Category: Ukraine

Ilyashev & Partners has successfully defended the interests of Danube Shipping and Stevedoring Company LLC in a dispute with the Ukrainian Sea Ports Authority over the use of the berth and berthing infrastructure at the Mykolaiv Sea Port.

According to Ilyashev & Partners, “the dispute … arose in connection with the supplement introduced by the Resolution of the Cabinet of Ministers of Ukraine No. 483 dated 07.07.2015 to the List of Specialized Services Provided in the Sea Ports by the Subjects of Natural Monopolies with a new specialized service for the port operator’s access to the berth. The tariffs for specialized service, approved by the Government and the Order of the Ministry of Infrastructure of Ukraine No. 541 dated 18.12.2015, were supposed to increase USPA revenues by 7-10 times as compared to the revenues received from the servitude agreements.”

“By the end of 2015,” Ilyashev & Partners reports, “at the request of USPA, most port operators switched from the servitude agreements to a specialized service. However, the Danube Shipping and Stevedoring Company refused to terminate the existing servitude agreement and sign unfavorable special service agreements. To this end, back in 2016, the USPA initiated several lawsuits demanding termination of the servitude agreement, as well as inducement to amend the agreement in terms of servitude fee increase. Based on the results of a 2-year review, the courts of three instances dismissed all claims filed by USPA as groundless.

According to the firm, “in August 2019, USPA received a recommendatory explanation from the Antimonopoly Committee of Ukraine, which concluded that the use of berths under the servitude agreement ‘may lead to a violation of antimonopoly legislation,’ since the servitude fee is less than the cost of a specialized service. Claiming that the execution of the servitude agreement ‘may jeopardize the interests of the State,’ the USPA filed a new claim to terminate the servitude. By its Resolution dated 13 August 2020, the South-West Economic Court of Appeal has again confirmed the USPA’s claims to be groundless and unproven. Upholding the decision issued earlier by the first instance court, the court concluded that the port has no right to claim termination of the servitude agreement referring to changes in the government regulation and procedure for payment of tariffs for the port services.”

The Ilyashev & Partners team was supervised by Senior Partner Roman Marchenko and Partner Oleksandr Fefelov and included Counsel Andrii Konoplia, Attorneys at Law Sergey Nedelko and Oleksandr Denysenko, and Lawyers Oleksiy Gorbatyuk and Yevheniia Makarenko.

Asters has advised the EBRD and IFC on their provision of a USD 70 million loan to OJSC Concern Galnaftogaz, which operates a chain of more than 400 fuel stations in Ukraine.

According to Asters, “the project implementation will allow the company to develop Galnaftogaz’s Farmer-Supply Program, improve its logistics infrastructure, and grow its fuel stations network, including the installation of electric charging stations.”

Asters’ team consisted of Partner Iryna Pokanay, Counsel Gabriel Aslanian, and Associates Inna Bondarenko and Viktoria Zagreba.

On 19 June 2020, the Verkhovna Rada of Ukraine adopted Law of Ukraine No. 738-IX “On Amendments to Certain Legislative Acts of Ukraine Regarding Liberalisation of Attracting of Investments and Introduction of New Financial Instruments” (“Law”). The Law implements the provisions of key European Union capital markets acts, including MiFID II, MiFIR, and CRD IV. The Law was officially promulgated on 15 August 2020 while the majority of its provisions will enter into force on 1 July 2021.

It is a very important step for Ukraine since it introduces the new models of organised markets, new financial instruments and improved regulation of existing financial instruments, modernisation of financial intermediaries, and new principles and mechanisms provided for by the EU legislation.

New models of organised markets

• The Law introduces the following three models of organised markets:

1. Regulated market for large business issuers
2. Multilateral trading facility for medium and small-sized business issuers
3. Organised trading facility for derivatives and bonds trading

• Such differentiated models of organised markets aim to provide access to capital markets not only for large companies, but also for small and medium-sized companies.

