Category: Ukraine

Sayenko Kharenko has advised Hilltop Technologies on entering the Ukrainian market via the launch of its R&D arm – SET Cyber Labs – in collaboration with SET University. 

Hilltop Technologies is a US-based cybersecurity company.

According to Sayenko Kharenko, “Hilltop Technologies and SET Cyber Labs aim to make cybersecurity more accessible to higher education institutions, SMBs, and NGOs while providing training for the next generation of cybersecurity professionals.”

The Sayenko Kharenko team included Partner Alina Plyushch, Counsel Dmytro Riabikin, Senior Associate Zarina Khalimon, and Associate Dmytro Zaiachkivskyi.

Kinstellar has advised KNDS on establishing a subsidiary in Ukraine.

According to the firm, the subsidiary is meant to support the cooperation between the Ukrainian government, the Ukrainian armaments industry, and KNDS in equipment maintenance, and production of spare parts and ammunition.

KNDS is a Franco-German military land systems manufacturer and an industrial supporter of Ukraine.

The Kinstellar team included Partner Anastasiya Bolkhovitinova.

On 13 August 2024, the Ukrainian Government adopted Order No 757-p “Certain Issues of Pilot Auctions for the Allocation of the Support Quota in 2024” (“Green Auctions Order”) scheduling the first auctions for supporting renewable energy producers under the feed-in premium mechanism (“Feed-in-Premium”) later this year.

The Feed-in-Premium mechanism was introduced a year ago as a replacement for a feed-in tariff, as the latter turned out to be economically challenging for the state. The Feed-in-Premium mechanism allows energy producers to freely trade on the market, with the Guaranteed Buyer, a specially designed state enterprise, covering the difference between the auction price and the market price. In turn, the producers must pay service costs once the market price exceeds the auction price.

The Green Auctions Order determines the following terms of the first auctions:

• the overall support quota to be allocated is 110 MWh, with wind energy receiving 88 MWh of support, solar energy 11 MWh, and other renewable sources also receiving 11 MWh
• the bidding price cannot exceed 9 EURct/kWh for solar and wind energy and 12 EURct/kWh for electricity from other renewable sources
• the future facilities can be located anywhere within the territory of Ukraine (excluding temporally occupied territories), except for solar power plants that should be located only on the left bank of the Dnipro River

An auction winner undertakes to commission solar power plants within 1.5 years and other renewable energy facilities within three years after concluding an agreement on receiving the support under the Feed-in-Premium mechanism.

The support under this mechanism is provided for 12 years after connecting constructed facilities to the grids.

The first auction for state support under the Feed-in-Premium mechanism will be held through the Prozorro.Sale online system on 31 October 2024. The auction will allocate the support quota for solar energy in a total amount of 11 MWh.

The bids can be submitted starting from 30 September 2024.

We expect that the implementation of the Feed-in Premium mechanism will attract investments in the renewable energy market, stimulate the construction of renewable energy facilities, and contribute to ensuring Ukraine’s energy independence.

By Glib Bondar, Senior Partner, and Maksym Maksymenko, Partner, Avellum

Commencing from October 1, 2024, tax benefits for taxpayers with a high level of voluntary tax compliance or members of the announced “White Business Club” will come into full force and effect.

A taxpayer who meets all requirements established in the Tax Code of Ukraine is subject to inclusion into the List of Taxpayers with a High Level of Voluntary Compliance with Tax Legislation.

