Category: Ukraine

The Cabinet of Ministers of Ukraine published Resolution No. 988 dated 16.08.2024, which amended the Procedure for Reservation of Persons Liable for Military Service during Martial Law (hereinafter – the “Reservation Procedure”). Key changes are:

1. Permanent establishments of non-residents operating in Ukraine and accredited (registered) in accordance with the law, registered with the regulatory authorities and recognized as critically important, shall submit a list of persons liable for military service for reservation to the Ministry of Economy.

2. Employees of enterprises which are provider of electronic communication services using mobile networks or provider of electronic communication services using fixed-line networks are subject to reservation, provided that such employees have fulfilled 100% of the working time standard during the last three months preceding the date of submission of the list, with the appropriate justification.

3. The number of persons liable for military service who hold positions in permanent establishments of non-residents operating in Ukraine (except for permanent establishments of foreign media) and are subject to reservation in accordance with the law shall not exceed 50% of the number of persons liable for military service as of May 18, 2024; in case of an increase in the number of persons liable for military service after May 18, 2024, the number of persons liable for military service shall be determined as of the date of submission of the lists.

4. The number of persons liable for military service who are employed in permanent establishments of foreign media and are subject to reservation in accordance with the law shall be:

• in permanent establishments with no more than 15 employees liable for military service – all persons liable for military service;
• in permanent establishments with more than 15 employees liable for military service, no more than 50 percent of the number of employees liable for military service.

If an enterprise, institution or organization employs one person liable for military service and is subject to reservation in accordance with the law, restrictions on the number of persons who are subject to reservation do not apply.

5. From now on, an enterprise can be recognized as critically important, if it is a provider of electronic communication services using mobile communication networks, the average monthly net income of which exceeds UAH 200 million according to the latest financial statements, or a provider of electronic communication services using fixed-line networks, the average monthly net income of which exceeds UAH 20 million according to the latest financial statements.

6. Enterprises can be recognized as critically important for meeting the needs of the Armed Forces of Ukraine, which produce unmanned systems (unmanned aerial systems, UAVs, unmanned ground/water (robotic) systems and weapons, military and special equipment, ammunition, their components and other defense products ordered by the State Special Communications Service and other state defense customers. Such enterprises are determined by the Ministry of Strategic Industries as critically important based on notifications from the State Special Communications Service and other state defense customers about the conclusion of a state contract (agreement) for the manufacture and supply of unmanned systems and other defense products with such enterprises within 5 business days from the date of receipt of the notification. Notifications are to be submitted to the Ministry of Strategic Industry of the State Special Communications Service and other state defense customers in paper and/or electronic form. The notification shall include: 

• information about the notification (full name, USREOU code) 
• information about the enterprise, institution, organization in respect of which the notification is submitted (full name, USREOU code, full name of the CEO) 
• information on the conclusion of a state contract (agreement) for the manufacture and delivery of unmanned systems (unmanned aircraft systems, unmanned aerial vehicles, unmanned ground (robotic) systems, unmanned water (floating) systems), other defense products (date of conclusion, validity period)
• if technically possible, the notification may be submitted through the Portal “Diia”.

By Yuna Potomkina and Anton Sintsov, Counsels, Asters

On 16 August 2024, the Resolution of the Cabinet of Ministers of Ukraine as of 9 August 2024 No. 925 (“Amending Resolution“) became effective and introduced amendments to the Resolution of the Cabinet of Ministers of Ukraine as of 18 March 2022 No. 314 “On Certain Issues of Ensuring of Carrying Out Commercial Activities During Martial Law” (“Resolution on Simplified Licensing Procedure“).

The Amending Resolution is aimed at stipulating the possibility for certain non-residents to carry out commercial activities in the construction of objects of medium (CC2) and significant (CC3) consequences during martial law.

Key takeaways

Non-residents (foreign companies, organizations) that carry out their activities in Ukraine exclusively through permanent establishments (PE) will be able, for a period of martial law, to obtain the right to carry out commercial activities in the construction of objects of medium (CC2) and significant (CC3) consequences without the need to obtain license to construct CC2 and CC3 objects.

A right to carry out such activities can be obtained by way of free-of-charge submission of declaration (which will contain information prescribed by the Amending Resolution) to the licensing authority.

