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Preparing the Ukrainian PPP Framework for Reconstruction

Preparing the Ukrainian PPP Framework for Reconstruction

Issue 10.12
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Ukrainian civilian infrastructure, particularly its vital components such as energy facilities and seaports, was heavily targeted by Russian missile strikes, causing severe damage. Combined damage to civilian infrastructure and energy industries already exceeds USD 50 billion. Since the beginning of hostilities, 18 airports, at least 344 bridges and overpasses, and over 25,000 kilometers of roads were damaged.

Considering the extensive scale of damage, the Ukrainian government has been working on the post-war restoration plans since 2022. Since Ukraine has limited resources to implement a reconstruction program on its own effectively, the role of the private sector in rebuilding becomes much more critical. Notably, private sector participation and its leading role in post-war recovery were among the main topics of the Ukraine Recovery Conference 2023 held in June.

The government views public-private partnerships (PPP) as one of the key instruments of private sector engagement in the rebuilding. The current track record of successful PPP projects includes the Olvia and Kherson seaport concessions awarded in 2020. While the full-scale invasion halted seaport activities, the government worked with the concessionaires to sustain these partnerships throughout the war by invoking the force majeure clauses.

However, existing PPP legislation may not meet the urgent requirements of post-war rebuilding. Under the Law of Ukraine On Concession, the standard open tender procedure usually takes around two years to complete (starting with feasibility study development until the concession agreement signing). Understanding that such a procedure may not be suitable for rebuilding purposes, the National Investment Council of Ukraine, together with Ukrainian and foreign advisors, business and government representatives, has developed a bill registered in the Ukrainian Parliament under No. 7508 On Amendments to Certain Legislative Acts of Ukraine to Improve the Mechanism of Private Investments Attracted under the Public-Private Partnership Mechanism to Accelerate Restoration of Objects Destroyed by War and Construction of New Objects Related to Post-war Rebuilding of Ukrainian Economy (Bill No. 7508).

The key purpose of Bill No. 7508 is to simplify the PPP procedures for post-war rebuilding projects while further refining the general PPP regulatory framework. It provides a much shorter PPP tender procedure for projects that will be included in the special lists of state and municipal PPP rebuilding projects. The government or relevant municipalities will approve such lists for state and local-level projects, respectively.

Among the key changes envisaged by Bill No. 7508 is the cancellation of the requirement to prepare a feasibility study and analysis of the effectiveness of rebuilding projects to be tendered. We expect that such simplification will apply to the projects that will be rebuilt to their initial state and will use the existing project design and construction estimates. This change should significantly reduce the time required to select a private partner and implement such projects.

Bill No. 7508 introduces the shortlisting of potential private partners who may skip the pre-qualification stage of the tender for PPP rebuilding projects and shorter tendering terms for rebuilding PPP projects. It also introduces explicit permission to govern PPP agreements by foreign law and the right to waive sovereign immunity for the state partner under direct agreements.

The government is consulting with foreign partners and finalizing Bill No. 7508 before its second reading in the Ukrainian parliament. The expectation is that it will be adopted in early 2024.

Simultaneously, the government undertakes efforts to ensure transparency and accountability in the rebuilding process. DREAM, an online platform that will collect and publish information about rebuilding projects (including PPP projects), entered beta testing in November 2023.

In October 2023, the EBRD, EIB, CEB, and World Bank signed a memorandum to harmonize and streamline their procurement approach during Ukraine’s rebuilding. This involved utilizing the DREAM platform and Prozorro system. They approved the use of Prozorro for tenders that do not exceed thresholds of EUR 130,000 for goods and EUR 5 million for works/services, and they are collaborating with the Ministry of Economy to apply the Ukrainian procurement system for high-value and complex contracts as well. Furthermore, following the adoption of Bill No. 7508 and the establishment of the necessary technical capabilities of the system, it is anticipated that Prozorro will be used for tendering PPP projects, including those supported by these organizations.

By Maksym Maksymenko, Partner, and Rostyslav Mushka, Associate, Avellum

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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