New financial instruments and improved regulation of existing financial instruments

• The Law introduces thorough regulation for derivative financial instruments such as options, futures, warrants, swaps, and forwards. It provides market participants on stock and commodities markets with the long-awaited ability to enter into derivative contracts. The Law will also provide business with additional instruments to manage risks.
• In addition to derivatives, the Law also introduced a new financial instrument – certificates of bank deposits aimed to become an alternative to bank deposits.
• In general, if implemented successfully, the Law will provide broader possibilities both (1) to raise capital and manage risks and (2) to make investments thanks to a wider range of financial instruments and their detailed regulation.

Modernisation of financial intermediaries

• The full-fledged investment firms that will provide various types of investment services will replace presently common securities traders. The range of services that such investment firms may provide has been significantly expanded to include, for example, investment advisory services.
• Depending on the number and types of services of investment firms, a differentiated approach will apply to their licensing and disclosure of information.

Introduction of new principles and mechanisms provided for by the EU legislation

• To ensure stability, the Law provides for a mechanism for final settlement under derivative contracts and financial instrument transactions. The parties to such transactions will be confident that obligations under such transactions will be fulfilled.
• The Law also provides for special procedures in the event of insolvency of a party to a financial instrument transaction to ensure fulfilment of obligations of insolvent counterparties (liquidation netting).
• In addition, the Law improves the mechanisms for protection of bondholders’ interests, namely, it introduces the possibility of holding a bondholders meetings and introduces the concept of a trustee. 

We welcome these changes since they will facilitate efficient functioning of capital markets in Ukraine, access of a wide range of business representatives to capital markets, and attraction of domestic and foreign investments into Ukrainian economy.

By Andriy Romanchuk, Counsel, and Maryna Buinytska, Associate, Avellum

In recent years, international and local investors have been extremely active in the Ukrainian renewables sector – particularly in solar and wind projects – resulting in a significant amount of project finance and M&A activity in this sector.

As of April 30, 2020, the total installed capacity of renewable energy facilities amounted to 7.1 GW, of which 4.7 GW were installed in 2019. According to rough estimates, the share of foreign investors in installed renewable projects reached approximately 30%. The investment growth led to an increase of up to 5.5% in the share of renewable energy in Ukraine’s total energy generation. Moreover, the number of producers of renewable energy (“RES Producers”) continues to grow. According to the state company that performs the statutory obligation to off-take all electricity from the RES Producers under a “green tariff” (the “Guaranteed Buyer”), the capacity reserved under executed pre-PPAs amounts to 12 GW, of which 4 GW is expected to become operational in 2020.

Financial Sustainability of the Guaranteed Buyer

An unprecedented surge of RES projects along with the launch of a new model of electricity market, which turned out to have some flaws, triggered liquidity problems for the Guaranteed Buyer.

Initially, the new electricity market model required the Guaranteed Buyer to purchase electricity under a green tariff at the cost of the compensation it received from the transmission system operator (TSO). The TSO, in turn, compensated the Guaranteed Buyer from funds it received to provide transmission services to electricity market participants. Eventually, the proceeds from electricity market participants proved to be unstable and insufficient to cover the payments under the green tariff.

As a result, the Ukrainian Government imposed additional temporary public service obligations (PSOs) on electricity market participants to help the Guaranteed Buyer during the transition period. These PSOs required the Guaranteed Buyer to purchase cheap electricity from Energoatom (nuclear electricity) and Ukrhydroenergo (hydroelectricity) at threshold prices and re-sell most of it on the DAM/IDM at higher prices. Any profit the Guaranteed Buyer generates through PSO performance must be used to make payments under the green tariff.

However, the imposition of PSOs has been insufficient to resolve the liquidity problems. As of April 30, 2020, the Guaranteed Buyer has approximately USD 451.2 million in outstanding debt to the RES Producers.

Proposed Solutions

Eventually, the Ukrainian authorities concluded that amending the current green tariff support system would be necessary to stabilize the sector. To avoid imposing a unilateral solution, which could affect the confidence of investors in the stability of Ukraine and lead to potential investment arbitrations, Ukrainian authorities and RES investors agreed to develop a balanced solution with the mediation of the Energy Community Secretariat’s Dispute Resolution and Negotiation Centre.