Background

Licensing of activities in the construction of CC2 and CC3 objects prior to the introduction of the martial law

According to the Law of Ukraine “On Licensing of Types of Commercial Activities”, certain types of works in the construction of objects, which according to their consequence are classified as objects of medium (CC2) and significant (CC3) consequences, are subject to licensing (“Legislative Licensing Requirement”).

The types of works subject to licensing and the respective licensing requirements were set out by the Resolution of the Cabinet of Ministers of Ukraine as of 30 March 2016 No. 256 “On Certain Issues in Licensing of Construction of Objects of Medium or Significant Class of Consequences” (“Resolution on Licensing”).

Formally, neither the Legislative Licensing Requirement nor the Resolution on Licensing provided for an explicit prohibition on issuing such licenses to non-residents. However, given that the model application for obtaining such a license required the identification code of the legal entity according to the Unified State Register of Legal Entities, Private Entrepreneurs and Public Associations (“Register”), and the licensing authorities compared the information in the application with the information from the Register, non-residents were de facto deprived of the ability to obtain such license.

On 18 March 2020, the Resolution on Licensing was abolished. At the same time, the government did not adopt the new licensing requirements or the new list of types of works for the construction of CC2 and CC3 objects subject to licensing. In the absence of the licensing requirements, actual compliance with the Legislative Licensing Requirement was not possible for all parties interested in obtaining such license. Additionally, in the absence of government-approved types of works subject to licensing, the Legislative Licensing Requirement remained non-specific as it did not contain such a list of works but relied on acts of the Cabinet of Ministers of Ukraine to specify such types of works.

The absence of the list also prompted lenient interpretations of the Legislative Licensing Requirement such that no works related to the construction of CC2 and CC3 objects were subject to such licensing.

Licensing of activities in the construction of CC2 and CC3 objects following the introduction of martial law

On 19 March 2022, the Resolution on Simplified Licensing Procedure became effective and introduced, for a period of martial law — a rather simplified procedure for carrying out certain types of activities subject to licensing (in particular, without limitation, commercial activities for the construction of CC2 and CC3 objects) or subject to obtaining permitting documents.

For a period of martial law, such a simplified procedure provides for free-of-charge submission to the respective authorities of declarations on carrying out certain commercial activities without the need to obtain licenses or other permitting documents.

The Amending Resolution introduced amendments to the Resolution on Simplified Licensing Procedure and explicitly enabled, for a period of martial law, non-residents (foreign companies, organizations) that carry out their activities in Ukraine exclusively through permanent establishments to obtain the right to carry out commercial activities for the construction of CC2 and CC3 objects by way of free-of-charge submission of declarations to the licensing authority. The Amending Resolution also introduced a separate list of information to be included in such declarations by non-residents.

The above legislative developments are worth noting as they explicitly contemplate non-residents’ right to carry out activities in the construction of CC2 and CC3 objects and allow non-residents to enjoy the simplified procedure for obtaining such a right.

Please note that according to the Resolution on Simplified Licensing Procedure, those who obtain the right to carry out a particular commercial activity based on a declaration (non-residents included) will be required to apply to the licensing authorities to obtain licenses under a general procedure no later than three months after martial law is terminated or cancelled. As of today, the statutory regulation on the general procedure for licensing of activities related to the construction of CC2 and CC3 objects remains unchanged and as described above in the section “Licensing of activities for the construction of CC2 and CC3 objects prior to the introduction of martial law”.

By Serhiy Piontkovsky and Lina Nemchenko, Partners, Baker McKenzie

Integrites, working with Hughes Hubbard & Reed, has successfully represented Ukrenergo in an investment treaty arbitration against Russia.

Ukrenergo is a Ukrainian transmission system operator.

According to Integrites, “on August 5, 2024, the arbitral tribunal upheld jurisdiction over Ukrenergo’s EUR 527 million claim relating to the expropriation of its Crimean assets. Ukrenergo commenced arbitration under the Ukraine–Russia Bilateral Investment Treaty in 2019. Among others, it seeks compensation for Ukrenergo’s electricity grid seized by Russia after the purported annexation of Crimea in 2014.”

The Integrites team included Partners Serhii Uvarov and Dmytro Marchukov and Associate Iryna Ivanova.

Integrites has advised the Ukrainian subsidiary of Peikko Group Corporation’s agreement with Industrial Park Bila Tserkva 1, part of UFuture Group, on launching production in Ukraine.

The Peikko Group Corporation is a Finnish family-owned multinational supplier of slim floor structures and connection technology for precast and cast-in-situ construction. 

