UKRAINE HOPES ITS MINERALS DEAL WILL DIG OUT OF A WHOLE WITH TRUMP / THE ECONOMIST

Round one

Ukraine hopes its minerals deal will dig it out of a hole with Trump

A provisional draft of the agreement is vague but better than feared

UKRAINE’S GOVERNMENT is set to approve a deal with America to jointly exploit Ukrainian mineral resources later today after a painful period of negotiation. 

The document, expected to be signed by Donald Trump and Volodymyr Zelensky during a face-to-face meeting in Washington, DC, on February 28th, pulls both leaders back from a damaging war of words. 

Mr Trump will doubtless declare it to be his victory. 

What it actually ties Ukraine down to is less clear.

The agreement now ready for Mr Trump’s Sharpie pen is a framework deal, the first step in a two-part settlement. 

Much of the detail is to be determined in future negotiations. 

But Ukraine appears to have steered away from America’s first brazen, extractive demands into something that is closer to a joint investment venture. 

The deal looks to be a good way short of the $500bn “payback” that Mr Trump had demanded from Ukraine, itself a vastly inflated bill for supposed past military and financial assistance, which is independently assessed at more like $120bn.

The draft text removes all the most contentious American demands, which were often delivered with hostility, according to accounts from officials. 

On one occasion, the Ukrainians were given an “hour to sign”; on another just six minutes. 

What the text does now is commit the two sides to the idea of creating a joint fund for investments into Ukraine. 

The Ukrainians are expected to contribute 50% of the revenues from future government-owned resource projects—including minerals, hydrocarbons, oil, gas and infrastructure such as LNG terminals and ports—into the fund. 

Crucially, however, this will not include current operations, like the big oil and gas projects that are already contributing significant sums to the Ukrainian budget.

There is no mention of Mr Trump’s $500bn bill. 

An American demand for 100% ownership of the investment fund has also been dropped. 

Instead, ownership will be “proportional” to the sums invested by both sides, indicating the prospect of continued American support. 

A clause that required the Ukrainians pay twice the amount of any future aid into the fund—Mr Zelensky had likened that to a debt on “ten generations of Ukrainians”—has also gone. 

A lot is still hazy, not least to what extent the American side will control the new fund and what its governance arrangements will be. 

This is where things get contradictory. 

One clause says America will control “the maximum amount” allowable under its own laws. 

That might conflict with the other clause that indicates proportionality.

The Economist understands that the later agreement will clarify such matters of control, along with the security guarantees that Mr Zelensky initially wanted as his quid pro quo for offering up the country’s mineral resources back in September. 

As far as guarantees go, the framework only goes as far as mentioning “protecting mutual investments”. 

But a preamble to it references a broader “architecture of …agreements”, and “support…to obtain security guarantees”. 

A government source with knowledge of the negotiations says that Mr Zelensky does not intend to sign any second, fuller agreement that does not include broader security guarantees. 

The initial framework document will not require ratification by parliament, but a future agreement will.

After two weeks of increasing pressure from Mr Trump’s envoys, Ukraine may feel it has skilfully survived a bare-knuckle fight. 

The framework deal that has resulted from this process is somewhat vague and largely theoretical. 

The true extent of Ukraine’s resource wealth is unknown. 

There has been no serious assessment of mineral deposits using modern exploration techniques. 

Much of it is deep in the ground, or in concentrations that are too low for profitable extraction. 

Perhaps 40% of the metal resources are in Russian-occupied territory. 

Neither does the agreement offer any detail on processing and refining facilities, which is where the real value will accrue. 

There are many other lacunae. 

Yet by agreeing on something, Ukraine has provided Mr Trump with a result, moved back from the brink and bought time. 

In the world it has unexpectedly found itself in, that counts for quite a lot.