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Analytical Reference Note Ukraine's Economic Losses Due to The Prepared by the Office of the Permanent Representative of the President of Ukraine in the ARC, August 2020. This Reference Note will be updated in the future Analytical reference note Ukraine’s economic losses due to the temporary occupation of the Autonomous Republic of Crimea and the city of Sevastopol by the Russian Federation CONTENTS Preface Total losses and the government’s efforts to assess them Conclusions and recommendations Losses by industry Budget losses GDP Exports Loss of control over state-owned legal entities State-owned entities that were not added to authorized capitals of business partnerships but remained on their balance sheets Lost rent for leased state property Illegal nationalization of property Lost Ukrainian Navy assets Losses of Chornomornaftogaz and Ukrtransgaz Transportation Fishing ports Losses in agriculture Water infrastructure and water resources Banks TV and radio broadcasting Markets Nature Reserve Fund and the environment Tourism and recreation Cultural and historical landmarks Museums Research institutions and universities State-owned economic entities located in the temporarily occupied territory of the Autonomous Republic of Crimea and the city of Sevastopol Private companies that relocated from the Autonomous Republic of Crimea and Sevastopol to other parts of Ukraine as a result of Russia’s temporary occupation of the Crimean peninsula and continued their operation Potential losses due to violated rights of Ukrainian citizens to their land Efforts of the national law enforcement and judicial systems International courts Permanent Court of Arbitration (The Hague) International Court of Justice (The Hague) Arbitral Tribunal constituted under Annex VII to the 1982 United Nations Convention on the Law of the Sea (The Hague) International Court of Arbitration of the International Chamber of Commerce (Paris) International Tribunal for the Law of the Sea (Hamburg) International Criminal Court Prepared by the Office of the Permanent Representative of the President of Ukraine in the ARC, August 2020. This Reference Note will be updated in the future Preface This Reference Note’s methodology is based on two key principles: general differentiation between direct and indirect economic losses as well as their breakdown into losses for Ukraine and those for the Autonomous Republic of Crimea (ARC) and Sevastopol, brought about by the temporary occupation of the Crimean peninsula as a result of Russia’s military aggression against Ukraine. These categories of losses are, of course, dialectically linked, but in many cases have no direct correlation. Direct losses include: loss of economic assets; losses resulting from the so-called “nationalization” of a number of legal entities and business entities of various forms of ownership; lost profits; losses from reduced turnover; lost budget revenue; loss of transportation infrastructure, etc. Indirect losses include, among other things: a general reduction of Ukraine’s scientific, cultural and tourism potential as a result of the temporary occupation of the Crimean peninsula; the need to restructure Ukraine’s industrial and agroindustrial sectors due to the temporary occupation and loss of control over the resources, enterprises and economic assets of the Crimean peninsula, as well as the need for the national economy to adapt to new conditions; economic losses from unlawful restrictions placed by the occupying power on commercial shipping in the Kerch Strait and the Sea of Azov (i.e. the decline of the Mariupol and Berdyansk seaports), etc. It is also important to keep in mind that a number of both direct and indirect losses are irreversible (e.g. the destruction of cultural heritage sites; exploitation of natural resources and mineral deposits by the occupying power; damage to the environment; demographic losses resulting from gross human rights violations, war crimes and crimes against humanity, etc.). Russia’s temporary occupation of the Crimean peninsula deprived Ukraine of important economic assets as well as significantly impacted its geopolitical position and transportation infrastructure. For the ARC and Sevastopol, the temporary occupation brought a reduction of agricultural land, decline of entire branches of agriculture, including rice cultivation, viticulture, as well as a decrease in livestock industries. The temporary occupation and Crimea’s “gray zone” status, as well as sanctions, make it impossible for the region to conduct foreign trade normally. With Crimea being essentially turned into a military outpost by the occupying power as well as its de facto isolation on the international level, tourism has suffered greatly there. Illegal “nationalization” of property and what essentially were raiding