Category: Ukraine

Outgoing NATO Secretary General Jens Stoltenberg has secured the unanimous support of NATO country ambassadors for €40 billion (approximately US$43 billion) in lethal and non-lethal military aid to Ukraine in 2025. NATO leadership is expected to approve the agreement during the annual NATO Summit, which will take place July 9-11, 2024 in Washington, DC.

The €40 billion in aid for 2025 represents the approximate amount of aid that NATO member states have provided to Ukraine annually since Russia’s invasion in February 2022. While Secretary General Stoltenberg had endeavored to secure a five-year support package for Ukraine that would have maintained current annual aid volumes for half a decade to demonstrate stability amidst political uncertainty within Europe and the US, as approved, the commitment will be subject to annual review.

The open-ended nature of the plan represents a compromise reached to secure the backing of certain NATO member states that have expressed apprehension regarding a multi-year aid commitment without ongoing assessment. Additionally, to ensure transparency and proportionate contributions throughout the alliance, NATO will prepare two reports in the year ahead determining which member states are to be responsible for providing which exact military supplies and equipment to Ukraine.

The vital deterrence function of defense production capacity expansion in Ukraine, and across NATO member states, will be a guiding principle during the Summit.

Although Ukraine will not receive an official invitation to join the alliance, NATO leaders are expected to announce a new formal NATO mission for Ukraine—“NATO Security Assistance and Training for Ukraine (NSATU)”—intended to transition lead responsibilities from the US to NATO with respect to coordination of military aid and training for Ukraine.

Ukraine is also expected to sign additional bilateral security agreements with NATO members states during the Summit, similar to the 10-year bilateral security agreement signed by the US and Ukraine in June 2024, as well as the security cooperation agreement signed by Poland and Ukraine on July 8, 2024.

The July 2024 convening of the alliance will be Stoltenberg’s last as Secretary General after 10 years in the role. In June 2024, NATO’s North Atlantic Council appointed former Netherlands Prime Minister Mark Rutte to succeed Stoltenberg as Secretary General. Rutte will assume his new role as NATO’s leader on October 1, 2024, amidst record defense spending within the alliance with 24 of the 32 NATO member states set to meet or exceed their respective 2% of GDP defense spending commitments this year.

By Christopher W.K. Fetzer, Partner, Dentons

On June 26, 2024, Ukraine’s National Energy and Utilities Regulatory Commission (NEURC) adopted the Resolution “On Approval of Amendments to Certain Resolutions of the NEURC”, which introduces special auctions for ancillary services. The Resolution aims to facilitate much-needed investment into energy generating capacity and energy storage units in Ukraine, and will ultimately contribute to better grid balancing in the country.

The official text of the Resolution has not yet been published, so this alert is based on the version that was prepared for voting by the commissioners of NEURC.

The Resolution takes effect on the date following its official publication on NEURC’s website.

Types of ancillary services to be procured

Ukrenergo, as the transmission system operator, is authorized to administer special auctions for ancillary services to acquire frequency and active power control reserves, specifically Frequency Containment Reserve (FCR) and Automatic Frequency Restoration Reserve (aFRR).

Term of service provision

The term for the provision of these services is between one and five years.

Possibility to postpone service start date

The start of service provision can be postponed by up to three years, allowing sufficient time for the construction of facilities.

Requirements to participate in the auctions

In order for an energy generation or storage facility to participate in the auctions, the candidate must:

• Enter into agreement with Ukrenergo on provision of ancillary services in the future (executed if the construction of the respective facility is anticipated),
• Enter into agreement with Ukrenergo on ancillary service on regulation of frequency and active power, and
• Provide a guarantee of €5000 for each facility in UAH equivalent at the exchange rate of the National Bank of Ukraine on the date of payment of the guarantee into a special escrow account.

The guarantee will be returned to the participants after the completion of the auction and to the winner after the payment of financial security, if required.

Financial security for future ancillary services

According to the Resolution, when a company is selected in an auction to provide the ancillary services in the future, it must make a financial security deposit of €30,000 multiplied by the maximum capacity (in MWs) that the facility should provide according to the auction.

The financial security must be paid in UAH equivalent at the exchange rate of the National Bank of Ukraine on the date of payment of the financial security. The financial security is placed in a special escrow account and must be returned within 30 days after the start of the services unless the winner fails to deliver the services.

