Category: Ukraine

According to Arzinger Managing Partner Timur Bondaryev, competition investigations, investment disputes, and white-collar crime matters have been keeping his team particularly busy these last few months. CEE Legal Matters sat down with him to learn more about the driving forces behind these areas in Ukraine.

CEELM: Let’s start with an overview of 2021. What would you point to as the busiest practices for your firm for 2021?

Timur: While the last few months have been solid in terms of the pipeline of transactions we’ve been working out, the main three areas, where I would say we’ve been particularly well-positioned in, were competition matters, in particular in terms of investigations and litigations, investment dispute arbitrations, and white-collar crime matters.

CEELM: Looking at each of the three, what do you feel drove up your work in those areas?

Timur: Taking them in order, I see competition investigations as something that reflect a global trend, with agencies actively pursuing players all over the world at all levels – may it be globally, regionally, or locally. That’s also compounded with competition agencies sometimes being used as a means to advance some political agenda, and Ukraine is no exception in this regard. What I think is something particular to the Ukrainian market is the tendency of state agencies to try and regulate the prices of what they deem as socially important goods or services. There is a case to be made for that, sure, given the relatively weak Ukrainian economy – despite massive progress over the last few years – but I still see the state as having the bad habit of trying to involve itself a bit too much, in terms of regulating the market.

CEELM: Is this a rather new trend?

Timur: Not at all. You need to keep in mind that these kinds of investigations tend to last a very long time – and litigations that might result from them might take even longer. For example, we recently represented Imperial Tobacco, which received one of the largest fines for an alleged cartel. The fine was challenged, and it took years before it got to the Supreme Court, which finally canceled the fine.

CEELM: While on the topic of competition, are clearances keeping you busy these days?

Timur: Yes, but I expect (and hope!) that will change. Ukrainian merger control is simply outdated in terms of thresholds at the moment, despite the fact that the threshold for requiring a merger clearance was increased 4-5 years ago. It seems they will be streamlining the process further, so we hope things will be better on this front soon.

CEELM: Why do the current thresholds disadvantage you, though? Don’t they simply represent more work for the firm?

Timur: That is the case, yes. For us, as a law firm, the current thresholds generate some nice bread and butter work, but that’s not what we’re targeting – we’d prefer freeing up our resources to focus on larger matters, to cease working on a mass product, and focus more on the sexy work.

CEELM: You mentioned a lot of work on investment dispute arbitration as well.

Timur: Ukraine has certainly been a very litigious ground recently. One of the main reasons for this is the huge stakes involved in the Government’s decision to significantly reduce green energy tariffs. Following this move, many companies have already filed their claims, with several others at a level of trigger notice. There are still some that are hesitating, because their corporates need to decide if they will attempt to negotiate with the Government.

I am not surprised it got to this point. Ukraine was extremely generous towards green energy – primarily as a result of the drive to get rid of the dependency on Russia. It simply did not count on such an influx of projects and, when they drew a line and realized it wouldn’t be sustainable from a budget perspective, they decided to retroactively reduce their incentives. You can imagine that all involved, from the developers to banks offering the financings for these projects, were not too happy with the call.

CEELM: What about the white-collar crime work? What’s been the main driver there?

Timur: It is, in many ways, similar to the competition investigations we spoke about. There’s certainly a huge push towards cleaning up the market, but there are also a few cases resulting from the state coming up with… let’s call them creative solutions to block certain transactions, especially if a merger control mechanism is not feasible.

CEELM: You also mentioned a healthy pipeline of transactional work. What’s behind it?

Timur: The main element is the privatization program. I can now comfortably say that the Government is finally serious about selling state assets. Several alcohol plants have already been sold off as well as several smaller assets, such as hotels.

This push has certainly built a solid pipeline of transactions, especially because it was complemented by a number of consolidations in the agricultural market, a few private equity deals in healthcare/pharma, international interest in real estate apparently returning to the country, and, last but definitely not least, a boom in the IT sector – both in terms of consolidations of teams, but also in terms of basic elements such as investments in larger real estate for office spaces (despite the COVID-19 pandemic).

CEELM: Who are the most important buyers in the country in terms of this transactional pipeline?

Timur: I wouldn’t really say it’s private equity firms – there’s only really around two-three firms that are strong locally. The risk appetite of the types of hedge funds you’d see in other countries in the region tends to be quite low, and they are built to try to leverage a transaction in such a way that they end up looking at an almost risk-free deal. Based on that, it comes as no surprise then that they barely have a pipeline.

When it comes to the privatizations we spoke about, we’re traditionally seeing interest from the local guys. These strategic buyers don’t just have a different risk appetite, but they also know the pitfalls of the market, as well as any skeletons in the closet of the companies they look at.

