Borovyk & Partners has advised Switzerland’s Geberit Group, a European manufacturer of sanitary parts and related systems, on a squeeze-out of minority shareholders of Ukraine’s PJSC Slavuta Plant Budfarfor.
The Borovyk & Partners team was led by Partner Bogdan Borovyk and included Attorneys Veronika Mamontova and Olexandr Kuryachiy.
Vadim Medvedev, Partner and Head of Tax at Avellum, has been appointed to lead the firm’s dispute resolution practice as well.
“Vadim Medvedev represents clients in disputes relating to tax and customs, corporate, labor, land, and real estate matters, as well as bad debt recovery proceedings,” reports Avellum, adding that he also “advises Ukrainian and international corporations, government agencies, financial institutions, and private clients.”
Medvedev, commenting on his new appointment, stated that “increasingly, the courts tend to listen to a well-founded legal position. In our work, we rely on the extensive expertise of key Avellum practices. Therefore, we offer our clients the best position possible in terms of substantive law. This is an essential component in implementation of the litigation strategy which allows our clients to defend their interests in courts of all instances, including the Supreme Court, in the most efficient way.”
Medvedev holds a law degree with honors from National University of Kyiv-Mohyla Academy. Prior to joining Avellum in 2012, he spent two years as an associate with the Ulysses law firm and a year and a half with Rybin and Partners.
Shhaukat Valitov, former in-house counsel at Mirax, has joined Eterna Law as partner in charge of the Uzbekistan markets.
According to Eterna Law, Valitov, who will be based in Kyiv and Moscow, “specializes in comprehensive property protection, has more than 14 years of experience in debt collection, both in the process of pre-trial settlement of disputes and at the stage of court proceedings. He specializes in international commercial arbitration and international litigation and has more than 12 years of experience in conducting transactions in international capital markets, including M&A, IPO, SPO, CLN, Eurobonds, alliances and joint ventures.”
Valitov holds a Master’s degree from the University of San Francisco. Before he joined Eterna Law, he worked for two years with the Global Internet Policy Initiative and was in-house counsel at Mirax.
Former Arzinger Partner and Head of Tax and Labor Law Pavel Khodadovsky has been appointed Deputy Minister of Finance by the Cabinet of Ministers of Ukraine.
“I took the offer to take up the position of Deputy Minister of Finance of Ukraine as both a challenge and a logical extension of the practical experience gained during my time as a lawyer and partner of Arzinger at the head of tax and labor law practices,” explained Khodakovsky. “I am glad to join the team of the Ministry of Finance and to contribute to a new stage of development of the financial system of Ukraine.”
“I understand and support Pavel’s decision, despite the fact that our company loses a partner and leader of several practices,” noted Arzinger Managing Partner Timur Bondaryev. “I am very grateful to Pavel not only for developing Arzinger’s expertise in tax and labor law over the past ten years, but also bringing up a solid team of professionals. The country is moving on, beginning a new phase of its development, and therefore powerful specialists and the best minds are needed to ensure its success, influencing the most important processes and mechanisms. Also, of course, we remain friends and will assist as needed within our pro bono projects.“
Vasil Kisil & Partners has successfully represented Miniso Ukraine in a VAT dispute worth over UAH nine million.
Vasil Kisil & Partners explains that, “the tax authority refused to refund the VAT amount that exceeded UAH nine million” to Miniso, following a tax audit. ”The court ruled in favor of Miniso and annulled all the tax notifications/decisions issued against it.”
Miniso was founded in 2013 by Japanese designer Miyake Junya and has 3500 stores in 67 countries. The first Miniso store in Ukraine opened in September 2017.
The Vasil Kisil & Partners team included Managing Partner Andriy Stelmashchuk, Partner Alexander Borodkin, Counsel Tetyana Berezhna, and Associate Viktor Hrabovskyi.
Sayenko Kharenko has advised the European Bank for Reconstruction and Development on its loan of up to EUR 116 million to Kronospan UA, a manufacturer of wood-based panels.
Kronospan manufactures wood-based panel products at over 40 production sites in 21 countries. The funds obtained from the EBRD will be used to construct a new production facility in Novovolynsk, Ukraine.
Sayenko Kharenko’s team included Associates Denis Nakonechny and Vira Pankiv and Junior Associates Vladyslava Mitsai and Oleksandra Maksymenko.