Eligibility criteria

Legal entities and individual entrepreneurs must simultaneously meet the following requirements:

• No more than 51,000 Hryvnias in tax debt and/or arrears in payments vested with the tax authorities for collection, and no more than 30 days have passed since the date of their accrual.
• No arrears (deficiencies, fines, penalties) in payments for a single social contribution.
• No violations of tax obligations in connection with submission of reports and/or documents (notifications) during the last 12 months.
• No tax notices-decisions issued against the taxpayer in connection with violating settlement deadlines set for goods export and/or import transactions during the last 12 months.
• No decisions regarding the taxpayer’s meeting VAT payer risk criteria.
• No procedures initiated for dissolution of a legal entity or business activity of an individual entrepreneur.
• No initiated bankruptcy (insolvency) proceedings for the taxpayer.
• No decisions applying sanctions against the taxpayer and/or his/her/its beneficial owners.
• The taxpayer and/or his/her/its beneficial owners do not have Russian citizenship or place of residence in Russia.
• No changes have been made to the main type of economic activity during the last 12 consecutive calendar months.
• Compliance with criteria that are individually defined for the taxpayer’s chosen taxation system. For example, the taxpayers enjoying the general taxation system must additionally meet the following criteria:
  • The income tax paid not lower than the average indicator in the relevant industry for the last four quarters.
  • VAT payment is equal to/exceeds the average indicator in the relevant industry (except for exporters) for the last 12 reporting months.
  • The average monthly salary indicator for the last four quarters is not less than the average salary in the relevant industry in the relevant region, multiplied by a factor of 1.1, and the average monthly number of employees is not less than five people.

A taxpayer who meets all of the specified requirements is included into the List of Taxpayers with a High Level of Voluntary Compliance with Tax Legislation according to the respective application.

Tax benefits

Taxpayers who are included into the List of Taxpayers with a High Level of Voluntary Compliance with Tax Legislation are granted the following benefits:

1. Tax authorities will not initiate:

• Ex post reviews of issues pertaining to licensing of fuel storage activities exclusively for the needs of own consumption and/or industrial processing
• Unscheduled document audits, except for audits:
  • That are carried out exclusively at the request of a taxpayer
  • That are carried out in terms of control over transfer pricing
  • That are carried out in connection with violation of the deadlines set for return of foreign currency earnings
  • That are carried out with respect to the taxpayers engaged in the activities with excisable products, gambling businesses and those providing financial and payment services
• Scheduled document audits, except for audits of the taxpayers carrying out activities in the field of:
  • Production and/or sale of excise goods
  • Organization and conduct of gambling
  • Providing financial and/or payment services

2. The timeframe for conducting in-office and document inspections with respect to the VAT declared for refund, is reduced from 20 to five and from 40 to 10 working days, respectively.

3. Individual tax rulings are provided to a taxpayer by the State Tax Service of Ukraine (STSU) within 15 days.

4. The STSU allocates a compliance manager for consulting with each taxpayer on tax-related issues.

Receiving information from the tax body that may be indicative of tax risks in the activity of that taxpayer, as well as consultations on eliminating these risks.

By Valeria Tarasenko, Tax Consultant, Dentons

Baker McKenzie has advised MHP on its acquisition of KTL Ukraine Group from Ihor Khokhlov, Andriy Kuzmin, and Serhii Kocherhin.

Founded in 1998 in Ukraine, MHP is a food and agri-tech company. 

KTL Ukraine Group is a logistics company operating in the field of cargo transportation.

According to Baker McKenzie, “this strategic move is set to enhance MHP’s market presence and operational capabilities in the logistics sector.”

The Baker McKenzie team in Kyiv included Senior Associate Alyona Bon as well as lawyers from London and Dubai.

On 15 August 2024, the Hague District Court issued a decision in the ongoing legal dispute between Gazprom International Limited (hereinafter – “Gazprom”) and Asset Management Company Slavutych-Invest (hereinafter – “Slavutych”).

This decision provides some hope as to potential avenues for recovery of losses suffered by Ukrainian victims due to the Russian aggression. At the same time, it also brings to light some problematic questions which the Ukrainian claimants who seek to enforce Ukrainian court decisions against Russia abroad, will likely face.

Slavutych is a Ukrainian company, which held certain assets (land plots) in the territory of Ukraine that was occupied by Russia after 24 February 2022. In 2023, Slavutych brought the claim to the Ukrainian court against Russia seeking compensation for the lost assets (the “First Proceedings”). The claim was granted, and Russia was ordered to compensate to Slavutych UAH 439 mln (approximately USD 15 mln) for the unlawful infringement of Slavutych’s property rights.

