Successful investments are an excellent indicator of how effective investment activity in a particular region and in the country as a whole is, as a favorable environment for doing business. Today, Ukraine is open to investors from all over the world, which the latter actively use. Concession (law of Ukraine on concession, a type of agreement on the creation or reconstruction of objects (usually) of real estate owned by the state at the expense of the investor (or jointly with the Concedent), as a result of which the investor is able to operate the object on a paid basis, collecting income in their favor.
Kasyanenko & Partners Law Company specialists will provide you with the necessary support throughout the entire process of implementing investment projects, including organizational and informational support.
Ukraine is a country with great potential and developing infrastructure. Located in the Eastern part of Europe, it has gained a favorable geopolitical and geographical position, which plays an important role in world trade. Profitable investments, today Ukraine has the status of a European country with an impressive transit potential in the Euro-Asian region, thanks to short transport routes and long transport corridors.
The transport network of Ukraine consists of:
- 22 thousand kilometers of railway tracks;
- 170 thousand kilometers of roads;
- 2200 kilometers of shipping lanes;
- 13 sea ports;
- 4 fishing ports;
- 11 river terminals;
- 21 airports (2 of them belong to the state, 14-municipal property, 5-other forms of ownership).
Like any industry, transport requires attracting new investors, investments and financial injections, without which sustainable development, the introduction of high-tech solutions and the integration of the national transport network into the global network is impossible.
After signing the Association Agreement with the EU, Ukraine has opened up new opportunities and prospects for development and investment in the Ukrainian economy. But at the same time, there was a need to modernize the existing transport system to integrate it with the Trans-European one. Foreign investors should play an important role in this issue.
To attract investors, a Transport strategy was developed, according to which, by 2020, favorable conditions will be created in Ukraine to ensure the financial attractiveness of the transport industry as an object for investment, the development of public-private partnerships and other measures to attract cash flows. The main objective of the investment strategy in the economy of Ukraine is to improve the state of the transport infrastructure of Ukraine.
Concession and priority areas of investment in the main infrastructure sectors of Ukraine
Investment in the railway sector. Ukraine
- creating a network of interconnected logistics centers and multi-modal terminals at major transport hubs and checkpoints on the border between Ukraine and EU countries;
- design, restoration, financing, operation, reconstruction of existing railway tracks and construction of new ones, as well as all objects of the railway system related to passenger service, on the terms of partnership between the public and private sector;
- construction of high-speed railway corridors to increase the economic efficiency of transportation;
- operation of freight rolling stock and purchase of new freight cars.
Investments in the road sector. Ukraine
- construction of new roads on the terms of a concession and a partnership mechanism between the state and private owners;
- development, implementation and application of the national transport model during the planning and implementation of the strategy for the development of Ukrainian transport infrastructure;
- management of roads on the basis of geoinformation technologies.
Investments in the Maritime and river sector. Ukraine
- deepening existing and building new waterways, as well as sea port areas for smooth passage of large deadweight vessels;
- use and construction of river piers, locks, and dredging;
- modernization and creation of new port infrastructure facilities based on long-term lease agreements, concessions, public-private partnerships, joint activity agreements, and other investment agreements;
- creation and implementation of energy-saving technologies on sea-going transport, introduction of equipment for the production of alternative fuels;
- provision of navigation system and operational technological communication for navigation on inland waterways.
Investments in the aviation sector. Ukraine
- reconstruction of the system of functioning airports, runways on airfields and their infrastructure;
- transfer of ownership and use of airport property to a concession;
- update the fleet.
For cooperation and additional information on investing in the transport sector of Ukraine, a potential investor can always contact Kasyanenko & Partners Law Company specialists at the contacts listed on the website.
Concession and main strategic goals for the development of transport infrastructure in Ukraine
- creating favorable conditions for ensuring the proper level of investment attractiveness of the transport industry to attract foreign investors;
- ensuring the development and effective functioning of partnership between government and the private sector in transport infrastructure;
- attracting investment flows based on long-term leases, privatizations and concessions;
- open and transparent access of business entities to transport infrastructure in a non-discriminatory manner;
- modernization and renewal of rolling stock through leasing and credit and export financing mechanisms;
- development of competition in the transport industry;
- implementation of effective management of state assets of the transport system of Ukraine.
What is a concession as a way to invest in the Ukrainian economy under state guarantees
→ Concession — this is the granting of the right to create/build and/or manage/operate the concession object (fixed-term paid ownership) to a legal entity or individual (business entity) for the purpose of satisfying public needs by an authorized Executive authority or local self-government body on the basis of a concession agreement on a paid and fixed-term basis, provided that the business entity (concessionaire) undertakes to create/build and / or manage/operate the concession object, property liability and possible business risk. The Law of Ukraine On Concession.
→ A concession agreement (or concession agreement) is a contract under which an authorized Executive authority or local self — government body (concessionaire) grants a business entity (concessionaire) the right to create/build a concession object or substantially improve it and/or manage/operate it in accordance with this Law to meet public needs on a paid and urgent basis.
