In February 2018, GE signed a historic $1 billion framework agreement with Ukraine to supply much-needed locomotives to modernize its railway fleet. The agreement was hailed by leaders, with Ukraine President Petro Poroshenko calling it an important milestone in Ukraine-U.S. relations. One of the men behind the deal, Vyacheslav Feklin, GE’s country manager for Ukraine, explains the win-win benefits of the agreement and how the “pragmatic dreamers” in government are transforming the country and creating new opportunities for investment in the New Ukraine
After around a decade in senior management positions, you became country manager of Ukraine at GE in December 2013, right before the 2014 Revolution. What have been the biggest changes you have witnessed from this post?
It’s very interesting because we are living in times of change right now. Since the Revolution of Dignity, first and foremost there’s been a change of mindset of people. Now the government is passing many reforms, and this is because there was a very strong social demand. People wanted to see Ukraine develop; they didn’t want to keep living in the old post-Soviet Ukraine. Infrastructure is a key part of this modernization. Ukrainian Railways had only bought 8 locomotives since Ukraine had gained independence and they were electric, not even diesel. So bringing in modern technology is important for people and the New Ukraine. So far, we have seen a lot of reforms in terms of education, pension, healthcare and more. There are also campaigns for decentralization, digitization and the modernization of infrastructure. It’s a time of change and Ukraine has no possibility to go back to where it was before 2014. From the business sense, we have seen a lot of good, objective signals. Ukraine has made progress in ease of doing business rankings, in the corruption perception index and has started massive projects with foreign companies such as GE. We’re happy to able to work with Ukraine and Ukrainian companies during this transformative time.
Last February, GE signed a $1 billion deal with Ukraine to supply freight locomotives and more new machinery here in Ukraine, with the first phase to supply 30 locomotives to Ukraine and the total agreement reaching 200. Tell us more about that deal.
We have signed a $1 billion framework agreement and along with it, we signed a sales purchase agreement with Ukreximbank for the purchase of the locomotives for Ukrainian Railways. In the first phase, we will supply 30 locomotives and localization will be 10 percent. We will reach certain milestones and finally, we will reach targets of 40 percent local production. It’s a really good condition for Ukraine. In our experience with other countries, usually, we supply the first locomotives without localization. This year, in accordance with our framework agreement, we must also sign a modernization agreement with Ukrainian Railways as well as a long-term service agreement for new locomotives. That’s one of the most important signals in terms of perception, that Ukraine is a reliable partner. So, we need to continue implementation of the framework agreement that we signed. We had been working on this agreement for more than two years, and there was a lot of skepticism surrounding it. But finally, we signed which is a hugely important signal, but now we need to be able to, together with our partner, to implement and to fulfil all those commitments.
What is the overall importance of the deal to Ukraine?
This is the biggest GE deal in modern Ukraine. It will create a lot of jobs in country and will have a huge multiplier effect. I saw one calculation made by experts who estimate that this project will add around 2 percent to the GDP growth of Ukraine. One big infrastructure project for Ukraine can mean a lot. That’s huge, its new jobs, an improved quality of life for Ukrainians, an improved transport system and it also sends a message to other American and foreign partners that Ukraine is a reliable partner.
Volodymyr Omelyan, the Ukraine Minister of Infrastructure told me that he had personally spent more than two years talking to GE before striking the massive deal. What were those negotiations like?
My first contact with Ukrainian Railways was in 2015 and it was our understanding that Ukraine had a need for new technologies and we had something to propose. So we contacted Ukrainian Railways and started thinking about now GE technologies could help improve the rail system. It was quite a long journey. For the last six months, we had a team of foreigners in Ukraine, so there were several people sitting together with Ukrainian Railways and Ukreximbank Bank, negotiating all the nuances. It was not easy, and my advice to all foreign companies coming to Ukraine is “be passionate.” Ukraine is a young country without deep experience in undertaking big projects, but they are smart, have a long-term view and will make things happen.
Having worked in more than seven other CIS countries and managing teams of different cultures throughout your career, how would you describe the talent of Ukraine’s workers and characterize the unique characteristics of working in Ukraine compared to other countries?