In 2024, Slavutych commenced new proceedings before the Ukrainian court (inter alia, relying on the judgment in the First Proceedings) against Gazprom and certain its affiliates seeking to hold them liable for the same loss as alter egos of Russia (the “Second Proceedings”). In support of the Second Proceedings, Slavutych obtained conservatory attachment in the Netherlands, by seizing Gazprom’s shares in Wintershall Noordzee B.V., a Dutch entity. Quite unsurprisingly, Gazprom sought to set aside the attachment. It is on this challenge that the Hague District Court issued its decision that is a subject of this note.

Gazprom’s objections to the conservatory attachment were based on several arguments, including that the attachment had lapsed by operation of law, did not meet international treaty requirements, and violated public policy and procedural fairness principles. Gazprom also alleged that Ukrainian court decisions against it could not be enforced in the Netherlands due to protections under an investment treaty between the Netherlands and the former USSR, and that the Russian Federation enjoys state immunity. The court dismissed all of Gazprom’s arguments.

It ruled that the attachment had not expired. The court found no indication that Slavutych had deliberately withheld relevant information and deemed the choice to attach Wintershall shares reasonable.

Furthermore, the court concluded that the treaty on recognition and enforcement of court decisions between the Netherlands and Ukraine, effective from 1 September 2023, was applicable, and that the Second Proceedings in Ukraine could generally result in a judgment that would be enforceable in the Netherlands. As to Gazprom’s allegations on the lack of due process, the court noted that Slavutych had made sufficient efforts to notify Gazprom of the proceedings, and there was no evidence to suggest that the Ukrainian court could not provide a fair trial.

As regards the most complex questions of whether Gazprom can be held liable as alter ego of Russia, and on the sovereign immunity defence, the court found – based on the evidence made available to it by the parties – that the arguments of Slavutych have at least a reasonable chance of success. However, the court did not provide a conclusive analysis on these points, having noted that they will need to be resolved during recognition and enforcement of the Ukrainian judgment in the Netherlands (not at the stage of conservatory attachment review).

Notably, the Second Proceedings have already been concluded in Ukraine resulting in the judgment in favour of Slavutych. It appears likely that this judgment will soon be submitted for recognition and enforcement in the Netherlands.

Conclusion

This important judgment of the Hague District Court highlights the uncertainties which may arise in foreign courts while enforcing the judgments of Ukrainian courts against the russian federation and its alter egos. Although the court in this case conducted the preliminary examination of the matter, it has yet to provide definitive answers to a number of pertinent questions related to the state immunity and piercing of the corporate veil.

By Serhii Uvarov, Partner, and Iryna Ivanova, Associate, Integrites

On 27 September 2024, the Law of Ukraine “On Amendments to the Labor Code of Ukraine on Establishing Additional Grounds for Termination of Employment Agreements at the Initiative of the Employer and Certain Other Issues” No. 3768-IX dated 4 June 2024 (“Law”) (with certain exceptions) will come into force.

The Law, among other things, details the rules applicable to internal labor regulations (“Employee Handbook”) and establishes new termination grounds.

Key changes

• The Employee Handbook may include, among other things, rules on (a) employees’ nondisclosure obligations and (b) the terms of work with confidential information (“Information Rules”).
• The Information Rules are obligatory for companies of strategic importance for the economy and security of the state and/or objects or operators of critical infrastructure.
• A new termination ground at the employer’s initiative due to the employee’s failure to comply with the Information Rules has been introduced.

Recommendations

We recommend that employers in Ukraine take the abovementioned legislative changes into account in their business activities and supplement the Employee Handbook with the Information Rules to protect the company’s confidential information and to be able to rely on the new termination ground.

By Lina Nemchenko, Partner, Mariana Marchuk, Counsel, and Anna Stepanowa, Associate, Baker Mckenzie

Integrites has announced a restructuring of its operations leading to the separation of its office in Kazakhstan from its office in Ukraine.