The mediation process is designed to elaborate a Memorandum between Ukraine and the RES Producers. According to the Ministry of Energy, the Memorandum will allow for the voluntary restructuring of the green tariff system (e.g., a reduction of the green tariff with or without extending its term) and provide a new framework on liability for imbalances and curtailment compensation. In addition, the Memorandum is expected to provide that solar and wind projects commissioned after the execution of the Memorandum would no longer be able to benefit from the green tariff system but instead would have to participate in an auction system. For reference, the applicable laws provide that the green tariff may still be granted to those projects which have pre-PPAs that were executed prior to December 31, 2019, provided that they are commissioned within two years (for solar projects) and three years (for wind projects) after execution of the pre-PPA. The Memorandum is in the final stages of discussion and is expected to be signed in May 2020. The Memorandum would constitute a basis for a draft law, which would then be presented to Parliament for consideration.

If Parliament adopts the law based on the Memorandum, this will both break the deadlock in the liquidity issue and may help Ukraine remain attractive for investors in the renewable energy sector. Some international market players have already expressed their readiness to continue investing in renewable projects in Ukraine once the uncertainty in the regulatory framework is resolved and the auction system is launched. Given the previous strong support of private developers such as Sctatec, VR Capital, NBT, Vindkraft group, GreenWorx, and Akuo Energy, and IFIs such as the EBRD, NEFCO, Swedfund, and BSTDB, there is much hope that they will remain active in Ukrainian renewable projects in the future.

By Glib Bondar, Senior Partner, and Anna Mykhalova, Associate, Avellum

This Article was originally published in Issue 7.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Kinstellar has advised Qatari port operator Qterminals and its Ukrainian subsidiary, Qterminals Olvia, on its entrance into a 35-year concession agreement for the Olvia port with the Ministry of Infrastructure of Ukraine and the Ukrainian Sea Ports Authority. EY Law reportedly advised the Ministry of Infrastructure and the Sea Ports Authority on the deal.

According to Kinstellar “under the concession agreement, the concessionaire has the exclusive right to operate, manage, and develop the Olvia port. In addition to regular concession payments, under the terms of the agreement, the concessionaire will invest up to USD 120 million in the modernization and development of Olvia port and will contribute an additional USD 2.9 million for the development of the local infrastructure. This makes the project the largest concession ever awarded in Ukraine, the largest investment in Ukraine’s port sector, and the second-largest foreign investment in Ukraine since the privatization of the Kryvorizhstal steel mill in 2005.”   

Kinstellar’s team was led by Counsel Oleg Matiusha and included Partner Iryna Nikolayevska, Counsel Andriy Nikiforov, Senior Associates Danylo Volkovetskyi and Viktoriia Dobrynska, Associates Daryna Ushchapivska, Julia Palaida, Yulia Eismont, and Oleksandr Plachynta, and Lawyer Oleksiy Burchevskyy.

Sayenko Kharenko has advised Oleksandr Yaroslavsky, the owner and president of the DCH group, on his acquisition of all shares of Bank Credit Dnipro from Cyprian Brancroft Enterprises Limited.

Financial details were not disclosed.

Sayenko Kharenko’s team was supervised by Partner Vladimir Sayenko and included Counsel Sergiy Kazmirchuk, Senior Associate Tymur Enkhbaiar, and Associates Tetiana Dyvak, Ilhar Hakhramanov, Sviatoslav Kozak, Mykola Lykhoglyad, Andriy Tsyatsyak, Kostiantyn Zablotskyi, Angelina Danileyko, and Daria Karlenko.

Sayenko Kharenko did not reply to our inquiries.

On July 29, 2020, the Cabinet of Ministers of Ukraine adopted the Resolution “On Certain Issues of Functioning of Authorized Economic Operators”. The Resolution aims at regulating all the formalities for the comprehensive launch of authorized economic operators (hereinafter referred to as the “AEO”) program in Ukraine.