UFuture is a Ukrainian company with a portfolio of assets in the fields of real estate, infrastructure, industry, renewable energy, pharmaceuticals, and IT.

According to the firm, this included a “build-to-suit pre-lease and main lease agreements for a 2,400-square-meter plant for the production of concrete joints and composite structures within Bila Tserkva Industrial Park nearby Kyiv. The site to be built is expected to produce 2500 tonnes of goods annually and create up to 30 jobs.”

The Integrites team included Partner Anna Pogrebna, Senior Associate Serhii Datsiv, and Paralegal Polina Radionova.

On August 13, 2024, the Cabinet Ministers of Ukraine (CMU) adopted important resolutions which will accelerate the deployment of renewable energy sources (RES) and distributed generation in Ukraine, namely:

1. National Renewable Energy Action Plan until 2030, which aims to increase the share of renewable energy to 27.1% of the gross final energy consumption by 2030

2. Approval of pilot online auctions to distribute 110 MW of the RES support quota for 2024

3. Approval of the conditions for a contest to construct 700 MW of new high maneuverable generation

National Renewable Energy Action Plan until 2030

On August 13, 2024, the CMU adopted Resolution No. 761-р On Approval of the National Renewable Energy Action Plan for the period up to 2030 and the action plan for its implementation (the “Action Plan”).

The Action Plan envisages the following growth of renewables in Ukraine from the beginning of 2024 until 2030 (figures as of 2024 do not cover temporarily occupied territories):

• Solar power plants – from 7327 MW to 12200 MW (7200 MW of producers and 5000 MW of prosumers)
• Onshore wind power plants – from 512 MW to 6214 MW
• Offshore wind power plants – from 0 MW to 100 MW
• Bioenergy facilities (biomass and biogas) – from 319 MW to 876 MW
• Geothermal power plants – from 0 MW to 40 MW

In order to enable the growth of intermittent renewable energy sources, the government plans to commission by2030

• High maneuver generation (most likely gas peakers) – up to 906 MW
• Energy storage facilities – up to 656 MW.

It also plans to incentivize the use of renewable energy in the transportation industry as well as heat and cooling sector.

As a result of the deployment of renewable energy sources until 2030 it plans to achieve the following growth (starting in 2025) and reach the following targets for the percentage of renewable energy in gross final energy consumption (by sector):

• Electricity – from 20.9% to 29.4%
• Heat and cooling – from 20.8% to 32.5%
• Transport – from 4.9% to 17.2%

Thus, the total share of renewable energy in gross final energy consumption should grow from 17.3% in 2025 up to 27.1% in 2030.

The Action Plan also emphasizes the need to develop the production of renewable gases and envisages the following potential for them:

• Biomethane – up to 21.8 billion cubic meters a year
• Green hydrogen – up to 44957 thousand tons a year

Notably, the Action Plan acknowledges that despite the active phase of the war, during 2022-2023, more than 650 MW of new renewable energy capacities were commissioned in Ukraine, including:

• Solar power plants – 371 MW (including 287 MW of households)
• Wind power plants – 227 MW
• Bioenergy facilities (biomass and biogas) – 50 MW
• Small hydropower plants – 1 MW

Pilot online auctions to distribute RES support quota for 2024

On August 13, 2024, the CMU adopted Resolution N 757-р On some issues of pilot auctions for the allocation of the support quota in 2024 (the “Auction Quota Resolution”).

The Auction Quota Resolution envisages the following quotas for RES support to be distributed during the first pilot auctions:

• Solar power plants – 11 MW (to be located on the left bank of the Dniper river) at the auction planned for October 2024
• Wind power plants – 88 MW (across the entire territory of Ukraine) at the auction planned for November 2024
• Power plants with other types of eligible renewables -11 MW (across the entire territory of Ukraine) at the auction planned for November 2024

The Auction Quota Resolution envisages the following ceilings for bids at the auctions:

• Solar power plants – 9 eurocents per kWh
• Power plants with other types of eligible renewables – 12 eurocents per kWh

The auctions will be run by State Company “Guaranteed Buyer” on the Prozorro.Sale platform.

According to the Law of Ukraine On Alternative Energy Sources, in order to participate in the auction, a participant must submit an application accompanied by unconditional and irrevocable bank guarantee €5 per kW of the capacity for which it seeks to get support, as well as information on the ultimate beneficial owner, copies of documents on managing authorities of the participant, and information on affiliated persons.

