The Ukrainian government has declared its intention to implement the success story of European countries in the sphere of public-private partnerships. In order to implement those ambitious plans the government has established a Project Office for PPP to work closely with international investors and lobby for relevant legislative improvements.
Although it is too early to describe the efforts of the Ukrainian government related to PPP projects as a major success, some steps in the right direction have already been taken.
The most important recent development in Ukrainian legislation is the draft “On Concessions” law that was prepared with the involvement of international consultants to replace the few outdated laws on concessions that exist now. The new law would provide for an appropriate allocation of risks between the public and private sectors, simplify the tender procedure, and provide financing institutions the right to change the project company. In addition, the law would fill in gaps in legislation regarding land plot allocation issues and unify the rules for all types of concession projects (such as roads or concession in the sphere of public services).
However, since the adoption of the new law on concessions is still in progress, investors are encouraged to initiate their investment projects based on the lease of state property. Although the lease mechanism is simple and well-tested, it has a number of drawbacks. In particular, a lease agreement would not provide for a correlation between rent payments and the investor’s results of commercial activities. Therefore, for existing investors not satisfied with their lease agreements, the draft law envisages the transformation of a lease into a concession. Unfortunately, that transformation is not going to be automatic and would require the cooperation of various authorities — which could potentially block the process at any stage.
The results of the draft law’s implementation are going to be tested in the field. The government is currently developing three pilot projects in Ukrainian ports. Particularly, a concession mechanism is planned to be implemented in the Specialized Sea Port Olvia (at the Dnieper-Bug estuary), the Commercial Sea Port Kherson, and the Ferry Terminal in the Sea Commercial Port of Chornomorsk. The Ukrainian government expects these projects to attract USD 300 million in investments in the modernization of existing port infrastructure, as well as in the development of new assets (for example, there is a plan to construct a grain terminal and oil-extracting factory in the Specialized Sea Port Olvia). The preparation and implementation of these projects is supported by International Finance Corporation and the European Bank for Reconstruction and Development.
Recently, the Ukrainian government has also made a number of institutional transformations and changes. For example, 2018 began with the establishment of the Maritime Administration by the Cabinet of Ministers of Ukraine (CMU), which is expected to function as a central office in the maritime sphere and coordinate the work of Ukrainian sea ports, ensure the safety of maritime navigation, and ensure international cooperation. The Ukrainian Sea Ports Authority has already been created to manage strategic infrastructural objects and facilities in the seaports.
Government officials have announced plans to build a new “Silk Road,” starting in Ukrainian ports and going through Georgian ports, then Baku and Kazakhstan, to China. With those plans comes the understanding that the port duties in Ukrainian ports should be competitive. Therefore, on January 1st, 2018 the CMU reduced port duties by 20%. However, even after this reduction, the amount of port duties to be paid is very high compared to other ports in the Black Sea region.
The Ukrainian government’s changes are not limited to sea ports, and there are a lot of projects in other infrastructure sectors as well. For example, the construction of the first Ukrainian toll road is being prepared and developed by Ukrainian authorities, and at the end of February the Ukrainian Parliament approved legislative changes simplifying the procedure of concession in the sphere of roads.
Although all these tasks are challenging for the Ukrainian government, the Ministry of Infrastructure would like to implement a very high-flying project. Volodymyr Omelyan, the Minister of Infrastructure of Ukraine, announced that the country would like to build a platform for Hyperloop testing. Should these ambitious plans materialize, relevant changes to legislation may be expected.
By Oleksandr Kurdydyk, Partner, and Kateryna Soroka, Of Counsel, DLA Piper
This Article was originally published in Issue 5.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.