But I think they will benefit massively from the clean-up push we’re seeing at the moment. Within the current context of white-collar crime investigations booming, I think these local players have a great opportunity to take these companies and clean them up, in terms of corporate governance, thus making them far more attractive in a market that I hope will be progressively less perceived as plagued by corruption and a lack of transparency.

CEELM: Taking a step back, is there a legislative update in the works that you believe would further enhance the country’s attractiveness and/or your transactional pipeline?

Timur: Probably most noteworthy is that the moratorium on agricultural land sale is to be lifted. As of July 2021, agricultural land can start exchanging hands, which will definitely add to our workload, despite the fact that FDI will still not qualify to purchase such land. The hope is that, with this huge amount of land coming to the market, we’ll also see a huge cash influx.

Beyond that, FDI screening is being discussed and will likely be enacted soon. Sure, opponents to the idea argue that it will be an obstacle for investors, but it is a global trend and Ukraine is one of the last few exceptions in Europe that don’t employ it. I believe the market will remain very much open to investments, irrespective of this screening – except for competition clearances, that is.

CEELM: Overall, would you say you are optimistic over the outlook of the next 12 months? Why/why not?

Timur: I believe there are plenty of reasons for which to have a positive outlook. The Government seems to have a very, very, very, positive attitude towards privatizations. I see them being done in a truly proper manner. If in the past these sales seemed to always be tailored to some local guy, I find the current ones to be carried out in a very transparent and well-structured manner – they are conducted online, and all can see that the highest bid truly ends up being the winning one.

And it’s not just about the process. The state seems set to put up any reasonable asset – even a prison was privatized recently, again, in a very transparent manner.

Between this drive, a potential game-changing land reform, and the ongoing judicial reform, I believe we’re in a prime position to witness a skyrocketing economy in the next few months.

Of course, there are always pitfalls that one must be on the lookout for. The biggie in my mind is that the political class may not fulfill all it has promised. I have gotten used to seeing skepticism in the eyes of my clients, resulting from years of them seeing a lot of good promises that were not delivered on. This, of course, is an issue everywhere and not just in Ukraine, but I feel it is all the more important for us not to disappoint those looking at the country at the moment. We’re in a pivotal place where we have the opportunity to prove that we can do it.

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Like the rest of the world, the Ukrainian M&A market was dramatically hit by the coronavirus (COVID-19) pandemic. Indeed, the number of M&A deals decreased in 2020, for the first time since 2014. However, the fourth quarter of 2020 saw a positive surge in the number of M&A deals, and although most of those deals started before the pandemic, the fact that they still happened sent a clear signal: investors are ready to buy in the new reality.

The leading areas for investment remain the same, and include agriculture, real estate and construction, infrastructure and logistics, IT and telecommunications, retail, and mineral resources.

There were fewer M&A deals in the renewables field last year than in 2019. Evidently, the decrease of the previously lucrative feed-in tariff and the unstable situation with the Guaranteed Buyer prevented investors from new acquisitions in this area. Nevertheless, interest in green energy projects is likely to grow due to the increase of the carbon tax in Europe.

Some industries were impacted by the pandemic more than others, of course, including travel and recreation, entertainment, automotive, and aviation and aircraft production, all of which saw a dramatic decrease in M&A transactions. Even here, however, some did better than others; in both the retail and recreation sectors, for instance, we saw several important transactions, including most significantly, Rewe International’s sale of its Billa supermarket chain to Novus, and the sale of downtown Kyiv’s Dnipro Hotel in the course of the privatization process.

At the same time, the pandemic boosted the development of certain areas, like pharmaceuticals, online technologies, food delivery, online shopping, and cloud services. This explains the increasing interest by investors in these areas, which may result in a number of deals this year.

Moreover, there are several positive developments likely to boost M&A activity in Ukraine in coming months. First, this year the Ukrainian high delegation signed various memoranda with the United Arab Emirates expected to attract USD 3 billion of investments into Ukraine.

Also, in May 2021, during the visit to Ukraine by Bruno Le Maire, the Minister of the Economy and Finance of the French Republic, the Government of Ukraine and the Government of the French Republic signed four framework agreements aimed at implementing projects worth a total amount of EUR 1.3 billion.

Finally, in March 2021, the Parliament of Ukraine adopted a law unblocking the large-scale privatization process that had been put on hold during the quarantine. According to numerous reports, the State Property Fund of Ukraine expects to receive around EUR 350 million in 2021 from this process. If so, M&A lawyers can expect it to result in a considerable amount of work.

Similar to the privatization process, Ukraine is actively promoting several PPP or concession-based infrastructure projects, and there were successful concession projects in Ukraine’s Kherson and Olvia seaports in 2020. In both cases the tenders were prepared and run under the auspices of the EBRD and the IFC. In addition, in the first months of this year, both IFIs agreed to fund the development of a feasibility study and tender documentation for the concession of the Chornomorsk port.

