On April 12, 2012 the Parliament of Ukraine adopted the Draft Law No. 9412 "On Specifics of the Privatization of Coal Mines" as of 3 November 2011 initiated by the Cabinet of Ministers of Ukraine. If signed by the President, the Law will come into force on the day following its publication.
Under the Law, subject to privatization may be:
- coal mining enterprises as integrated property complexes;
- mines as integrated property complexes;
- open-cast mines as integrated property complexes;
- shares owned by the state in the authorized capitals of joint stock companies formed in the process of privatization or corporatization of state mining enterprises.
The Law does not specify the range of potential buyers (investors). Therefore, according to the general provisions of the Law of Ukraine "On State Property Privatization", they can be both Ukrainian and foreign legal entities or individuals.
According to the law, the special conditions for the privatization of coal mines are the following:
- the sale of all shares owned by the state (without preserving the state-owned stakes) in the authorized capitals of joint stock companies formed in the process of privatization or corporatization of state coalmining enterprises;
- a moratorium on the enforcement of sale of property subject to privatization by suspending the enforcement and a moratorium on the institution of bankruptcy proceedings for up to three years after the completion of privatization;
- the reissuance of existing special permits for mining operations for the buyer (investor) of an object of privatization without holding an auction.
The Law provides for the following methods of privatization: sale at auctions, sale at an investment tender or otherwise as provided by the law on privatization (including the redemption by tenants and concessionaires for leased / concession objects). The specific method shall be determined by the privatization authority jointly with the authority that manages state property according to the criteria that must be approved by the Cabinet of Ministers of Ukraine.
The auction / investment bidding procedure shall also be approved by the Cabinet of Ministers of Ukraine. The law expressly provides that if no auction was held due to lack of buyers, the privatization authority has the right to announce the auction for the second time with 30% reduction in the initial price of the privatization. If the auction was not held the second time, the auction shall be announced for the third time with 50% reduction in the initial price of the privatization. If no auction is held in this case, there shall be an investment competition.
The winner, both in case of an auction and in case of investment bidding, will be the bidder that has offered the highest price / maximum value of the given invest ment in the object of privatization expressed in monetary terms. In the event of failure of an investment plan the privatization authority is entitled to cancel the signed sale and purchase agreement in accordance with the Law of Ukraine "On State Property Privatization."
Special attention should be given to the provision on the assessment of objects of privatization. In determining the value of objects the value of industrial mineral resources is not considered. However, the residual value of special permits for mineral extraction is taken into account subject to their free transfer to the investor.
Among the conditions of sale and purchase agreements we would like to note the investor's obligation to implement the 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).
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.