“Our financial sector is the area that is developing the most rapidly,” says Aequo Partner Yulia Kyrpa of the situation in Ukraine, although she admits there are still challenges ahead.
Kyrpa says that the abolishment of foreign currency restrictions earlier this year is part of a promising pattern, following 2014 reforms to the banking sector and a 2017 Association Agreement with the EU. “The change in the Foreign Exchange law was designed to remove barriers between foreign trade transactions and lending transactions in dividend payments for foreign companies present in Ukraine,” she says. In addition, she adds, the requirement that individual licenses from the National Bank of Ukraine be obtained for certain transactions was also eliminated.
According to Kyrpa, other instruments “broadly used in the West” have been adopted. Among them is a debt-to-equity swap – a new instrument in Ukraine that will let foreign investors lend funds to companies and convert them into equities.
In another change, agrarian receipts will, going forwarded be implemented in an international format. “In the past, these receipts could be used only between residents, while now they can be used between residents and non-residents,” Kyrpa explains.
Still, despite these changes, Kyrpa notes that some procedures in Ukraine remain more challenging than in the West. For example, she says there are still “heavy” requirements for reporting on foreign exchange transactions from Ukraine to abroad, which she believes are designed to limit the outflow of currency from Ukraine to other countries. She is hopeful, however, that these restrictions will be abolished within few years as well, making Ukraine “completely integrated within the Western financial market.”
When it comes to current challenges, Kyrpa says that although the reform to the banking sector was completed in 2017, there are still many distressed debts in the system. The challenge, she says is “to dispose of such distressed debs and make sure that banks that remain in the system operate prudently.”
Further, she says, the consumer lending segment that became stagnant due to the recent crisis has started expanding. Kyrpa reports that the National Bank of Ukraine has created a pilot project, “Go FinTech,” including the establishment of an expert council for direct communication with companies and banks attempting to implement FinTech solutions. She explains that, as a result of the project, “each FinTech solution suggested by market participants can be considered for adoption in Ukrainian legislation.”
Moreover, Kyrpa says, the NBU has partially implemented Remote Bank ID, allowing banks to identify customers without requiring their physical presence. “It is a significant development, prescribed by the EU Directive on Payment Services Directive 2,” she says, noting that the measure has been well-received by banks. Once fully-implemented, Remote Bank ID is expected to allow banks to provide almost all services online. First, though, she says, “it is necessary to bring other pieces of legislation in line and for the banks to develop their internal procedures to implement the regulation in full.”
Overall, Kyrpa says, for the first time in years Ukraine is financially stable, despite the tension in the country related to this year’s presidential and parliamentary elections.
Ukraine’s international obligations regarding reform of the country’s electricity market are determined by the Treaty establishing the Energy Community and the Association Agreement between Ukraine and the European Union, the European Atomic Energy Community, and their member states.
Ukraine launched a new electricity market on July 1, 2019, following the April 13, 2017 adoption of the Electricity Market Law. It is expected that the implementation of reforms defined by the Electricity Market Law will lead to the liberalization of the Ukrainian electricity market and its functioning on a competitive basis.
The main objective of electricity market reform is to create a competitive market at the wholesale and retail levels. Reform of the electricity market should open the market to new participants, provide consumers with the right to choose electricity suppliers, and pave the way for affordable electricity prices.
Electricity Market Liberalization: Initial Results
Ukraine only had two years to prepare for a new electricity market. During this period, it was necessary to develop and adopt more than 100 legal acts, carry out the unbundling of all distribution system operators and SE NPC Ukrenergo, establish a guaranteed buyer for producers using renewable sources, and create a market operator for the day-ahead and intraday markets.
The first step on the path towards implementing the new electricity market was reforming the retail market. Implementation of a retail electricity market began on January 1, 2019, with the following results: (a) a new regulatory framework for the retail electricity market has been developed and implemented; (b) there are 302 independent electricity suppliers from which consumers may choose; (c) distribution system operators were unbundled and new entities on the retail electricity market – a distribution system operator, commercial accounting service provider, and electricity supplier – were created.
Main Challenges Facing the Launch of a New Electricity Market
The final steps towards energy reform took place in a challenging environment. In March-April 2019, Ukraine held presidential elections. After the inauguration of President Volodymyr Zelenskyy, the Verkhovna Rada (the unicameral parliament of Ukraine) was dissolved and preterm elections were set for July 21, 2019. This created uncertainty over the launch of a new electricity market.