Another opportunity opened last year for investors in mineral resources: the presentation of the so-called Investment Atlas of Deposits, a database of the State Service of Geology and Subsoil of Ukraine that contains detailed information about available deposits.

All these opportunities keep lawyers in Ukraine positive about the perspectives of the local M&A market. We also expect that the ongoing vaccination will allow more investors to come to Ukraine to explore opportunities for new projects and deals.

By Illya Tkachuk, Partner and Head of Corporate M&A, Integrites

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Ukrainian legal services market has been buzzing with work in the first half of 2021. CEE Legal Matters hosted a round table conversation in which Partners at Asters, Avellum, Integrites, Kinstellar, and Sayenko Kharenko discussed the driving forces behind the workload and their outlook for the months to come.

Busy Times

“Energy has been the thing pushing us forward, I must say,” begins Integrites Managing Partner Oleksiy Feliv. “There are two factors behind this: the energy market reform, that took place in 2019, and a strong uptick in the renewables market.” Feliv reports that Integrites has been rather active in the field of renewables since 2009 and that they “managed to capture the biggest projects on the market – this kept us really busy!” And the efforts of the firm reflect this – Feliv reports that six out of the firm’s 13 Partners at Integrites Ukraine focus on energy, alongside two full teams. “I’d say that this is about 50% of our work these days,” he adds.

“All of this work has allowed us to grow our experience, expertise, and knowledge – which will help shift our focus more to climate change projects,” Feliv explains. “Focusing on projects with a decarbonization effect would be a great path forward for us – renewables, storage capacities, green electricity trading, green hydrogen projects, and anything related to energy efficiency in big industries.”

Asters Senior Partner Armen Khachaturyan agrees with Feliv, and says that their firm has experienced an uptick in energy projects as well. “It extends to areas that include both electricity and oil and gas – but also hydrogen, which is very much on the rise,” he says, describing this as a future for this industry. “This also includes environmental and energy-saving aspects, both of which are getting more client attention when it comes to investing.” Khachaturyan adds that construction is also closely bound to this, with “new projects relating to land issues, allocation and designation of specific land, construction licenses, and the like. This broadens the scope of what an energy practice traditionally used to be – purely regulatory – and extends to other practices as well.”

Khachaturyan believes that the energy market will continue to have a lot of developments in the future. “The recent unbundling of Naftagas and the issues surrounding Northstream – both of which are geopolitical issues relating directly to energy draw a lot of attention to the energy market. That, and the fact that more and more ‘new’ countries are investing in Ukrainian energy, like Qatar for example, is what makes me believe that the future holds a lot of exciting developments.”

Echoing both Feliv and Khachaturyan, Avellum Partner Mykola Stetsenko underlines that there is a lot of market focus on energy, “in a broader sense. If perceived as an industry, rather than as a practice, there is a lot of room for investments in infrastructure, which will only lead to further growth.”

Focusing more on Avellum’s hot practices at the moment, Stetsenko says that they are all very busy. “Bar a short break in January, over the holidays, we really have been firing on all cylinders – M&A work, disputes, tax, energy, global infrastructure… it’s all been working like a well-oiled machine,” he smiles. “To focus more on M&A – after a slowdown when the pandemic started last year – there has been a ‘super-drive’ mode that kicked in around October 2020 that has not stopped to this day,” Stetsenko says. He points to increased access to liquidity in the global markets as one of the causes of this and adds that “Ukrainian clients are increasingly accessing this potential via Eurobond issuances. Also, with Ukraine building strong relationships with the United States – it stands to reason that our country has become a stronger target for investments.”

For Sayenko Kharenko Partner Vladimir Sayenko, the choice of the hottest practice was easy – competition. “The competition practice in our firm has seen a 20% growth – well above all others,” he says. “On our end, we’ve seen no effects of the slowdown of the M&A market – the competition follow-through of it, one related to mergers and clearances, has been relatively stable.”

Sayenko’s impression is that the increase in work has been primarily driven by the enforcement efforts of the competition agency, and not so much with transactions picking up speed. “Potential cartels, abuse of dominance, unfair competition practice, state aid… these segments all compound to spur this kind of unexpected growth – but then again, it could be just that we set low targets,” he laughs. “We were expecting a decrease in the activity, given the fact that the leadership of the competition agency changed, but it turned out to go the other way around.”

Furthermore, Sayenko reports that new pieces of legislation that were supposed to change the merger filing thresholds have not yet come to pass. “We believed that these changes would lead to a drop, but with them being pushed back to this year – it didn’t happen.” Sayenko does believe that, once these legislative changes pass, there could be a short slowdown period, but that it should not last long.