According to Integrites, “after many years of successful collaboration, the partners in Ukraine and Kazakhstan have mutually decided to pursue independent paths. As a result, Integrites Kazakhstan will be leaving the group and will continue to operate independently under the brand Salus Legal.”

“We made the decision to part ways, as our Kyiv and Almaty offices face different political environments which have their impact on domestic and global business development and marketing efforts,” stated Integrites Ukraine Managing Partner Oleksiy Feliv. “Our office in Ukraine will concentrate on projects for the reconstruction of Ukraine during and after the war, on promoting Ukraine’s agenda, and helping foreign businesses start or expand business here. We deeply appreciate our collaboration with the team in Almaty/Astana – after 16 years of cooperation, we will continue to work on joint projects in the future.”

Integrites has advised Novus and Univer on a UAH 400 million corporate bonds issuance.

According to Integrites, “the bonds are secured by the mortgage provided by Novus group of companies and overseen by Integrites as an independent bond administrator entity. Initiated in late 2023 and led by the arranger – Univer Capital, a licensed investment firm, the project came to formal submission to the securities regulator in May 2024, while the temporary issue certificate was granted in September this year.”

The Integrites team included Managing Partner Oleksiy Feliv, Partner Oleh Zahnitko, Counsel Vasyl Yurmanovych, and Senior Associates Yuriy Korchev and Serhii Datsiv.

Since the start of the war, Russia has inflicted severe damage on Ukraine’s energy infrastructure, leading to a critical need for comprehensive rebuilding efforts. As a result of the attacks, Ukraine has lost over 9 GW of electricity generating capacities, while local gas production has dropped 5–10 percent.

In a recent attack—and one of the largest—on Ukraine’s energy infrastructure, Russia targeted critical facilities, including the Kyiv Hydroelectric Power Plant, leading to emergency power cuts, as well as significant damage reported across 15 of Ukraine’s 24 oblasts.

International support and investment can help to not only restore but also modernize and secure Ukraine’s energy sector. Below, we explore the extent of the damage, the kinds of support provided and pledged by various international organizations, financial institutions and governments, and the investment opportunities available in the sector.

Repair and reconstruction of infrastructure

Ukraine’s energy infrastructure has seen more than half of its pre-war capacity destroyed. Reconstruction efforts are focused on restoring damaged infrastructure, including the construction of new substations and power transmission lines using modern and energy-efficient technologies. These efforts aim to not only restore but also improve the resilience and efficiency of the energy sector.

Support from international organizations and financial institutions

International organizations and financial institutions have been pivotal in mobilizing resources for Ukraine’s energy sector. The Ukraine Energy Support Fund, established by the EU’s Energy Community Secretariat, has raised over €500 million to support urgent repairs and maintenance of energy infrastructure. The World Bank has allocated US$200 million for immediate repairs, with potential additional funding up to US$300 million. During the Berlin Ukraine Recovery Conference in June of 2024, The European Bank for Reconstruction and Development (EBRD) signed an agreement for €300 million in emergency support for the energy sector to address the immediate energy crisis exacerbated by Russian attacks on Ukraine’s energy infrastructure, and in September 2024 the EBRD enabled more than €300 million in new lending by two Ukrainian banks for long-term energy security. Additionally, the International Renewable Energy Agency (IRENA) is collaborating with the Energy Community Secretariat to support sustainable energy initiatives.

Governmental support

Several governments as well as the European Union have stepped up to assist Ukraine in rebuilding its energy sector. In 2024, the EU committed €1.4 billion in guarantees and grants to help repair, rehabilitate, and develop Ukraine’s heavily damaged energy infrastructure. This initiative includes contributions towards renewable energy projects, like wind power and energy storage systems. The EU’s broader €50 billion Ukraine Facility will also support energy recovery, as part of a larger plan to help Ukraine resist aggression and transition towards sustainability. Additionally, the EU will help Ukraine secure 4.5 GW of generation capacity and provide an additional €160 million to get through the winter. This includes repairing 2.5 GW of capacity and exporting 2 GW of electricity to Ukraine, covering more than 25% of Ukraine’s energy needs for the coming winter. Ursula von der Leyen, the head of the European Commission, highlighted that the EU’s energy support includes three components: repair, connection, and stabilization. Of the €160 million, €100 million will come from revenue generated by Russia’s frozen assets in Europe, with funds allocated to repairing energy facilities damaged by Russian attacks and providing solar panels to 21 hospitals in Ukraine. The remaining €60 million will be provided as humanitarian aid.