The main issues, which have been regulated by the Resolution, cover:

• procedures for assessing compliance with AEO criteria and 
• forms of documents to be submitted by enterprises and to be issued by customs authorities for obtaining a status of AEO.

In general, such a novelty as AEO has rather significant advantages for the Ukrainian customs system. In particular, it will facilitate material simplification in customs formalities for enterprises with a high level of trust and will provide for an opportunity of Ukrainian enterprises to participate in the formation of a safe chain of supply of goods enhancing their competitiveness on external markets. Introduction in Ukraine of the AEO program and conclusion of agreements on mutual recognition of AEO status will help the Ukrainian business in entering the EU markets and, potentially, markets of other countries.

The Resolution became effective on 18th of August 2020.

By Iryna Kalnytska, Partner, and Viktoriia Bublichenko, Associate, GOLAW

Baker McKenzie has successfully represented Berlin-Chemie AG — the maker of the Nimesil anti-inflammatory drug — in its trademark challenge to the Nimesin brand.

According to Baker McKenzie, “on July 15, 2020, the Appellate Commercial Court upheld the decision of the Commercial Court of the City of Kyiv in relation to the cancellation of the Nimesin trademark registrations granted by the Ministry of Economic Development, Trade and Agriculture of Ukraine, the cancellation of the marketing authorization for Nimesin medicine issued by the Ministry of Healthcare of Ukraine for Organosin Life Sciences Private Ltd. (India), the prohibition of Evertogen Life Sciences Limited from manufacturing Nimesin medicine, and the prohibition of Organosin Ltd. from selling and importing Nimesin medicine. Upholding the decision of the Commercial Court of the City of Kyiv, the Appellate Commercial Court rejected both counterclaims by Organosin Ltd. and Evertogen Life Sciences Limited.”

Baker McKenzie’s team was led by Counsel Oleksiy Stolyarenko and included Associates Anton Kapitonenko and Khrystyna Nykerui.

Redcliffe Partners has advised the YayPay financial technology company on the EUR 17 million sale of a majority stake in the company to Quadient. The buyer was advised by CMS RRH Kyiv.

YayPay specializes in accounts receivable automation solutions, and Quadient is a manufacturer of mailing equipment and provider of mailing-related services.

Redcliffe Partners’ team included Partner Zoryana Sozanska-Matviychuk, Partner Anastasia Usova, Counsel Oleksandr Markov, Counsel Maria Koval, Associate Tetyana Smurova, Consultant Kateryna Kuzmenko, and Junior Associate Bogdan Nykytiuk.

CMS RRH’s team consisted of Managing Partner Johannes Trenkwalder, Partner Maria Orlyk, Partner Anna Pogrebna, Senior Associate Oleksandra Prysiazhniuk, Associate Taras Chernikov, Associate Sergiy Datsiv, and Associate Naida Shykhkerimova.

On July 30, 2020, Resolution No. 107 recently adopted by the National Bank of Ukraine became effective, by which the Resolution “On Carrying out Financial Monitoring by Non-Bank Financial Institutions” was approved.

This Resolution was adopted in pursuance of the new legislative requirements on financial monitoring, which were enacted on April 28, 2020. The general concept of financial monitoring carried out by non-bank institutions is based on the main financial monitoring principles for banks. Thus, the Regulations provide for applying a risk-oriented approach, including to politically exposed persons, their family members and associates, set a list of risk criteria and risk exposure criteria, set a remote client identification.

At the same time, Regulations on carrying out financial monitoring by non-bank institutions are rather simplified in comparison with the regulations, which govern carrying out financial monitoring by banks. In particular, the financial monitoring system for non-bank institutions should be automated. Furthermore, non-bank institutions shall be allowed to assess client risk by following simplified methods. In particular, the institutions are able to assess the risk not by each client separately, but simultaneously by a group of clients by separating such clients into relevant categories based on criteria clearly determined and enshrined in internal documents (social status criteria, criteria of using similar types of services, the total scope of financial transactions). 

By Iryna Kalnytska, Partner, and Viktoriia Bublichenko, Associate, GOLAW