Kinstellar Partner Olexander Martinenko reports that the firm’s busiest practice has been dispute resolution. “It is really an evergreen practice – good times, bad times, it’s always there,” he says, underlining that dispute resolution has, traditionally, been Kinstellar’s bread and butter. “Looking at market tendencies, there is a reformation drive on part of the Minister of Justice to liberalize the international investor arbitration market,” Martinenko continues, saying that this has opened the market up. “Should this legal reform pushed for by the Minister of Justice pass, international investor courts would take hold in Ukraine,” he adds. However, it is still not clear if it will become a reality – the merits of the legislation are still being debated and its fate is uncertain. “There are fears that these reforms would open up the path for ‘less than ethical’ actors to gain a foothold in the decision-making process in the course of an arbitration, which could endanger the business market.”

Infrastructure Is All the Rage

The one area that all of the round table participants mentioned was infrastructure. “The last time we had a boom on the infrastructure market was before 2012 – before the country was set to host the UEFA European Championships,” Feliv starts. “In those days, the market was busy building mainly stadiums and airports. Now, there are a number of project types that drive the market.” For these, Feliv underlines the privatization processes for seaports via concessions and mentions that there are 11 seaports currently in some stage of being privatized.

Furthermore, Feliv says that Integrites has, so far, supported “at least 30 bids for road infrastructure projects, in terms of major construction undertakings. Also, the Ukrainian railways and the power grid are being modernized, big hydro energy projects are under development, there are initiatives on road concessions… a lot is going on!”

Sayenko chimes in by saying that there is a lot of potential in concession projects. “We have had a recent experience of handling one and I must say that the entire tender process was very transparent,” he says. “There is a lot of talk from the government to restart the privatization processes so there is bound to be some vibrancy in the market here.”

The funding for all of these large infrastructural undertakings, Khachaturyan reports, stems from their very nature as PPP projects. “The Ukrainian PPP law has never been fully implemented in a way – concessions are but one of the forms of arranging business,” he says. “The idea is to rely on investors to arrange for the financing of these projects – for example, Chinese banks heavily support Chinese companies participating in these projects, which gives them an edge.”
He adds that, in addition to all the projects already mentioned, there are tendencies to reconstruct a number of airports in Ukraine. “The idea is to have a more active domestic air traffic so that all regional centers – with currently obsolete airports – could start servicing local flights.” In this tune, Khachaturyan mentions that one of the airports in Kyiv even is being considered for an additional runway that would be longer than the current ones and in a position to support more international flights.

Rising to the Challenge of the Workload

Overall, Khachaturyan reports that a lot of practices have been quite active, leading to never-ending personnel needs. “Based on our experience, a lot more practices have been rather active – family law, tax law, criminal law, IP, antimonopoly, M&A, corporate… client work is not lacking, by any measure!”

Taking a look at how law firms rose to meet the workload increase, Stetsenko says that Avellum has been putting in an effort to grow their departments for a while. “We do not rely that much on lateral hires – even though we have had some this past year,” he says. “Instead, we prefer to focus on an internal growth program – developing in-house talent from their early internship days, all the way to fully-fledged lawyers.” It is a merit-based selection, Stetsenko clarifies, that allows Avellum to focus on those young individuals that hold the most promise and potential.

Sayenko shares Stetsenko’s inward focus: “A rational response to growth would be hiring new people, however, at this stage, we rely more on internal reallocations and trying to encourage people to specialize in more than one practice area.” According to him, this allows lawyers to be more flexible and to broaden their background, preparing them better for the future.

Ultimately, Stetsenko points out that human resources are not the only available option: “Our internal, immediate response to an increase in workload has been an increase in pricing.” He says that this has been a trend in the entire legal market since “simply increasing the headcount in our team will not be enough to tackle the increased workload.”

Tackling the crucial question – if the market really is booming to such an extent that a price hike is feasible – Feliv says that it mostly depends on how proficient a firm is in given practice areas. “We talked a lot about the interplay of strictly legal work with the industry you’re trying to advise on – like energy. If a firm is well specialized in such an area, then it can apply hourly rates (which can seem like a luxury at times) if there is a lot of work,” he says. “If your advice goes beyond just legal work and adds value to the project – clients take it without any problem and agree with success fees.”

Towards that, Feliv reports Integrites has divvied up its work between different teams that focus more on specific industry work, more so than a legal practice as such. “Additionally, we have employed a lot of back-office personnel like client relationship managers and analytics staff – at this point, the ratio of legal to non-legal staff might be as high as 50-50,” he says. The managers, as Feliv describes, help the teams coordinate between various involved practices. “They help manage the processes, the timeline, the delivery – and to take care of the client.” This enables smooth navigation for Integrites, even in the stormy environment of complex projects. “All of this helps us not to simply come up with legal memos for our clients but to aid them in implementing that advice,” Feliv continues. “For example, we help our clients with attracting financing through and through, not just point them towards different potential sources like commercial banks or financial institutions.”

