Category: Ukraine

Avellum and Integrites have advised General Сommerce on obtaining merger control clearance from the Ukrainian Antimonopoly Committee for the acquisition and privatization of the First Kyiv Machine-Building Plant (Bilshovyk Plant).

According to Avellum, “the Bilshovyk Plant was purchased at a privatization auction held on October 27, 2021. The winner of the tender paid UAH 1.429 billion for the shares in the Bilshovyk Plant as well as undertook to fulfill other investors’ obligations.”

According to Integrites, “founded in 1882, the Bilshovyk plant was one of the leading manufacturers of industrial equipment in Ukraine. The plant owns a 36-hectare land plot in Kyiv.”

The Integrites team was led by Senior Partner Vyacheslav Korchev and Counsel Yaroslav Medvediev.

The Avellum team was led by Partner Mykyta Nota and included Senior Associate Anton Arkhypov and Junior Associate Nataliia Chop.

The goal of our ButLaw series – dedicated to interviews on anything *but* the law or the practice of law – is to give CEELM readers (ahem, listeners) the chance to meet the humans behind the lawyers we often feature in our magazine. For this first edition, we spoke to Mykola Stetsenko of Avellum about his relatively recently discovered passion for gardening and the tranquility that this hobby brings him.

Redcliffe Partners, working with Clifford Chance in London, advised the EBRD on providing Raiffeisen Bank Ukraine with an unfunded guarantee of up to EUR 75 million in local currency linked to the bank’s domestic sovereign bond portfolio.

According to Redcliffe Partners, “the EBRD’s guarantee will free up Raiffeisen’s credit capacity at the group level, which will allow RBUA to allocate fresh funds for the financing of Ukrainian businesses. RBUA’s lending under the mechanism will have a particular focus on supporting local micro, small, and medium businesses, which are especially important for the development of Ukraine’s economy. The parties have also agreed that at least 30% of the freed-up capacity will be used to finance environmentally friendly and sustainable technologies.”

“Together with our longstanding partner Raiffeisen, we are now expanding the Guarantee for Growth facility to a new market, Ukraine,” EBRD Managing Director in Eastern Europe and the Caucasus Matteo Patrone commented. “The project will improve access to finance for micro, small, and medium businesses at a critical time while also encouraging investments in green technologies. I am pleased that the trust and confidence we have built with Raiffeisen enables us to innovate and benefit businesses and economies where both banks are active.”

The Redcliffe Partners team included Partner Olexiy Soshenko, Counsel Olesia Mykhailenko, and Junior Associate Sevastian Viktoruk.

Sayenko Kharenko has advised the International Finance Corporation on an approximately USD 11 million loan to Bank Alliance in Ukraine for the financing of SMEs, with a focus on agriculture.

The IFC, a member of the World Bank Group, is a financial development institution focused on the private sector in emerging markets. Bank Alliance is a universal bank operating in Ukraine since 1992.

According to Sayenko Kharenko, “the financing will enable Bank Alliance to provide financing to small and medium-sized enterprises across Ukraine, with at least 50% of the loan proceeds earmarked for companies in the agricultural sector. The IFC investment comprises a USD 5 million loan on IFC’s account and an additional EUR 5 million mobilized from Invest in Visions IIV Mikrofinanzfonds.”

Sayenko Kharenko’s team was led by Partner Igor Lozenko and included Associate Denis Nakonechnyi and Junior Associate Oleksandr Motin.

Nataliia Gorbal has joined Arzinger as a Partner on February 1, 2022, and will lead the firm’s Private Clients and Family Law practice.

Gorbal has more than 23 years of experience as a legal professional. According to Arzinger, “her area of competence covers all aspects of protecting rights that arise in family and marital relations. Gorbal participated in drafting amendments to the Family Code of Ukraine and other legislative acts on the protection of children’s rights and strengthening the responsibility for non-payment of alimony.”