seizures of a number of economic entities by the occupying power, as well as the increasing centralization, bureaucratization and statism of the economy are hindering the growth of the private sector. The region has lost all its appeal to investors. As a result, Crimea's need for subsidies has increased dramatically compared to the period prior to 2014. For the population of the ARC and Sevastopol, the cost of the market basket, mobile communications and telecommunications services has gone up while the quality of these services has decreased. This Reference Note deals with Ukraine’s losses resulting from the temporary occupation of the ARC and Sevastopol by Russia. The issue of economic losses suffered by the ARC and Sevastopol as a result of Russia’s military aggression and temporary occupation requires a separate study. Prepared by the Office of the Permanent Representative of the President of Ukraine in the ARC, August 2020. This Reference Note will be updated in the future This Reference Note makes use of the information obtained as a result of previous work by the Ministry of Justice of Ukraine, Ministry of Economic Development, Trade and Agriculture of Ukraine, State Property Fund of Ukraine, Ministry of Information Policy (currently Ministry of Culture and Information Policy) of Ukraine, National Council of Television and Radio Broadcasting of Ukraine, National Institute for Strategic Studies, as well non-governmental organizations (Ukrainian Center for Independent Political Research, Maidan of Foreign Affairs and Ukrainian Helsinki Human Rights Union). This Reference Note is not meant to be empirically and factually exhaustive, but it does provide sufficient information to appreciate the scale of losses suffered by Ukraine as a result of Crimea’s temporary occupation by Russia, to see major trends in these processes, to isolate main problems, as well as to outline the steps that the government should take to protect its economic assets or obtain appropriate compensation. Prepared by the Office of the Permanent Representative of the President of Ukraine in the ARC, August 2020. This Reference Note will be updated in the future Total losses and the government’s efforts to assess them In 2014, the government instructed the Ministry of Justice and the State Property Fund to develop a methodology for assessing losses resulting from the temporary occupation of Crimea and to calculate the cost of lost state property. Preliminary estimates of the Justice Ministry’s Interdepartmental Working Group on Damages put the state’s total losses in 2014 caused by the temporary occupation of the ARC and Sevastopol at UAH 1 trillion 200 billion. However, this figure does not account for potential profits that could have been earned by using objects and property located on the Crimean peninsula, or the cost of mineral deposits, in particular those located along the sea shelf1. Some experts estimate Ukraine’s total losses at UAH 2.4 trillion2. Paragraph 9 of the Recommendations of the Parliamentary Hearings “Strategy for the Reintegration of the Temporarily Occupied Territory of the Autonomous Republic of Crimea and the City of Sevastopol into Ukraine: Problems, Solutions, Methods and Approaches” (June 15, 2016) adopted by the Parliament Resolution No. 1602-VIII of September 22, 2016 contains a recommendation for the Cabinet of Ministers of Ukraine (CMU) to develop, together with international experts, including leading audit companies, a methodology for assessing damages caused to the state and citizens of Ukraine as well as to legal entities based within Ukrainian jurisdiction, as a result of the temporary occupation of the ARC and Sevastopol. The CMU was also to prepare appropriate responses should Russia attempt to challenge Ukraine’s actions in international courts. None of this has been implemented so far3. 1 Letter of the National Institute for Strategic Studies No. 293/446 of May 19, 2020 (reply to inquiry No. 449/01-09-20 of May 13, 2020 of the Office of the Permanent Representative). 2 Ukraine to double the amount of losses from the annexation of Crimea - Link: https://krymsos.com/news/ukrayina- zbilshit-sumu-zbitkiv-za-aneksiyu-krimu-vdvichi/ 3 Ukrainian Parliament Resolution No. 1602-VIII of September 22, 2016 - Link: https://zakon.rada.gov.ua/laws/show/1602-19#Text Prepared by the Office of the Permanent Representative of the President of Ukraine in the ARC, August 2020. This Reference Note will be updated in the future Conclusions and recommendations As a result of Russia’s temporary occupation of the ARC and Sevastopol, Ukraine’s budget system lost 326 local budgets. Total funds in the local budgets of the ARC as of January 1, 2014 amounted to UAH 9.0 billion. As of January 1, 2014, there were (were registered) 1,059 legal entities (state
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