Avellum, on the other hand, opts for a leaner approach. “We tend to cut as much as possible when it comes to hiring non-fee-earning staff,” Stetsenko says. And, Martinenko agrees, saying that Kinstellar “sticks to a similar philosophy to that of Avellum – we have a very slim business support staff, but I must say that the ones we do have are more than apt for tackling all of the complex projects we work on.” Still, with the increase in workload and the complexity of matters Kinstellar works on right now, Martinenko says he is not ruling out expanding that “part of the office population, at some point, to ensure quality delivery.”

Lastly, Stetsenko also notes that law firms have been turning to automation as a helpful resort. “Even though I’m not sure if there are firms that use AI – or if there is a clear need in the Ukrainian market for AI at this point – firms do use sophisticated software to speed up the way we prepare and process documents, such as template preparation tech like AxDraft,” he says. “Comparing to what our colleagues in London and New York are doing – I think we are responding pretty much the same, even though we are not reinventing the wheel,” he smiles.

Gazing Into the Crystal Ball

Looking into the future, Sayenko feels that it will be difficult to predict how it will pan out, from one practice to another. “We expect a slowdown in the competition practice, as mentioned, after the legislation to lower the merger control thresholds passes,” he says. “For the corporate practice, it’s pretty obvious that the government is attempting to alter the corporate governance reform of a few years ago, which I believe was very successful and has kept us quite busy with working with major state players in recent times.” Finally, speaking of transactions, Sayenko feels that it will very much be hinged on geopolitical matters. “For example, if Russian troops approach the border once again, some investors may stop or withdraw their interest, as history has shown us.”

Khachaturyan expresses difficulty in predicting the future too. “Everybody is optimistic, given that 2020 was a very good year despite everything, but there are talks about a global recession, so caution is warranted,” he says. Still, he feels that, even with reality not always corresponding to the ever-present Ukrainian optimism, larger firms will be able to cushion whatever may come. “Being in a position to cross-balance easier and to adapt to new market conditions faster could prove crucial, going ahead,” he concludes.

“Kinstellar has had quite a strong start of this year,” Martinenko says. “We have merged with the local office of DLA Piper in Ukraine [see page 17] – they have a very proficient team and, from what I can tell, our teams will have a highly complementary set of skills and I think we’ll play well together.” He, for one, is optimistic in light of the strength in numbers and the pipeline the firm has lined up.

Stetsenko too is optimistic. “I believe that Ukraine has gone through so many crises that we are used to it by now,” he smiles. “The country is in growth mode, and the competition right now is not as much for work as it is for talent. I believe we have, at least, a year or two to prepare for whatever economic crisis may hit.” And, even if it hits, he feels they will be prepared for it. “There will be a lot of distressed M&A, debt restructuring, tax work… it will simply be a matter of recognizing which part of the economic cycle we find ourselves in and where to place our focus on,” he finishes.

Lastly, Feliv shares Stetsenko’s optimism. “Last year was a good year for us, and we plan to hire new partners this year,” he says. “Coming out of a solely online regime of work and planning more in-person business development activities, I think that we will be even more efficient.” Even if the recession comes, according to him it would be another opportunity to realize what part of the market to sharpen their gaze on and adapt. “We did good in difficult times, and I’m positive we could again if need be.”

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Ilyashev & Partners has advised Ukraine’s Zavalivskiy Graphite Group on its sale of a 70% stake to Australia’s Volt Resources Limited. Avellum advised the buyer on the transaction.

According to Ilyashev & Partners, Zavalivskiy Graphite is one of the ten largest global producers of natural graphite. It has a production capacity of 30 thousand tons per year, has been developing the Zavallya deposit since 1934, and produces more than 25 main grades of graphite, as well as colloidal graphite preparations and graphite-based cutting fluids.

Volt is a graphite and gold exploration and development company listed on the Australian Stock Exchange. According to Avellum, Volt is focused on the exploration and development of its wholly-owned graphite and gold projects in Tanzania and Guinea and now Zavallya (Ukraine), and the identification of further assets globally.

“Following this transaction, Volt has the potential to become a key market participant in the supply of graphite and battery anode materials into the growing European market with excellent access to other markets in the US and the Middle East,” Volt Managing Director Trevor Matthews commented. 

“This acquisition by Volt signifies an increasing interest of foreign investors in Ukraine. It also underscores the strategic importance of Ukraine in the battery production chain of the growing electric vehicle industry,” added Avellum Managing Partner Mykola Stetsenko. 

The Ilyashev & Partners team included Managing Partner Mikhail Ilyashev, Partner Yevgen Solovyov, and Counsel Leonid Gilevich.

Avellum’s team was led by Stetsenko and included Partner Maksym Maksymenko and Associates Daryna Mykhailenko and Andriy Kornuta.

On 1 June 2021, the Ukrainian Parliament adopted at its first reading the draft law improving Ukrainian mining laws (No. 4187). The draft law is aimed at, among other things, attracting and simplifying investments by improving the current laws.