Gorbal is a graduate of the Institute of Advocacy at Taras Shevchenko National University in Kyiv.

“I am happy to become part of the Arzinger team,” Gorbal commented. “This is a great responsibility for me and, at the same time, a new stage of my career. Family law issues are quite often intertwined with clients’ business activities, so I see great potential for the development of the Private Clients and Family Law practice at Arzinger.”

“We are very pleased to have Nataliia Gorbal join the Arzinger team,” Managing Partner Timur Bondaryev added. “Nataliia is one of the most renowned family lawyers in Ukraine, and her educational and public activities help to improve the legal culture in Ukraine in the field of marriage and family.”

Sayenko Kharenko has advised the European Fund for Southeast Europe on providing a EUR 20 million equivalent loan to Credit Agricole Bank in Ukraine.

According to Sayenko Kharenko, “the loan will be used by the bank to provide local currency financing for agricultural producers and farmers.”

The EFSE is a privately managed development finance fund initiated by KfW Development Bank with the financial support of the German Federal Ministry for Economic Cooperation and Development and the European Commission. The EFSE uses capital provided by donor agencies, international financial institutions, and private institutional investors to finance MSEs in the target region, which includes Ukraine, according to the firm.

Credit Agricole Bank is a universal bank with a particular focus on agribusiness and car lending.

Sayenko Kharenko’s team included Partner Igor Lozenko and Associate Denis Nakonechnyi.

On 15 February 2022, a long-awaited draft law No. 5436-d “On the Amendment of Certain Laws of Ukraine Regarding the Development of Energy Storage Facilities” (“Draft Law“) was adopted in its entirety by the Ukrainian Parliament at its second reading. The Draft Law develops the legal framework for the deployment of energy storage facilities (“ESF“), which has been very limited until now, and introduces relevant concepts and requirements into the laws of Ukraine “On the Electricity Market” and “On the National Energy and Utilities Regulatory Commission” aligned with the EU electricity acquis.

Once enacted into law, the Draft Law is expected to boost ESF projects in Ukraine, help balance the Ukrainian power system and integrate the growing renewable energy capacities, meet the electricity demand, and promote the development of the distributed generation. According to the draft Report on the assessment of adequacy (sufficiency) of generating facilities for the years 2023-2032, prepared by Ukrenergo, the Ukrainian transmission system operator (“TSO“), it is necessary to deploy up to 0.74 GW of energy storage capacities by 2032 to ensure required flexibility of the Ukrainian power system.

1. ESF operators introduced as the new participants of the electricity market

The Draft Law introduces ESF operators as the new participants in the electricity market. Individuals and legal entities (except for pumped hydro power plants) can become ESF operators and use ESF to sell electricity and/or provide balancing or ancillary services with the use of ESF.

Energy storage activity is generally subject to licensing. However, such licence is not required for:

1. Power producers which use ESF at the location of their licensed generating installations to store electricity produced by such installations, provided that the actual aggregate output capacities of such producer do not exceed, at any time, the relevant installed capacity of the generating installations indicated in the respective electricity generation licences of such producers. In addition, to be exempt from the licensing, a renewable energy producer (“RES producer“) operating at the feed-in tariff or the auction price (once auctions are introduced) should use for its ESF the electricity produced from the renewable energy sources by such producer’s generating installations;

2. Consumers, provided that they do not feed electricity into Ukraine’s unified power system or other participants’ networks; and

3. Electric vehicle charging services (since they are considered as power consumption).

A separate commercial metering will be required for the operation of any ESF.

2. ESF to face the merchant market

The Draft Law does not establish any special incentives in relation to ESF, which would thus have to operate in the merchant market. However, one important advantage is that ESF operators would be able to pay for the transmission, distribution or dispatch services based on the difference between the monthly consumption and monthly output of electric power.