For this reason, most participants of the electricity market and key stakeholders raised the issue of postponing the implementation of the new electricity market. Representatives of the EU and European Investment Bank backed this initiative due to the lack of a proper regulatory basis and suitable IT systems.
Parliament registered two drafts relating to the Electricity Market Law, initiated separately by MPs and President Volodymyr Zelenskyy, calling for postponing the launch of the new electricity market for a period of from three months up to one year. However, parliament did not consider either draft.
On June 13, 2019, the Constitutional Court of Ukraine issued ruling No. 5-p/2019, recognizing some conditions of the Law on NEURC as unconstitutional, and these unconstitutional conditions will expire on December 31, 2019. This decision raised issues regarding the authority of the regulator before the implementation of the new electricity market, but did not stop the launch of the market.
Electricity Market Launch: Key Results
Notwithstanding a variety of difficulties, in June 2019 the Cabinet of Ministers of Ukraine and the National Energy and Utilities Regulatory Commission of Ukraine (NEURC) adopted an unprecedented number of resolutions regarding the launch of the new market. The Cabinet of Ministers adopted both the procedure for imposing special obligations on the participants of the electricity market to protect the public interest and the procedure for conducting electronic auctions for the sale of electric energy under bilateral agreements.
The NEURC revised market rules and day-ahead and intraday market rules. Additionally, the NEURC provided licenses to the guaranteed buyer and the market operator less than one week before the launch of the market, making it possible to conclude the amendments to the power purchase agreements of the producers of energy from renewable sources and launch the electricity market with all participants.
By Maryna Hritsyshyna, Head of Energy, Sayenko Kharenko
This Article was originally published in Issue 6.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
Ukraine continues to bring its legislation in line with EU legislation, fulfilling its obligations under the Association Agreement between the EU and Ukraine. One of the ways to improve the laws of Ukraine is to establish a relationship between the consumers, producers, and sellers of goods – especially of non-industrial use goods.
One of the regulations to be highlighted in that regard is Ukraine’s “On Consumer Information on Food Products” Law (the “Law”) that was passed in February and most of which came into force on August 7, 2019.
The Law substantially tightens the requirements for providing information about food products on market operators, including requirements regarding labeling, composition, advertising, and positioning in the market.
Although there are a significant number of exceptions, as a general rule, the Law establishes a list of twelve items that must be displayed when selling packaged foods. In addition, the Law provides a detailed set of rules for how these items should be displayed on food packaging, including on the size and brightness of the font and to the approach of displaying a single item. For example, the Law establishes an extremely detailed framework for how the composition of a food product should be described, including the requirement that products containing more than 0.9% of genetically modified organisms or produced from an ingredient containing more than 0.9% of GMO should be labeled “with GMO.”
In addition, the Law includes a business-friendly transitional provision which permits the sale of foods produced under the previous law for three years from the day the Law entered into force (so, until August 7, 2020).
The liability situation for violations and for non-compliance with the requirements for reporting the information on food products has significantly changed. Previously, the law provided only for fines for violations of the requirements for reporting information on food products (fixing five minimum wages as a fine) and only in cases where the violations could harm the life or health of a person or an animal (in accordance with Paragraph 5 Part 1 of Article 65 of the Law of Ukraine “On State Control over Compliance with Legislation on Food Products, Feed, By-Products of Animal Origin, Animal’s Health and Welfare”). Moreover, a penalty could be applied only in cases of repeated violations over the past three years (according to Part 2 of Article 65 of the same legislative act).
However, the Law changes the situation dramatically. First, for the above violation, the fine is increased to the amount of 30 minimum wages for legal entities and to 25 minimum wages for individual entrepreneurs. Second, a new formulation of offenses, providing for extremely high fines, is introduced. For example, failure to provide the consumer with information about the ingredients that can cause allergies or intolerances can be fined in an amount of up to 30 minimum wages for legal entities and up to 25 minimum wages for individual entrepreneurs.
The stipulations of Article 151 of the Law of Ukraine “On Protection of Economic Competition” which state that providing inaccurate, mistaken, or misleading information about any product can be interpreted as unfair competition should not be ignored. For the improper execution of the law, a penalty of up to 5% of the subject’s annual income of the year preceding the imposition of the fine is provided. It is also worth remembering the eventual problems that came with customs clearance when importing products which are marked inconsistently with the legal requirements. The introduction of a new special labeling law detailed the legal regulation of these issues.