In order for the draft law to enter into force, it is required to be adopted by the Parliament at the second reading and signed by the President, and so the draft law may yet be further amended. This note outlines the principal highlights of the current draft law:

1. Abolishment of certain restrictions applicable to special permits for subsoil use. Pursuant to the draft law, it will be possible to sell, pledge or otherwise alienate special permits for subsoil use. This is a major and long-awaited development that will simplify investment in Ukraine’s mining industries.
2. Changes to the initial price of special permits. Using the current formula provided by the draft law, the initial price of a special permit for geological exploration and pilot development with respect to subsoil fields with non-approved reserves will vary (a) from approximately USD 30 to USD 60 per year and per 1 km² for combustible gaseous and liquid minerals (for example, oil and gas), and (b) from approximately USD 30 to USD 85 per year and per 1 ha for other minerals of state or local importance. The ultimate price will depend both on the types of minerals and their location. The initial price for other types of special permits (for example, for commercial development) will, as previously, be calculated pursuant to the methodology approved by the Cabinet of Ministers of Ukraine. 
3. Limitation of payments for secondary geological information. Although access to secondary geological information (that is, geological reports and other processed data) is statutorily granted at no cost, winners of the auctions are required to reimburse the state for the value of this information. The draft law limits the amount to be reimbursed at 1-10% of the special permit price. The limit will depend on the special permit price – for instance, for a special permit valued at USD 400,000, the cost of secondary geological information will be 10%, i.e., USD 40,000.
4. Digitalisation of primary geological data. Under the draft law, if a company pays for the digitalisation of primary geological data, it will obtain the right to use the digitised data at no further cost (while the data itself will remain state property).
5. Adherence to international standards of assessment of mineral reserves. The draft law provides that, at the request of a licence holder, the state assessment of mineral reserves may be carried out using the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC-2009), the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), the Petroleum Resources Management System (PRMS) and other international standards. 
6. Transition to WGS-84. The draft law provides for the transition to the WGS-84 coordinate system; currently, USK-2000 and SK-42 are used in Ukraine. All the current licences should be amended to reflect the WGS-84 coordinates within two years with respect to mineral resources of state importance (for example, oil and gas), or three years with respect to those of local importance (for example, sand).

By Dmytro Fedoruk, Partner, and Vlad Zakon, Associate, Redcliffe Partners 

On May 17, 2021, CEE Legal Matters reported that Asters had advised Elementum Energy Ltd. on the acquisition of a majority stake in the Dnistrovska wind park in the Odessa region of Ukraine. CEE In-House Matters spoke with Victoria Pysmenna, Head of Legal at Elementum Energy to learn more about the deal.

CEEIHM: Tell our readers a bit about Elementum Energy.

Victoria: Elementum Energy is the first operational business of VR Capital, one of the largest western investors in Ukraine with a portfolio of holdings in excess of USD 1 billion. Elementum Energy is the largest international investor in the renewable sector in Ukraine with a strong ambition to become a regional renewable energy player. We are proud that our projects might avoid up to half of the annual greenhouse gas emissions compared to traditional energy generation. 

CEEIHM: You recently acquired a majority stake in the Dnistrovska wind park. Why was that wind park particularly attractive to your company?  

Victoria: We at Elementum share the belief that the transition from fossil fuels to eco-friendly green energy is the future – both for Ukraine and globally, and we want to be a part of that transition. Phase 1 of the Dnistrovska Wind Park, implemented jointly with a US investor Ukraine Power Resources (UPR), became the first wind project of Elementum in addition to the operation of 28 solar power plants in Ukraine. We saw great potential in this wind project for many reasons – from the diversification of the company`s portfolio to the characteristics of this project to the opportunity to cooperate with an experienced UPR team. 

CEEIHM: What are your plans for the park, following the acquisition? 

Victoria: Recently, we built Phase 1, generating 40 megawatts, and started operating it. In the meantime, we contracted a major wind turbine supplier for the construction of the 60-megawatt Phase 2, to be commissioned in 2022. We are waiting for the construction works to start very soon and plan to operate both phases of the wind park. 

CEEIHM: What were some of the legal complexities of the deal and how were they handled?  

Victoria: Most of the complexities were actually typical project implementation challenges – several delays, especially resulting from COVID-19, changes in delivery routes, changes in regulations including the redesign of the construction permits system, and so on. While we were in the midst of construction, the discussions as to the cut of the feed-in tariff were still ongoing, which raised the question as to whether Ukraine shows enough confidence while delivering on its strong commitment to promoting renewables and its readiness to create the conditions necessary for luring investors. To my delight, Ukraine reconfirmed its decision to promote renewable energy in its new 2030 Economic Strategy, which foresees the development in line with the European Green Deal principles, attracting USD 10 billion to the renewable energy sector and reaching a 25% share of renewables in energy generation by 2030. We are looking forward to the implementation of auction systems and amending regulations to allow the use of corporate PPAs.

CEEIHM: Why did you choose Asters as your advisor?  