If a RES producer deploys ESF in accordance with Ukrainian law, this would not entail a review of the support scheme entertained by such producer (whether the feed-in tariff, or the auction price). However, in the event of curtailment ordered by the dispatch operators, compensation payable to a RES producer will be reduced, since the amount of electricity undersupplied by a RES producer due to such curtailment (which is used for the calculation of compensation) will be reduced by the amount of electricity feeding such producer’s ESF for the duration of such curtailment.

The preliminary (optimal) network connection points of ESF should be outlined by Ukrenergo in the transmission system development plan, without limiting the right of ESF owners to be connected, on a transparent and non-discriminatory basis, to other points in accordance with procedures established by the network codes.

3. Restrictions on energy storage activity

Certain participants of the electricity market cannot engage in energy storage activities. These include the network operators; the market operator; the administrator of payments and the commercial metering administrator (currently, the TSO); and the guaranteed buyer (the offtaker purchasing electricity from RES producers at the feed-in tariff or the auction price). This prohibition is aimed at preventing cross-subsidisation between ESF activity and the regulated functions of the market participants, and distortion of competition.

However, certain exceptions are made for the network operators. They cannot own, possess, develop, manage, use or operate ESF, except where:

• ESF is a fully integrated network component which is used for the sole purpose of ensuring secure and reliable operation of the network, and not for balancing or frequency or congestion regulation, provided that Ukraine’s energy regulator, the National Energy and Utilities Regulatory Commission (“Regulator“) has granted its approval; or
  the following conditions are cumulatively satisfied:

• other parties, following an open, transparent and non-discriminatory tendering procedure that is subject to review and approval by the Regulator, have not been awarded the right to own, develop, manage or operate such SEF, or could not deliver those services at a reasonable cost and in a timely manner;
• ESF is necessary for the network operators to fulfil their obligations for ensuring network security and reliability, and provided that ESF is not used to buy or sell electricity in the electricity market or perform ancillary or balancing services; and
• the Regulator, upon the request of the network operator, has assessed the need for such operator to own, develop, manage, use or operate ESF, reviewed tender documents and adopted a decision on granting the relevant right to a network operator.

• When granting any of the above rights to the TSO, the Regulator will have to report its justified decision to the Energy Community Secretariat.

In order to ensure the fair tendering procedure, the Regulator will approve the guidelines for the procurement of ESF for the network operators.

4. Regular review and optimisation of investment in ESF

The Regulator should perform, at least every five years, public consultations on the existing ESF in order to assess the potential availability and interest in investing in such ESF. Where the public consultation indicates that third parties are able to own, develop, manage, use or operate such ESF a cost-effective manner, the Regulator should ensure that the network operators’ activities in this regard are phased out within 18 months, and may allow the network operators to receive reasonable compensation, in particular to recover the residual value of their investment in the ESF (except for the fully integrated network components).

5. What’s next?

The Draft Law has to be signed by the President of Ukraine and officially published, and it will take effect two months after its publication. While the final text will be available only after the official publication, certain adjustments of the Draft Law can still be expected.

The legal framework for further development of ESF would have to be elaborated in the new licensing terms to be approved by the Regulator, the network codes and other implementing legislation.

On a related note, it is expected that the new legislative framework will soon be presented, which would regulate the feed-in premium as the new support mechanism for renewables in Ukraine, as well as virtual (financial) corporate power purchase agreements.

By Svitlana Teush, Partner, Head of Renewables, Real Estate and Construction, Redcliffe Partners 

Redcliffe Partners has successfully represented the Nordic Investment Bank before the Supreme Court of Ukraine in a USD 59 million suretyship claim case.

According to the firm, the case “concerned the recognition of the bank’s suretyship claim in the insolvency proceeding against PJSC Dniprovsky Iron and Steel Works (DMK), a large Ukrainian steel mill.”