All of these requirements are closely related to the harmonization of the laws of Ukraine with EU legislation. For investors, on the one hand, the new rules will impose additional costs for changing the packaging of goods to comply with the Law’s requirements, but on the other hand, they will simplify the work in Ukraine for both Ukrainian and European food producers due to a unified approach to product labeling. This, in turn, will increase consumer awareness of products and, hopefully, will reduce the number of complaints.
By Dmytro Syrota, Managing Partner, SDM Partners
This Article was originally published in Issue 6.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
Halfway through 2019 Ukraine has already seen major changes in its energy sector’s legal framework, including the effect of the recent decision of the Constitutional Court of Ukraine involving the legal status and decision-making authority of the Ukrainian energy market regulator (the “Regulator”). The shockwaves are likely to go far beyond 2019.
In particular, the current year has become a litmus test for the country’s capability to procure proper compliance with the EU’s Third Energy Package, to unbundle the Ukrainian gas transmission system, to set new gas transit tariffs, and – most importantly – to secure a new long-term gas transit contract and remain a reliable gas transit partner for European countries. Achieving this all will be a challenging task for the Government, as well as for the current and future gas transmission system operators.
Adoption of the Gas Market Law in 2015, followed by the 2016 introduction of Resolution No. 496 of the Cabinet of Ministers of Ukraine setting out the preferred unbundling model, gave rise to cautious optimism that Ukraine was actually moving towards efficient gas sector reform and bringing its gas market in compliance with EU Directive 2009/73/EC. In short, the Government chose the gas transmission system (GTS) unbundling model (ownership unbundling) and instructed Naftogaz (the owner of the current GTS operator) to procure it.it. Unfortunately, with Naftogaz/Gazprom arbitration disputes unfolding, the GTS unbundling progress lost its tempo.
Thus, January 1, 2020 was set as the designated milestone both for unbundling and for the new gas transit contract. While the Government – in preparation for the ownership unbundling – established the future GTS operator (Main Gas Pipelines of Ukraine (“MGU”)), Naftogaz chose to pursue a different model (an independent system operator (“ISO”)), and invested two years into its preparation. Presentation of the ISO model by Naftogaz caused some real controversy in the professional community. The proposed ISO model would require and rest on a concession agreement, which was and remains impossible within the current legal framework. Thus, implementation of the proposed ISO model appears conditional upon the Parliament of Ukraine adopting an appropriate wording of the law on concessions. Results of parliamentary elections in Ukraine leading to establishment of a single-party majority mean that the new Ukrainian Parliament will be in position to procure efficient and operative legislative process. However, the adoption of the new law on concessions in the wording suitable for the ISO model will depend on the political will of the ruling party. Not to mention that concessions of state property have always been a very sensitive and controversial issue, which makes adoption of the new law on concessions rather challenging task even for the majority party.
Furthermore, within its proposed ISO model, Naftogaz has established a special company – Gas Transmission System Operator LLC (the GTSO LLC) – which is designed to become the independent system operator as soon as it is transferred to the ownership of MGU.
With the year-end approaching and pressure increasing, in early June 2019 the Government came up with amendments to Resolution No. 496. The initial unbundling plan was revised, although retaining the ownership unbundling model. As a result, the unbundling plan has become even more complicated, as it foresees the temporary (i.e., until January 1, 2020) integration of MGU into Naftogaz Group.
However, the new amendments to Resolution No. 496 have not changed the intention of Naftogaz to proceed with its ISO model. The new Resolution has vested Naftogaz with the obligation to procure protection of its position at the arbitration in Stockholm of its dispute with Gazprom over the revision of gas transit tariffs through the Government’s unbundling model. According to Naftogaz, protecting its position in Stockholm arbitration may be achieved exclusively through its proposed ISO model.
All things taken together, the unbundling may seem to have fallen into gridlock. MGU is obliged to file for certification as the gas transmission system operator. At the same time, under Naftogaz’s unbundling roadmap, GTSO LLC plans to file for such certification itself. The crucial task for the applicant will be to convince the Regulator and the Energy Community Secretariat in independence of the GTS operator and its ability to ensure functioning in compliance with principles of EU’s Third Energy Package. There is a good chance that the certification will be achieved under the revised certification order currently elaborated by the Regulator which will allow conditional certification prior to final certification.
By Maria Orlyk, Partner, CMS Reich-Rohrwig Hainz
This Article was originally published in Issue 6.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.