Victoria: Aster was recommended as a team of seasoned experts, knowledgeable about the project and the needs of the renewable energy business. We were happy to work with Asters and their team showed both a dedication to the project and readiness to assist in various legal matters. 

Originally reported by CEE In-House Matters.

Kinstellar’s Kyiv office has advised Vienna-based Raiffeisen Bank International AG on the matters of enforceability under Ukrainian law of netting derivative transactions with Vodafone Ukraine.

According to Kinstellar, the transaction is documented under the English-law governed 2002 ISDA Master Agreement. According to the firm, “the 2002 ISDA Master Agreement incorporates standardized terms on which buy and sell-side firms negotiate and agree on clauses within their ISDA documentation.”

Kinstellar’s team consisted of Partner Oleksandr Kurdydyk, Counsel Dmytro Pshenychniuk, Associate Viktoriia Luganska, and Junior Associate Kateryna Lahodivets.

On June 1, 2021, CEE Legal Matters reported that Vasil Kisil and Partners has successfully represented commercial audio content provider PressCom and its clients in a lawsuit brought against them by the Ukrainian League of Copyright and Related Rights for lost profits allegedly arising from their use of PressCom sourced music in their restaurants. CEE In-House Matters spoke with Denys Kukharenko Co-Founder and CEO of PressCom to learn more about the matter.

CEEIHM: Tell our readers a bit about PressCom?

Kukharenko: PressCom has been operating in Ukraine since 2001. Currently, our team specializes in two frontline service directions. Firstly, we supply and install sound equipment, video monitors for restaurants, shops, shopping centers. Secondly, we render background-sounding services for retail and HoReCa. This scope concentrates on licensed music sampling to meet the customer needs, including playlist compilation, preparation of hard players with software for content playback, as well as daily technical support for clients. We also ensure content management and legal reproduction (rights-on) at more than 3,000 sites throughout Ukraine.

CEEIHM: Vasil Kisil recently represented your company in the dispute with the Ukrainian League of Copyright and Related Rights. What led to the dispute?

Kukharenko: We believe that lawsuits against our clients are a technique of struggle for clients. This is also a consequence of efforts made by the Ukrainian Agency of Copyright and Related Rights to monopolize the royalty market, to gain unlimited access to the collection and distribution of remuneration according to the established rules. It should be noted that today the public (users and copyright holders) has doubts about whether the collected remuneration is fairly distributed by this organization, as well as other private clones of this organization. UACRR declares itself a defender of offended copyright holders and all the users – violators of laws on copyright and associated rights.

UACRR mistakenly believes that any user, regardless of circumstances (such as a direct agreement on remuneration payment with the copyright holder), must pay specifically to the collective management organization, no matter what phonograms such user uses. UACRR formally records the fact of use and offsets a claim without expecting to receive an answer. Thus, UACRR has turned to the court even though the defendant, a PressCom customer, had legally used phonograms, and properly paid for their use to the copyright holder.

CEEIHM: What arguments were presented to the court in support of your case?

Kukharenko: The main elements of the PressCom customer defense were: (1) the fact that the client was entitled by the copyright holder to use phonograms and regularly paid the agreed remuneration; (2) the fact that the copyright holder completed the procedure for the withdrawal of the rights under the applicable law of Ukraine; and (3) that UACRR, as a collective management organization, has no right to sue in its interests without a power of attorney from the copyright holder, whose music the client uses.

CEEIHM: What was the final outcome and what is next for PressCom?

Kukharenko: The court decision is founded on the argument that the collective management organization should act in the rightsholders’ interests, on their behalf, and under their commission. UACRR did not prove that the plaintiff inflicted harm on UACRR by using phonograms. We welcome this decision since it meets the idea of modern simplified B2B relationships, economic freedom, transparency, and ease. Such an approach has its advantages for both copyright holders and users. All copyright holders, both international monster labels and small music libraries, should have an equal opportunity to land accounts using their resources or through CMOs. In their turn, users should be able to independently choose business partners without breaking the law.

CEEIHM: Why did you choose Vasil Kisil as your legal representative?

Kukharenko: We decided on Vasil Kisil & Partners as our legal partner on the recommendation of our client. Another aspect was their successful experience in litigation with collective management organizations. We are pleased with our choice and are grateful to our colleagues from this firm. We recommend this law firm as a high-quality legal partner. Besides, we value that Vasil Kisil & Partners shares PressCom beliefs and values. We are expanding our music catalog, and our cooperation with Vasil Kisil & Partners allows us to ensure high-quality legal support and full assistance to our clients when UACRR raises claims.

Originally reported by CEE In-House Matters.

EY Law’s Bogdan Malniev Interviews the Head of the PPP Unit of the Ministry of Infrastructure of Ukraine, Taras Boichuk, on the 2020 Deal of the Year in Ukraine. 

