But this is a promising potential that could be advantageously realized and capitalized. Over the past 40–50 years, EU companies have gone through several stages of technological development and almost completely renewed their production facilities. We have the opportunity to bypass all these stages and immediately jump into the last one and invest in up-to-date technologies.

In other words, taking into account Ukraine’s geographic location, access to the sea and many other advantages coupled with a giant deferred demand in civil construction and infrastructure modernization, which should prompt a huge demand for steel, we have the opportunity to become a serious growth driver for the European continent in the next 10–20 years. Though this is provided that there are an understandable and predictable political situation and access to financial resources in our country.

Hence, all issues relating to the best available techniques, investments in general and environmental modernization depend upon the political will of our leaders and the situation in global markets.