The United States has provided over US$190 million through USAID’s SPARC project along with additional funding for economic recovery. Energy Security Project of USAID envisages US$244 million in support for the Ukrainian energy sector to be provided within seven years, in the form of procurement aid, grants and technical assistance. The US Department of Energy has also shipped high voltage electrical infrastructure components to Ukraine.

Japan has also pledged significant support for Ukraine’s energy sector during the war. Valued at approximately US$600 million, this assistance includes vital equipment like transformers, generators and solar panels, aimed at helping Ukraine repair damaged energy infrastructure. Japan’s aid package also prioritizes energy resilience, with around 40 percent of its total assistance focused on energy security.

Germany has pledged €30 million to enhance the reliability of Ukraine’s energy system.

Innovative solutions for continuous energy supply

To ensure continuous and uninterrupted energy supply, Ukraine is exploring various innovative solutions. There is a strong emphasis on developing renewable energy sources such as wind, solar and biomass, including biogas and biomethane. Decentralized energy generation is also being promoted to enhance resilience against attacks. Technological innovations include new space heating technology for heat pumps, innovative battery storage solutions, smart grids and geothermal energy harnessing. These solutions are crucial for building a sustainable and resilient energy sector.

Diversification of energy supply

Reducing dependence on imported energy is a key priority for Ukraine. Efforts are being made to diversify energy sources and improve energy efficiency. The Green Transition Law includes measures to align with the Energy Community’s legal framework for renewable energy. This law aims to create a more diverse and sustainable energy mix, reducing vulnerability to external shocks and enhancing energy security.

Investment opportunities

Of course, such a massive reconstruction effort presents numerous investment opportunities in Ukraine’s energy sector.

Ukraine’s Energy Strategy until 2050 outlines investment opportunities amounting to US$383 billion, with its focus on clean energy production and system resilience. Private sector involvement is being encouraged in renewable energy projects, smart grids and energy-efficient technologies. These investments are not only crucial for rebuilding the energy sector but also for transforming it into a modern, resilient and sustainable system.

The National Renewable Energy Action Plan to 2030 envisages an almost 10 percent increase in the total share of renewable energy in gross final energy consumption by 2030—from 17.3 percent in 2025 up to 27.1 percent by 2030. In order to achieve such an ambitious increase, the following investments will be required:

• US$11 billion for generating capacity
• US$1.4 billion for balancing capacities
• US$6.6 billion for heating production from renewables
• US$1.2 billion for increasing the share of renewables in the transportation sector

The Ukrainian government has already taken certain practical steps to attract such investments. In August 2024, the Ukrainian transmission system operator ran two auctions for long-term ancillary services contracts, to attain the construction of more than 1.1 GW of balancing capacity. By the end of 2024, it plans to run pilot auctions to distribute a quota of support for 110 MW of new renewable energy facilities. The Ukrainian government also launched a tender to build 700 MW of new high maneuverable generation.

Rebuilding Ukraine’s energy sector is a monumental task that requires significant international support and investment. The efforts to restore and modernize the energy infrastructure are crucial for ensuring a resilient and sustainable energy future for Ukraine. By focusing on renewable energy, grid modernization and energy security, Ukraine can emerge stronger and more resilient. The international community’s support and investment are vital in achieving this goal, providing both immediate relief and long-term benefits for Ukraine’s energy sector.

By Adam Mycyk and Maksym Sysoiev, Partners, Dentons