Malniev: You were the driving force behind the Government’s preparation of the pilot concessions. Can you tell us a bit about how this started?

Boichuk: It was so long ago that few people actually remember the story. What the private sector saw from the announcement of the tender was just the tip of the iceberg. The preparation of the project started in 2016 and it took three years of hard work within the Government to actually prepare the projects and launch the concession tenders.

Malniev: And there were a few difficulties along the way.

Boichuk: You might say that. Some minor things like changes of the President and Parliament, Martial Law, and, when we thought it couldn’t get any worse, COVID-19 knocked on our door. But the persistence and professionalism of the project team saved the day.

Speaking of difficulties, as you also well remember, the project began under a different law on concessions than the one under which it was completed.

Malniev: Yes. And we had to run the concession tender under the archaic old concession law, while the concession contract had to marry both the old and new legal reality. The legal approach we had to take in this situation would be well understood by genetic engineers.

Boichuk: I would say another complication stemmed from the nature of PPP itself. These kinds of projects exist in parallel in two worlds. On one side is the public sector, where the grantor operates within the government’s bureaucracy. It is typically very conservative in its interpretation of the law (government officials do not like taking any risks), while being ultimately responsible before the constituents for the success of the project to the benefit of the nation. On the other side, you have private businesses, which have a completely different mindset.

Malniev: Could you comment on this as the person whose job was basically to bridge this gap and get the deal done?

Boichuk: Yes, this was the key difficulty, and I would argue that, in our case, this was even harder than for others. When we started out, our government had zero experience with these kinds of projects and, to be honest, did not quite have a perfect track record in dealing with private investors. The same could be said about the other stakeholders – municipal authorities were skeptical, labor unions were wary, and I would also say that some private businesses very much lacked an understanding of how this project could be done. Our office’s role was to be an intermediary between all these sides, explaining the benefits of the project, its structure, the roles and responsibilities of all participants, and to basically get everyone on board. It was not easy to sell this thing to everybody.

Malniev: I can imagine this was truly a difficult part of the project.

Now that the first concessions have been signed and are moving forward, the idea of PPPs has suddenly become hugely popular in Ukraine. Transport infrastructure is of course leading the way with new concessions in ports, roads, railway stations, etc. In line with the general decentralization trend in the country, municipalities are increasingly taking a lead – with already announced projects in healthcare, and possibilities in energy, transportation, and social infrastructure. What would you, as a true pioneer of this area in Ukraine, recommend to those at the beginning of this winding road?

Boichuk: First, talk to everybody. It is crucial to identify all stakeholders at the beginning of the project and to structure an efficient and professional communication channel with them. These projects always involve multiple parties on both the public and private sides, and they only work when all key sides are on board. It is very important to heed the interests of the impacted communities and labor unions and involve them from the very outset. It may be hard in the beginning, but trust built from honest and active communication will pay golden dividends at the later stages of the project.

Second, assemble a strong project team. You need a governmental project management office that leads the way, you need a lead transaction advisor (the IFC did a fantastic job here), and you need financial, legal, technical, and environmental consultants. Support of the transaction from IFIs (such as EBRD and IFC) helps build trusting relationships with potential investors. Quality of people matters – the team must have expertise both in how these kinds of projects are done in terms of international practice and in terms of local laws, regulations, practices, and public sector realities. And always remember that no force on earth can stop an idea whose time has come.

Anything you might add yourself?

Malniev: Fully agreeing with your points – I would add a third: be flexible, open-minded, and creative. A project of this complexity is unlikely to be a straight road to success. There are bound to be unexpected situations, positions of stakeholders, changes in government, changes in laws, legal challenges, etc. All of these have happened in our case, and all had to be accommodated and dealt with. You have to be well-prepared, but also be ready to improvise when the situation demands it. I think both of us pretty much had to do that in our respective roles to get the job done.

My final advice goes to the lawyers and probably applies to all types of deals – but it is especially pertinent to multi-party PPPs. Fight for your client but remember that, ultimately, it is your job to get the deal done. Do not be afraid to suggest a compromise, especially if there may be no other way to achieve the result.

This Article was originally published in Issue 8.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Asters has appointed Counsel Anzhelika Livitska to head the Environmental Protection and Sustainable Development practice.

Livitska has been with the firm since August 2018. Before that, she was a Senior Associate with Dentons in Kyiv. Earlier still, she was a Lawyer with the Rural Land Titling and Cadastre Development Project and with Alfa-Nafta, as well as Chief of the Legal Support Department of the State Committee on Land Resources of Ukraine.

“We view Anzhelika’s appointment as Head of Asters’ Environmental Protection and Sustainable Development as a natural decision based on her professional and managerial credentials and market demand in this specific expertise,” commented Asters Senior Partner Armen Khachaturyan.

Livitska will continue to co-chair the Energy, Natural Resources & Construction practice, a role she was appointed to in October 2019.