Winners of the auctions will be obligated to provide a bank guarantee in the amount of €15 per kW of the capacity and to commission respective power plants within:

• 18 months for solar power plants
• 36 months for all other eligible powers plants

Contest for New High Maneuverable Generating Capacity

On August 13, 2024, the CMU adopted Resolution N 756-р On some issues related to the contest for the construction of generating capacity and the implementation of demand-side management measures (the “Contest Conditions Resolution”) setting forth the following conditions for the construction of generating capacity:

• Term for submitting applications – 6 months after official publication
• Minimal installed capacity of a power plant – 5 MW
• Maximum installed capacity of a power plant – 80 MW
• Total volume of high maneuverable generating capacity to be built – 700 MW
• Maximum deadline for construction – December 2027
• Minimum guaranteed (design) service life of the generating unit equipment – at least 20 years (or 100,000 hours in generation mode)
• Maximum price of procurement – €854977,5 per MW and minimum term for the price payment – 10 years.

The new capacities should meet, inter alia, the following, technical requirements:

• The plants should comply with the technical requirements set out in the Transmission System Code for the connection of such installations and the requirements of environmental protection legislation.
• Highly maneuverable power plants with fast start/stop should be able to start and stop in normal mode at least four times in one day and/or up to eight times in one day in certain cases, if necessary, to ensure start and stop with a maximum permissible downtime between two consecutive start/stop cycles of 15 minutes, a total of 1800 – 2000 starts per year.
• The control range should be at least 80 percent of the installed capacity.
• The time of commissioning (full activation) from the stopped state should be no more than 15 minutes from the moment of receiving the corresponding command from the transmission system operator.
• The guaranteed continuous operation time must be not less than eight hours.
• Generating units must be able to start up in the absence of voltage in the external grid.
• The generating capacity must be ready for operation after a significant downtime of up to one month without any maintenance.
• The generating unit must be equipped with a conservation system.
• The generating unit must be able to operate on both the main and backup or emergency fuels, if necessary.
• The construction of the generating capacity should include the construction of engineering and technical protection of the equipment.

As per Resolution of the CMU dated July 10, 2019 N 677 On Approval of the Procedure for Holding a Contest for the Construction of Generating Capacity and Implementation of Demand Management Measures (the “Contest Procedure Resolution”), the following key steps should be taken:

• The Ministry of Energy of Ukraine should form a contest committee within 30 calendar days of the date of the Contest Conditions Resolution
• PrJSC NPC Ukrenergo, as the transmission system operator, must develop the contest documentation and submit it for the approval of the contest committee within two months of the date of the Contest Conditions Resolution.
• The contest documentation shall be officially published (in both English and Ukrainian versions) within5 calendar days from the date of its approval.

Contest documentation may not change any of the conditions/requirements established in the Contest Conditions Resolution but may provide for additional requirements for the developers and proposals, such as:

• Qualification requirements for the participant (experience of constructing similar projects, financial statements, information on the model for financing the project etc.)
• Qualification requirements for the proposal (technical parameters of equipment, deadline for commissioning the project, minimal guaranteed term of operation, minimal term for payment of the fee for developing the project)
• Requirements for the guaranteed security for the price proposal (to participate in the auction the participant should submit the guaranteed security in the amount of €100 000 plus €1 000 per MW of the proposed capacity, and the winner should provide guaranteed security in the amount of €30 000 per MW of the proposed capacity)
• Requirements for the contest proposal
• Information on incentives to be provided for the winner
• Criteria for selecting the winner
• Draft agreement with a contest winner

In order to participate in the contest, each participant should provide:

• Confirmation of the land rights, if necessary for the implementation of a proposal
• Prepared documentation as per the requirements of the contest documentation.

Please note that the contest set out in the Contest Conditions Resolution is an additional incentive for the deployment of high maneuverable generation, separate from the special auctions for ancillary services run by PrJSC NPC Ukrenergo in August 2024 (99 MW of FCR capacities were auctioned on August 15, 2024 and 1 GW of FRR capacities to be auctioned on August 22, 2024).

This information does not constitute legal advice and is merely the opinion of the author.

By Maksym Sysoiev, Partner, Dentons

CMS has advised MND on its acquisition of a 50% share in the 54.6-megawatt Oriv wind power plant in Ukraine.

MND is a Czech energy group.

