The Ukrainian government realizes that only the construction of a new contemporary infrastructure, including local infrastructure, can become the basis for prolonged economic growth. At the same time, the problem of modernizing the Ukrainian infrastructure as well as the problem of lack of investments became the reason why Ukrainian legislators commenced the large-scale privatization and concession process, among others in road, sea port and airport construction and operation, in the energy sector.
AIRPORTS
The conception of the State Airport Development Program till 2020, approved by the Cabinet of Ministers of Ukraine (CMU), provides for more active attraction of private investments into the operation of airports and infrastructure.
The plans of the CMU provide for the division of airports into two parts - flight, i.e. runways, and passenger part (terminals). The flight part is not subject to privatization. As to the passenger part, there are possibilities for its "sale" to private investors.
Thus, on 26 September 2012 the Cabinet of Ministers adopted the Resolution On Amendments to the List of State Property, which can be Transferred into Concession. According to the Resolution, Boryspil International Airport can be transferred into concession. In this case, the airport shall be transferred as an integral property complex. It is assumed that the airport will be transformed into an international hub. All of the new infrastructure will remain in state ownership. It is expected that investors will spend at least UAH 1.S billion on developing the airport's infrastructure. In addition, the concessionaire will have to serve the credit commitments taken on by Boryspil
In addition, the Ukrainian government announced recently that other Ukrainian airports would also be handed over into concession.
ROADS
Public motor roads are state-owned and are not subject to privatization. According to the current legislation on concessions there is a possibility for the conclusion of agreements on construction and operation of roads.
Six projects were announced recently by Ukravtodor (the agency in charge of roads in Ukraine) as seeking a feasibility study and eventual possibility to be built under a concession agreement. One of the well-known examples is the ring road around Kiev, which is to be built under a concession agreement.
Today, the pending issue is construction of the first toll road in Ukraine. On 11 April 2012 a tender to prepare a feasibility study on construction of a part of the existing ring road in Kiev took place. It will be the first project in the sphere of road infrastructure, which has a chance to be implemented on the basis of a concession agreement with the aim of creating a precedent when the infrastructure in Ukraine is developed at the expense of private investment and not budgetary funds.
SEAPORTS
According to the On Public-Private Partnership Act (FPP) as well as current legislation on concessions, there is a possibility for the construction and operation of seaports and respective infrastructure on a concessionary basis.
On 17 May 2012 the Ukrainian Parliament adopted the new On Seaports of Ukraine Act of Ukraine. The Act determined the basis for PPP regarding seaports. The Act provided the possibility for private investors to participate in the privatization of seaport infrastructure facilities, save Strategic ones, through their buy-out or acquisition on a competitive basis (at an auction). Through privatization of an integral property complex of a state enterprise the investor is entitled to lease berths and land plots underneath such facilities. The document also provided the possibility to construct berths at the expense of private investors after it has come into force.
Moreover, on 21 November 2012 the Cabinet of Ministers (CMU) adopted the Resolution Some Issues of the Transfer of State Property Objects to Concession, according to which the list of state-owned facilities that can be transferred into concession includes all 18 state-owned seaports of Ukraine.
PRIVATIZATION AND CONCESSION IN ENERGY SECTOR
Over the last few years, and especially in 2011-2012, Ukraine has taken serious steps in reforming its energy legislation. Privatization in the electricity and gas sectors, options for involvement in the extraction of fuel resources and accession to the Energy Community, and the promotion of "green" energy, suggest that a closer look at the Ukrainian energy market would likely attract the interest of investors.
1. Regional Electricity Distribution Companies (Oblenergo)
In early June 2010, the President of Ukraine announced the Program of Economic Reforms for 2010-2014, which envisages the privatization of regional electricity distribution companies and energy generation companies.1
On 11 April 2011 the CMU adopted the Resolution On Approving the List of power Generating and Power Distributing Companies with State-Owned Stakes to be. Sold in 2011, whereby 25% to 50% of state-owned shares in certain Oblenergos shall be sold. Meanwhile, losing control of the afore-mentioned Oblenergos, the state retains blocking share holdings (25%+1).
2. Regional Gas Supply Companies (Ob/gas)
In October 2011, the CMU issued a Decree2 that entrusted Naftogaz3 with the mandate to further privatize regional gas supply companies by offering more of the state-owned shares for sale. According to this Decree, Naftogaz must ensure that 25% of all but 12 of the companies remain state-owned4. For the 12 companies that are not required to remain state-owned, the state-owned stake will be transferred to the State Property Fund and will then be sold entirely. And on IS August 2012 the State Property Fund decided on the privatization of the first 12 gas supply and gasification companies.
3. Combined Heat and Power Plants
On 12 April 2012 the Ukrainian Parliament adopted Act No. 9713 of l6January2012 On Amendments to Certain Acts of Ukraine on Privatization, excluding combined heat and power plants from the list of state-owned property not subject to privatization but subject to corporatization. Thus, 13 combined heat and power plants are excluded from the list of state-owned property. The explanation note to the Draft: Act states that the Ministry of Energy and Coal Industry prepares a program of technical re-equipment of combined heat and power plants. Implementation of such program will require non-state investments that could be raised through the transfer of state enterprises - combined heat and power plants into lease or concession. At the same time, one of the main terms of the respective agreements is that the future lessee or concessionaire has to switch the plant to alternative fuel types - coal.
4. Coal Mines
On 12 April 2012 the Ukrainian Parliament adopted Draft Act No. 9412 On the Specifics of the Privatization of Coal Mines as of 3 November 2011 initiated by the CMU. Among the conditions of sale and purchase agreements we would like to note the investor's obligation to implement a programs for technical re equipment of production, to introduce advanced technologies, as well as to provide a guaranteed fixed amount of coal production over a period determined by the agreement (not exceeding 5 years). On 19 September 2012 the CMU adopted Resolution No. 987 On Approval of the List of State Property to be Privatized in 2012-2014, and the Criteria for Determining the Methods of Privatization, where the government has approved a list of 67 mines that are to be privatized in 2012-2014. According to current legislation the winner, both in the event of an auction and in case of investment bidding, will be the bidder that has offered the highest price/maximum value of the given investment in the object of privatization expressed in monetary terms.
Originally published in www.ukrainianlawfirms.com.
Footnotes
1. The electricity generation companies currently operating in Ukraine are: PJSC Dneproenergo. PJSC Cenuenerso, PJSC Zapadenergo. and PJSC Donbassenergo
2. Decree of CMU on Transferring Shares of Gas Supply Companies to the State Property Fund of 10 October 2011. No.1053. The Decree requires that Naftogaz offers from 071% to 26.04% of the shares for sale.
3. Naftogaz of Ukraine NJSC (national joint stock company) is a vertically integrated gas-and-oil company performing the full operation cycle on 8as exploration and development. operational and test well-drilling, gas and oil transport and storage, consumer supply of natural and liquefied gas. Over 90% of oil and gas in Ukraine is produced by NJSC enterprises.
4 The following 12 companies are not required to retain any state ownership: Zakarpatgas, Zhytomyrgas, Chemovtsygas, Volyngas, Dneprogas, KirOVogradgas, Korosryshevgas, Kharkovgorgas, Kharkovgas, Khersongas, Odessagas, and Makeevkagas.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