I would underline two main characteristics. First, historically Ukraine has a strong technical background. We have strong engineers, a strong heavy industry and a strong machine-building industry in Ukraine. That gave us opportunity for localization. There are a lot of people who have invested their lives in production facilities in Ukraine. We met a lot of them and saw a lot of really good factories and plants in Ukraine that are ready, with some new technology and investments, to meet global requirements. Soon, we will have our first supplier day in Ukraine for the localization part of the transportation project and we will share our requirements with potential Ukraine partners and suppliers. And those suppliers, who will be ready and able to meet our requirements on quality, timing etc., will have a good chance to become our global supplier, for our global supply chain. It’s a really huge window of opportunity for Ukrainian companies.
Second, the young generation of Ukrainians is proving its talent in IT. We see a lot of start-ups, software developers, 3d printing and so on. This creates a lot of interest for industrial and digital companies such as GE. We’re already working with some companies to understand how they can contribute to our digital program. We see a lot of opportunities for Ukraine to become a supplier of smart, new ideas for a giants such as GE.
How do you foresee the future of GE in Ukraine?
Not many countries in the world are able to produce aircraft, Ukraine is the one. The country has a really excellent history of aircraft building. We are happy that we are already partners. Last year was the official rollout of the new Antonov Project and we supplied the propeller and controlling system for this aircraft. GE is a famous producer of aeronautics and engines, and with Antonov, we believe we will find a way to work together for new aircraft for Ukraine and the world. A lot of aircraft that Ukrainian companies use to move passengers and freight are equipped with GE technology and GE engines. We also have a really booming renewable market in Ukraine. Ukraine made the really excellent decision to promote renewable energy in the country and they introduced green tariffs, which are really attractive to investors. We’ve already started one big project in Ukraine and hope to do more soon. We are working with local companies in the installation and transportation of wind turbines. Also, we have a really good opportunities to reform the health care system, we have already a huge installed base in Ukraine and also can provide ultrasound equipment. Ukraine just started the rural healthcare reform and we also have solutions for telepresence and other ways to help that project. We have excellent experience in doing this in many countries. We help Ukraine with traditional power as well, in the oil and gas sector, and have our compressors and gas turbines installed in Ukraine which in turn, helps the country in terms of energy independence.
You work with public companies like Ukraine Railways, what have you seen as the potential risks, and what the government should do to address those risks?
The most important thing now is to send a second signal. First, we signed and started our cooperation and now we need a second signal that Ukrainian railways and Ukrainian partners are doing what they said. I have no doubts about this, I believe in our partner but this will be the second most important signal for everyone. Speaking about government, I think that government and Ukraine should continue the simplification of the Ukrainian regulatory environment. Already, a lot of Soviet Union regulatory acts have been removed, but when we started our project with renewables, our foreign partners were surprised that they needed a construction licence to construct turbines. It’s the same as if they wanted to build a residential building. It’s a problem, but it’s impossible to find the solution to everything in one day or one year. Ukraine needs to continue with the reforms and to continue doing what they said. And, of course, corruption needs to be addressed. We see progress. From my point of view, I can say that during these years of working on this locomotive project, no one in this company has been bribed. During the last four or five years, I can guarantee that we haven’t seen even the smallest sign of corruption from anyone – not from the government or a state-owned company. I’m sure corruption still exists, on a smaller or mid-level perhaps, but I was happy to see there was no corruption with this major investment.
You work with many Americans from GE who come to Ukraine. What are they most surprised to learn about the country?
Almost all foreigners, on first impression, are surprised that Kiev is such a beautiful city. Second, they find all Ukrainians to be very skilled and goal-oriented. Post-Soviet Union bureaucracy is still a problem, which they may have expected, so the system should be more pragmatic. But patience is necessary, Ukrainians need some time to understand global principles. The country became independent in 1991 but in fact, it really just became independent three-four years ago. I called some reformers from Ukrainian government “pragmatic dreamers.” They are able to dream, but in parallel, they are able to implement their dreams in real life.