Keep in mind that the winner of the auction bears the cost of all exchange rate fluctuations, as Ukrenergo is obliged to return only the exact amount in UAH received. Nevertheless, ongoing debates among market players, Ukrenergo, and NEURC may lead to future changes in the Resolution regarding the amount of financial security and forex risk-sharing.

Auction result currency and payment terms

The price for the ancillary services is determined based on the result of the special auction in UAH, then converted to EUR at the official exchange rate of the National Bank of Ukraine, averaged for the auction month.

When the service is rendered, the EUR equivalent of the price is converted into UAH at the official exchange rate of the National Bank of Ukraine against the average EUR/UAH exchange rate for the month when the service is rendered. This aims to protect payments to investors against currency exchange risks.

Requirements for investors to commission facilities

Investors must, at least 45 days before the commencement of ancillary services by a potential facility:

• Ensure the technical characteristics of the equipment align with the volume and type of services sold at the auction, confirmed by a certificate of conformity issued by Ukrenergo.
• Register with Ukrenergo as a provider of ancillary services, which includes submitting the conformity certificate and becoming a participant in the electricity market.

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

By Maksym Sysoiev, Partner, Dentons

The United States and Ukraine have entered into a 10-year bilateral security agreement (“Security Agreement”), providing a framework for continued US support for Ukraine’s defense and deterrence capabilities, as well as for Ukraine’s economic recovery and reconstruction.

The Security Agreement, signed by US President Joe Biden and Ukrainian President Volodymyr Zelensky on June 13, 2024, will strengthen and deepen US-Ukraine security, defense, economic, and trade cooperation, including through:

• Increased interoperability between US and Ukrainian military forces to align with NATO standards and enable Ukraine to develop a modern future military force, including via military training and education programs, as well as via research and development cooperation;
• Enhanced intelligence sharing and US assistance in Ukraine’s further development of its counterintelligence capabilities, as well as US support for improved Ukrainian cybersecurity and cyber defense capacity to protect critical infrastructure;
• Expanded collaboration with allies and partners to augment Ukraine’s defense industrial base, including via identification of strategic investment opportunities for public and private capital that promote US and Ukrainian economic and security interests; and
• Increased support for Ukraine’s energy independence and energy security objectives, including via support for Ukraine’s development of a decentralized energy system that is integrated with Europe and support for a more resilient and secure Ukrainian civil nuclear energy sector.

Further, the Security Agreement states that US and Ukrainian officials are to meet within 24 hours in the event of an armed attack (or threat thereof) to develop a response strategy and identify Ukraine’s defense support needs. The framework articulated under the Security Agreement does not include a commitment by the US to provide troops to defend Ukraine, unlike NATO’s Article 5 commitment to collective defense.

Additionally, because the Security Agreement will not be ratified by the US Congress, it is best viewed as binding only with respect to the Biden Administration, leaving open the potential for future US administrations to withdraw. However, the Security Agreement memorializes the intent of the parties to register the Security Agreement with the United Nations (“UN”) in accordance with Article 102 of the UN Charter within 60 days of the Security Agreement’s entry into force.

In short, the commitments by the US to Ukraine under the Security Agreement are intended to accelerate Ukraine’s Euro-Atlantic integration, including through support of Ukraine’s EU and NATO accession goals. Upon signing the Security Agreement with Ukraine, the US joined 15 other partner nations that have entered into similar bilateral security agreements and arrangements with Ukraine under the G7 Joint Declaration of Support to Ukraine signed in July 2023.

The Security Agreement was announced alongside reports that G7 leaders have reached consensus to provide a US$50 billion loan to Ukraine, secured by interest generated from seized Russian assets, for the purposes of sustaining and rebuilding the Ukrainian economy.

By Christopher W.K. Fetzer, Partner, Dentons

On 18 June 2024, by Order of the Ukrainian National Office for Intellectual Property and Innovations (“UANIPIO”) No. 93/2024, the personnel of the Appeals Chamber of the UANIPIO (“Appeals Chamber”) was approved. Notwithstanding the challenges associated with the war, the Appeals Chamber has resumed work.

The composition of the panels is being finalized and the consideration of the merits of the appeals will begin shortly. Meanwhile, the cases already referred to the Appeals Chamber are being assigned for further proceedings. A monthly schedule of the Appeals Chamber will be published on the official website and will be updated on an ongoing basis, which will also provide IP right holders with a good instrument to track the development of their cases of interest.

