Category: Ukraine

The new Law of Ukraine “On Concession” (the “2019 Concession Law”) became effective on October 19, 2019, following several years of discussion. As the previous concession law (which was adopted in 1999) provided outdated and unenforceable regulations and was inconsistent with other laws regulating concessions and public-private partnerships in Ukraine, no significant concession projects had been developed in Ukraine for more than 20 years. The 2019 Concession Law provides a chance for Ukraine to overcome legal barriers to the development of concession projects and attract much needed investment into the country’s infrastructure.

While eliminating discrepancies between concession and public-private partnerships laws, the 2019 Concession Law introduces clear and non-controversial procedures for initiating concession procedures, with both contracting authorities and concessionaires having the right to initiate the transfer of infrastructure objects into the concession, and conducting concession tenders and choosing concessionaires through a competition or competitive dialogue as envisaged by the UNCITRAL’s Model Legislative Provisions on Privately Financed Infrastructure Projects.

In addition, the 2019 Concession Law allows investors leasing state property to obtain concession rights for the property by negotiating directly with the contracting authorities.

The law also includes new rules, providing investors with more options in resolving disputes. Parties to concession contracts may, by mutual consent, choose which law will apply. They may also choose to resolve disputes via mediation, non-binding expert assessment, international commercial arbitration, or investment arbitration (including arbitration sitting abroad, if the concessionaire is a subsidiary of company incorporated abroad).

The 2019 Concession Law allows investors to request that the state waive its immunity against disputes, which means that foreign investors will be able to bring disputes involving the protection of their rights in most reputable world forums.

The 2019 Concession Law enhances the protection of creditor rights. If creditors (including international financial institutions as well as foreign or Ukrainian lenders) are engaged in concession projects, the relevant concession contracts or financing contracts must guarantee the protection of their rights. In order to secure creditor claims, proprietary rights or rights of claims of a concessionary under the concession contract can be pledged in favor of the creditors. In an event of the concessionaire’s default under a concession contract, the creditor may foreclose on the pledged proprietary rights, with the defaulted concessionaire to be replaced by a new concessionaire.

It is expected that the 2019 Concession Law will significantly boost investment into Ukrainian infrastructure – especially roads and ports, considering Ukraine’s enormous potential as an Eastern European logistical and transport hub. Following the entry into force of the 2019 Concession Law, concession competitions for the “Stevedoring Company ‘Olvia’,” the assets of the Ukrainian Seaports Authority Ports of Olvia and Kherson, and the assets of the Kherson Sea Commercial Port have already been initiated. Concessionaires for the Port of Olvia and the Port of Kherson will be chosen by the end of February 2020. Plans to transfer these assets into concession that were first unveiled in September 2018 eventually attracted the interest of more than 20 international companies.

The concession project in the Port of Olvia envisages the development of a new terminal, with approximately UAH 17.3 billion of investment obligations of the successful concessionaire during the first four years of the project’s development. The concession project in the Port of Kherson envisages the modernization and re-equipment of the port’s loading facilities, with estimated investment obligations of UAH 1.37 billion during the first four years of development.

Once successfully launched, these first concession projects will present Ukraine as a reliable and attractive jurisdiction for infrastructure investments and pave the road for even-more significant investment to come.

By Anna Pogrebna, Partner, and Sergiy Datsiv, Associate, CMS Reich-Rohrwig Hainz Kyiv

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Vasil Kisil and Partners has successfully represented Rost Agro, the Ukrainian-based seed producer and exporter, in an administrative appeal procedure with the State Tax Service of Ukraine.

According to Vasil Kisil and Partners, the firm was able to prove that the sanctions imposed on Rost Agro for its alleged failure to pay taxes for foreign economic activities within mandatory time limits. According to the firm, “the financial sanctions were cancelled after the consideration of the case.”

Vasil Kisil and Partners’s team included Managing Partner Andriy Stelmashchuk, Counsel Tetyana Berezhna, and Associate Viktor Hrabovskyi.

Everlegal has successfully represented Turkish airline Onur Air in a claim to recover USD 43 million.

Everlegal’s team consisted of Partner Oleksandr Ruzhytsky, Senior Associate Oleksandr Pashinin, and Junior Associate Maryna Dankevych.

Redcliffe Partners has advised the EBRD on a risk participation agreement with Piraeus Bank Ukraine with a total value of EUR 10 million.

According to Redcliffe Partners, “the EBRD will share the credit risk in eligible individual loans made by Piraeus Bank to domestic businesses. In order to become eligible, borrowers will need to comply with the highest business standards and conduct their business with due diligence and efficiency, in accordance with sound engineering, financial and business practices.”