According to Redcliffe Partners, in 2008, “the bank disbursed a USD 40 million term loan to a Cypriot company for the purpose of on-lending to PJSC Alchevsk Iron and Steel Works (AMK), both companies being affiliates of the Industrial Union of Donbass group, to finance the purchase and installation of a combined cycle gas turbine at the AMK’s production facilities. The loan was secured by an English law-governed suretyship issued in favor of the bank by AMK, DMK, and several other companies of the Industrial Union of Donbass group as sureties. At some point, the Cypriot borrower stopped making interest payments and failed to repay the loan. All four sureties subsequently went into administration. The demands were served by the bank on AMK and DMK to recover the principal and accrued interest but to no avail.”

Furthermore, the firm reports that “in November of 2020, the bank filed applications for recognition of its USD 59 million claim in the insolvency proceedings against AMK and DMK. While the AMK case application is still under consideration, the DMK case has quickly progressed to the Supreme Court. In the DMK case, the court of the first instance and the court of appeal refused to recognize the bank as a legitimate creditor, holding mainly that no primary evidence of the loan disbursement, in particular payment instructions, had been provided; the applicable rules of English law had not been proved so the Ukrainian rules were applicable, and the suretyship had expired as a matter of Ukrainian law. The case was ultimately heard by the Grand Chamber of the Supreme Court, which ruled in favor of the bank and ordered the insolvency administrator to include the bank in the register of creditors. This decision of the Supreme Court is a landmark precedent in Ukraine relevant to all foreign lenders relying on English law-governed loan documentation: it affirms the duty of Ukrainian courts to apply foreign law as agreed by the parties in the relevant loan documents, and establishes the balance of probabilities as the standard of proof for such cases.”

Redcliffe Partners’ team included Managing Partner Olexiy Soshenko, Partner Sergiy Gryshko, and Senior Associates Yaroslav Petrenko and Evgeniy Vazhynskiy.

Former Deputy Minister for European Integration, Investment, and Digitization with the Ministry of Energy and Environment Protection of Ukraine Kostyantyn Chyzhyk has joined Hillmont Partners as Partner and Head of Government Relations and Public Advocacy.

According to Hillmont Partners, Chyzhyk, a specialist in investments, energy, and international cooperation, will lead a team of lawyers “advising clients on the features of the Ukrainian political and regulatory environment.”

Additionally, Chyzhyk’s previous experience includes being an advisor to the Finance Minister of Ukraine and an advisor on investment, foreign economic activity, and international cooperation of the Chairman of Odesa Regional State Administration. He was also part of the Office of the National Investment Council under the President of Ukraine, where he was the Head of the Council.

Kostyantyn Chyzhyk graduated from the Institute of International Relations of the Taras Shevchenko National University of Kyiv. 

“I assume the role of the GR practice leader at Hillmont Partners with great enthusiasm,” commented Chyzhyk. “I have known the team for a long time.”

“Kostyantyn Chyzhyk’s joining is a powerful step up for our team and will inject huge energy into our client projects,” Co-Managing Partner at Hillmont Partners Andrii Nyzhnyi added. “Kostyantyn is a bright communicator and project leader, an experienced international specialist, guided by high ethical standards in the use of GR tools. We were united by common values in the conducting of consulting projects and the vision of great prospects for the development of GR products.”

Arzinger has successfully represented the interests of Shell in a labor dispute.

According to the firm, it “obtained a decision in favor of [Shell] in a dispute with a former employee. The team elaborated and compiled the evidence base as well as developed a legal stance when the employee appealed against her ‘problematic’ dismissal by the employer. Such actions brought the desired positive result for the client.”

“The dismissal was initiated by the employer based on an internal investigation,” according to Arzinger. “It was preceded by the employee’s regular violation of labor discipline and labor regulations,” and “proving the regularity of the employee’s violation of labor regulations as a ground for her dismissal was complicated.”

Arzinger’s team included Counsel Alesya Pavlynska, Senior Associate Ievgen Diadiuk, and Associates Anastasiia Listovska and Kseniia Lotosh.