Key changes

After almost two years of being out of service due to a profound reform, from now on the following functions of the Appeals Chamber will be resumed:

• Consideration of oppositions to decisions of the UANIPIO regarding the registration of IP objects
• Consideration of applications for a trademark to be recognized as well known in Ukraine

In addition to the above, the Appeals Chamber will now perform new functions and offer new services, which will provide IP right holders with effective instruments and possibilities to protect their rights, namely:

• Considering applications for the invalidation of IP rights (“post-grant opposition”)
• Conducting mediations at any stage of an opposition or appeal
• Receiving documents in electronic form with a qualified electronic signature submitted by the participants of the proceedings through their personal accounts on the Information and Communication System (ICS) of the UANIPIO
• Storing video and audio recordings of video conferences on ICS
• Simplifying the requirements to conduct a survey for a trademark to be recognized as well known in Ukraine.

Recommendations

Overall, the Appeals Chamber resuming operations can be considered positive from a business standpoint. Administrative proceedings before the Appeals Chamber, from now on, may be used as an alternative to litigation in court. High-quality decisions of the Appeals Chamber will contribute to the effective resolution of IP cases at the pre-litigation stage, which is more time and cost efficient.

By Ruslan Drobyazko​, Partner, and Myroslava Koval-Lavok, Senior Associate, Baker McKenzie

Sayenko Kharenko has advised the European Bank for Reconstruction and Development on a EUR 25 million finance package to City Communal Enterprise Mykolayivvodokanal.

Mykolayivvodokanal is the urban water utility company of the city of Mykolaiv, a city in the south of Ukraine with a population of approximately 430,000 people. 

According to Sayenko Kharenko, “the finance package includes a EUR 10 million loan extended by EBRD under a guarantee from Spain along with a EUR 9.8 million investment grant component provided by Denmark and a EUR 5 million investment grant from the Eastern Europe Energy Efficiency and Environment Partnership. This finance package, which was signed at the Ukraine Recovery Conference in Berlin, will be used to rehabilitate the port and ship-building city’s potable water supply and treatment infrastructure that have been in poor condition as a result of war damage.”

Previously, Sayenko Kharenko advised the EBRD on a EUR 60 Million biofuels financing in Ukraine (as reported by CEE Legal Matters on June 24, 2024) and 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, Senior Associate Oles Trachuk, and Junior Associate Artem Medvetskyi. 

Squire Patton Boggs has advised the European Bank for Reconstruction and Development on establishing a renewable energy joint venture company with Goldbeck Solar Investment – Goldbeck Solar Investment Ukraine. CMS advised Goldbeck Solar.

The transaction remains contingent on regulatory approval. 

Headquartered in Baden-Wuerttemberg, Goldbeck Solar is a German solar energy company with more than two decades of experience.

According to Squire Patton Boggs, “the joint venture will target the development of a portfolio of up to 500 megawatts of solar photovoltaic projects in Ukraine over the next three to five years. This is the first private energy deal led by a foreign investor to add renewable generation capacity in Ukraine since February 2022.”

The Squire Patton Boggs team included Warsaw-based Partner Marcin Wnukowski as well as other team members in Milan, Frankfurt, and Brussels.

The CMS team in Ukraine included Partners Vitaliy Radchenko and Olga Belyakova and Senior Associates Mykola Heletiy and Mariana Saienko as well as further team members in Germany.

Sayenko Kharenko has advised the European Bank for Reconstruction and Development on a EUR 60 million loan to Lan-Oil for the construction of a greenfield and privately-owned biofuels project in Ukraine.

According to Sayenko Kharenko, “the loan, which was signed at the Ukraine Recovery Conference in Berlin, will be provided to Ukrainian limited liability company Lan-Oil LLC. The project is sponsored by JSC Concern Galnaftogaz and OKKO Group, a leading distributor of transportation fuels in Ukraine. The funding is also expected to be backed by a financial guarantee from the European Union provided under Pillar II of the new Ukraine facility, the Ukraine Investment Framework.”

Earlier, Sayenko Kharenko advised the EBRD 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, Senior Associate Oles Trachuk, Associates Vladyslava Mitsai and Yevhen Koval, and Junior Associates Artem Medvetsky and Polina Savinska.

The Cabinet of Ministers of Ukraine issued Resolution No. 650 on “Some Issues with Reservation of Persons Liable for Military Service during Martial Law”, dated 5 June 2024 (“Resolution“), which came into force on 8 June 2024.