Redcliffe Partners reports that “the risk sharing will help increase the size and tenor of loans which are provided by Piraeus Bank to small- and medium-sized businesses across the country.”

Redcliffe’s team included Managing Partner Olexiy Soshenko, Senior Associate Olesia Mykhailenko, and Associate and Eduard Olentsevych.

DLA Piper has advised food chain Billa on an eight-year lease extension with the Kyiv City Council for Billa’s flagship store in Kyiv’s Bessarabskyi Market.

According to DLA Piper, “Billa opened this strategic store more than ten years ago. Bessarabskyi Market, which was constructed in 1910-1912, is a landmark building in the center of Kyiv, on the Bessarabska Square.”

DLA Piper’s team included Partner Natalia Kochergina, Senior Associate Oleg Milchenko, and Junior Associate Yevhen Husakov.

Kinstellar has advised Deutsche Investitions- und Entwicklungsgesellschaft mbH, a development finance institution and subsidiary of KfW Bankengruppe, on a USD 20 million credit facility for Nibulon, an agricultural commodities exporter and producer in Ukraine. Clifford Chance’s Frankfurt office advised DEG on matters of English law.

According to Kinstellar, “Nibulon is also well-known for being an active proponent of inland water transportation and a major investor into Ukraine’s inland waterways infrastructure and fleet.”

Kinstellar’s team included Counsel Andriy Nikiforov, Senior Associates Anna Kalinichenko and Oleh Andreikiv, Lawyer Oleksiy Burchevskyy, and Associate Viktoria Pysmenna.

Marchenko Partners has advised the Western NIS Enterprise Fund on loans granted to CCE Dnipro Training and Production Enterprise of the Ukrainian Society of the Blind and the “Printing House” Center for Labor Rehabilitation of Disabled Persons.

WNISEF is a regional fund in Ukraine and Moldova which, according to Marchenko Partners, has “more than two decades of successful experience in investing in small and medium-sized companies.” WNISEF was funded by the U.S. Agency for International Development (USAID), and since its inception, WNISEF’s cumulative investments total over USD 186 million to 130 companies employing around 26,000 people.

In 2015 WNISEF has launched a USD 35 million legacy program focused on export promotion, local economic development, impact investing, and economic leadership. According to Marchenko Partners, “WNISEF is funding innovative, high-impact, reform focused programs and aims to support Ukraine and Moldova at this critical period by developing sound economic policy and leadership.”

According to Marchenko Partners, CEE Dnipro Training and Production Enterprise of the Ukrainian Society of the Blind, which is staffed by 68 workers suffering from visual impairments and other disabilities, specializes in manufacturing equipment for Ukrzaliznytsia rolling stock and produces building products. The funds received from WNISEF, the firm reports, “will help increase production volumes and strengthen the market position of the enterprise in terms of production volume.”

The “Printing House” Center for Labor Rehabilitation of Disabled Persons, the firm reports, “is a printing house where people with disabilities are employed.” According to Marchenko Partners, “the new loan will allow the company to purchase new equipment, increase the number of employees and increase their wages.”

The loans were made as part of WNISEF’s “Impact Investing Program,” which, according to Marchenko Partners, “allows social enterprises (businesses that implement social or environmental programs or resolve certain social issues) to get access to hryvnia-denominated low-interest loans. One of the aspects of the implementation of the Impact Investment Program is the low-interest loan mechanism implemented by the Western NIS Enterprise Fund in partnership with Ukraine’s State Savings Bank of Ukraine and Kredobank.” Over the last three years, Marchenko Partners reports, “our lawyers not only helped WNISEF to launch the Impact Investing Program but also advised on each of 21 loans granted within the program to the social enterprises from all over Ukraine.”

The Marchenko Partners team was coordinated by Partner Roman Shulyar and included Associate Bogdan Burlaka and Junior Associate Oleksandr Pozniakov.

The Kyiv office of Baker McKenzie has advised the Black Sea Trade and Development Bank on its up USD 70 million loan to Epicentr K LLC and Renvior Trading Limited.

According to Baker McKenzie, “the loan will support the group’s agriculture business program for 2019-2021, in particular the construction of three new and modernization of four existing grain silos and the purchase of agricultural machinery.”

Baker McKenzie’s team was led by Kyiv Managing Partner Serhiy Chorny and included Associate Ganna Smyrnova.

Baker McKenzie did not reply to our inquiry on the matter.