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 As the previous concession law (which was adopted in 1999) provided outdated and unenforceable regulations and was inconsistent with other laws regulating concessions and public-private partnerships in Ukraine, no significant concession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