The Resolution provides for an opportunity, in addition to the existing paper-based procedure, to reserve employees of certain companies online through the Unified State Web Portal of Electronic Services (“Diia Portal“). The Resolution also amended the “Procedure for Reservation of Persons Liable for Military Service during Martial Law” and the “Criteria and Procedure for Determining Companies, Institutions and Organizations Critical for the Functioning of the Economy and the Life of the Population during the Special Period, as well as Critical for the Needs of the Armed Forces and Other Military Formations during the Special Period”, which were approved by Resolution No. 76 of the Cabinet of Ministers of Ukraine, dated 27 January 2023.

Key changes

Recommendations 

We recommend that employers in Ukraine consider the above-mentioned legislative changes while making reservations of employees liable for military service, transferring or dismissing them, etc.

By Lina Nemchenko, Partner, Mariana Marchuk, Counsel, Baker McKenzie

Since July 1, 2023, Ukraine has been a member of the international automatic exchange of information regarding financial accounts pursuant to the Common Reporting Standard (CRS). The international exchange of information includes 123 countries (as of May 2024).

In accordance with the CRS, financial institutions of the participating countries are obliged to carry out due diligence of financial accounts to identify account owners who are tax residents of other partner jurisdictions (“Reportable Persons”), for the purpose of the information exchange.

Financial accounts held by Reportable Persons are reportable accounts for the purposes of the CRS (“Reportable Accounts”). These include:

• Deposit accounts
• Custodial Accounts
• Equity and debt interests in certain investment companies
• Insurance contracts with redemption amount
• Annuity agreements

Financial institutions are responsible for submitting information about Reportable Accounts to their national competent authority, which will in turn send the information to the jurisdictions where the owners of the Reportable Accounts are resident.

In accordance with the CRS, such information for individual Reportable Persons includes name, address, individual tax number, and date and place of birth of each Reportable Person owning the Reportable Account. In cases where a legal entity owns the Reportable Account, the information to be disclosed includes the name, address and tax number of the entity and the name, address, individual tax number, and date and place of birth of each Reportable Person controlling the account. The information to be provided also includes the balance or value of the Reporting Account at the end of the relevant reporting period or, if the account was closed during the reporting period, as of the date of its closing.

In addition, the following information is to be provided:

• Deposit Accounts: the interest paid or credited;
• Custodial Accounts: the interest paid or credited, dividends, other income and gross receipts.

In September 2024, Ukraine will transfer to the participating countries the information about the Reportable Accounts of non-residents opened in Ukraine since 30.06.2023. In return, it will receive information regarding Ukrainians’ accounts abroad during the full year 2023.

Ukraine’s first automatic exchange, which will take place in 2024, will cover:

• Reportable Accounts of non-resident individuals and legal entities opened after 01.07.2023
• Reportable Accounts of foreign individuals opened before 30.06.2023, which have a balance of more than US$1 million.

In 2025, Ukraine will transfer data in relation to:

• Reportable Accounts of foreign legal entities opened before 30.06.2023, which has a balance exceeding US$250,000
• Reportable Accounts of individuals opened before 30.06.2023, which have a balance which does not exceed US$1 million.

Ukraine will need to send out its reports on the Reportable Accounts for 2023 so that the other countries receive them by September 30, 2024.

It should be noted that the above criteria for the Reportable Accounts, which will be subject to automatic exchange in 2024 and 2025, apply only to Ukraine. They do not apply to the reports that will be provided by other countries to Ukraine, which are governed by the participating countries’ domestic laws related to the CRS.

By Igor Davydenko, Partner, Roman Mehedynyuk, Senior Associate, and Valeria Tarasenko, Tax Consultant, Dentons

Sayenko Kharenko has advised the European Bank for Reconstruction and Development on a EUR 20 million equivalent loan to Bank Lviv, signed at the Ukraine Recovery Conference in Berlin.

According to Sayenko Kharenko, “the loan will have a tenor of three years. It will be extended to Bank Lviv in local currency to facilitate access to finance for Bank Lviv’s clients among the private small- and medium-sized enterprises affected by Russia’s ongoing war on Ukraine. Additionally, the loan’s funding costs will be supported by the interest rate subsidy from the United States’ SME Local Currency Lending Programme in Ukraine.”

In 2023, Sayenko Kharenko 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, Senior Associate Oles Trachuk, Associate Yevhen Koval, and Junior Associate Polina Savinska.