According to CMS, “the construction of the Oriv wind power plant commenced in 2021, with the final wind turbine installed in 2023, after the war in Ukraine began. The Oriv wind power plant is expected to have an annual production of 150 gigawatt-hours.”

The CMS team in Kyiv included Managing Partner Vitaliy Radchenko, Partners Ihor Olekhov and Olga Belyakova, Counsel Maryna Ilchuk, Senior Associates Mariana Saienko and Mykola Heletiy, Associates Ihor Pavliukov and Ivan Pshyk, Lawyer Oleksandr Sytnyk, and Trainee Maksym Zhurakovskyi.

Editor’s Note: After this article was published, CMS informed CEE Legal Matters that the sellers were Eco Optima.

Aequo has successfully represented the interests of the Gas Transmission System Operator of Ukraine before the Supreme Court of Ukraine.

The Gas Transmission System Operator of Ukraine delivers natural gas to consumers in Ukraine and the European Union.

According to Aequo, “the case revolved around regional gas networks’ consistent failure to meet their obligation to pay for daily negative imbalances in the gas supply system to the GTS Operator. The Joint Chamber of the Commercial Cassation Court of the Supreme Court ruled in favor of the GTS Operator, providing a unified court precedent and confirming the company’s position in numerous debt collection cases.”

Avellum has advised PJSC Ukrnafta on obtaining unconditional merger clearance from the Antimonopoly Committee of Ukraine to manage Tatneft.

Ukrnafta is Ukraine’s largest oil producer operating 545 petrol stations.

According to Avellum, the clearance enablers Ukrnafta to take “under management seized assets of Tatneft-AZS-Ukraine, Kharkiv-Capital, and Poltava-Capital. As a result of this agreement, a network of more than 50 petrol stations and other assets, such as oil depots, will be taken over by the state management.”

The Avellum team included Partner Mykyta Nota, Counsel Anton Arkhypov, and Associate Veronika Humeniuk.

On August 13, 2024, the CMU adopted Resolution N 757-р On some issues of pilot auctions for the allocation of the support quota in 2024 (the “Auction Quota Resolution”).

The Auction Quota Resolution envisages the following quotas for RES support to be distributed during the first pilot auctions:

• Solar power plants – 11 MW (to be located on the left bank of the Dniper river) at the auction planned for October 2024
• Wind power plants – 88 MW (across the entire territory of Ukraine) at the auction planned for November 2024
• Power plants with other types of eligible renewables -11 MW (across the entire territory of Ukraine) at the auction planned for November 2024

The Auction Quota Resolution envisages the following ceilings for bids at the auctions:

• Solar power plants – 9 eurocents per kWh
• Power plants with other types of eligible renewables – 12 eurocents per kWh

The auctions will be run by State Company “Guaranteed Buyer” on the Prozorro.Sale platform.

According to the Law of Ukraine On Alternative Energy Sources, in order to participate in the auction, a participant must submit an application accompanied by unconditional and irrevocable bank guarantee €5 per kW of the capacity for which it seeks to get support, as well as information on the ultimate beneficial owner, copies of documents on managing authorities of the participant, and information on affiliated persons.

Winners of the auctions will be obligated to provide a bank guarantee in the amount of €15 per kW of the capacity and to commission respective power plants within:

• 18 months for solar power plants
• 36 months for all other eligible powers plants

This information does not constitute legal advice and is merely the opinion of the author.

By Maksym Sysoiev, Partner, Dentons

Sayenko Kharenko has advised the European Bank for Reconstruction and Development on a EUR 12 million loan to the city of Kryvyi Rih under EBRD’s Resilience and Livelihoods framework.

According to Sayenko Kharenko, “the EBRD’s loan will be used to provide liquidity support for Kryvyi Rih’s municipality and its key municipal companies. The emergency funds will ensure the continuous provision of public services to the city’s population.”

Earlier in 2024, Sayenko Kharenko advised EBRD on EUR 60 million biofuel financing in Ukraine (as reported by CEE Legal Matters on June 24, 2024) as well as on a EUR 20 Million equivalent Loan to Bank Lviv (as reported by CEE Legal Matters on June 19, 2024). In 2023, the firm advised the EBRD on a USD 30 million loan to Astarta Holding (as reported by CEE Legal Matters on September 7, 2023). 

The Sayenko Kharenko team included Partner Igor Lozenko and Senior Associate Oles Trachuk.