→ Concessionaire – a business entity that has received a concession in accordance with the Law on the basis of a contract. Several persons may act on the concessionaire’s side.
Today, Ukraine needs a significant factor to increase economic efficiency by attracting domestic and foreign investors to implement projects based on a partnership between the state and the private sector in the form of a concession, since the country has a great potential for cooperation and mutual investment in various infrastructure sectors.
The experience of many developed countries shows that the improvement of all performance indicators of municipal and state property should be based on attracting financing and managing private capital objects on the terms of public-private partnership. The most common form of such partnership is a concession.
The concession mechanism allows the state to transfer social, investment, environmental and other obligations to private owners for the entire period of the agreement between the parties, while retaining property rights to state objects, both existing and created during the period. During the term of the concession agreement, the country’s budget will receive a share of income from the investor’s activities in the form of concession payments.
The concession is a mechanism that will attract investors to the country, whose cash flows will become a serious factor for improving the efficiency of operation of all state infrastructure facilities and their modernization.
Concession activity brings a long range of advantages, among which the key ones are the creation of new jobs, the implementation of social projects, the revival of economic activity, and the introduction and development of global business practices.
It is worth noting that international institutions such as the ECE, UN, UNCITRAL, EBR, IFC and the world Bank have been actively developing standards, methodologies, and guidelines for summarizing best practices for implementing public-private partnership projects in the world, including concessions. The standards listed above are the basis of the concession mechanism.
We should not ignore the fact that to date, Ukraine has not implemented any major project on the terms of a concession. The reason for this is the imperfection, obsolescence, inconsistency of legislation in the field of public-private partnership and concession.
At the same time, the concession mechanism is actively used in the global community to implement large-scale infrastructure improvement projects. For example, more than 50,000 kilometers of roads were built and put into operation in the European Union.
The concession mechanism was developed and registered in the Law of Ukraine On Concession to improve the legal regulation of the relevant activities for the implementation of large-scale and high-quality projects on the terms of the concession agreement, which correspond to world practice. This mechanism provides for:
- systematization of the existing laws of Ukraine on concessions;
- harmonization of the legislation on concessions the law on public-private partnership;
- implementation and development of international experience in implementing projects based on a concession;
- elimination of inaccuracies and legal conflicts that was discovered during the application of existing laws in the field of concession and partnership between the state and the private sector.
The concession mechanism defines the following points:
- clear distinction between concession regulation and other forms of public-private partnership;
- a single procedure for initiating and deciding on the implementation of public-private partnerships for all its forms, including concessions;
- implementation of a transparent procedure for selecting a concessionaire on a competitive basis, in accordance with best international practice;
- the ability to attract independent experts and advisors to prepare partnership projects in the form of a concession;
- additional guarantees for the participants of the concession agreement, in particular, the presence of a clause in the agreement on the right to replace one concessionaire with another;
- simplified procedure for allocating land plots for projects;
- features of a concession in a market with a natural monopoly;
- features of the concession for the creation of roads and their further operation;
- the procedure for converting a lease agreement into a concession agreement when the lessee makes a corresponding request;
- the possibility of resolving disputes by international commercial or investment arbitration that may arise during the execution of the concession agreement;
- ability to initiate a concession by a potential participant;
- clear control and monitoring of the implementation of the concession agreement;
- regulation of the property right to the object that is transferred to the concessionaire under the terms of the concluded contract, to preserve it for the state or territorial community.
Concession under the new rules: investment opportunities and risks in accordance with the Law of Ukraine On Concession
In October 2019, the Law On Concession was adopted and signed, which opened up new opportunities and potentials for the state that were previously absent in Ukraine. Despite this, the law provides for certain rules that may carry potential risks for the concessionaire.
→ The first point is the implementation of the concession agreement. One of the mandatory stages is the environmental impact assessment, which falls on the concessionaire after the agreement is signed. The risk is that an individual, after winning the competition, may lose the opportunity to implement their project due to a poor conclusion on the assessment of the impact of the chosen activity on the environment. In such circumstances, it would be appropriate to involve environmental law experts in evaluating participation in the concession competition. (Law of Ukraine On Concession)
→ The second risk is the possibility of changing the terms of performance of the contract by the concessionaire. Article 36 of the law guarantees of the rights of the concessionaire defines the obligations of the state to apply to the concessionaire the legislation in force at the time of signing the contract, does not apply to changes in legislation in the field of defense, national security, civil order and environmental protection, licensing, rules and conditions for providing public services in markets with a natural monopoly. It is unlikely that an investor will be able to calculate or anticipate changes in legislation during the period of validity of the concession agreement. However, if changes occur, this may cause the concessionaire to lose money and close the project. (Law of Ukraine On Concession)
→ The third risk is an article that specifies that the concessionaire may be granted exclusive or special rights related to the implementation of the project. What are special rights, the law is silent. It is still difficult to determine exactly the risk potential for investors, as well as to say whether this will work at all.(Law of Ukraine On Concession)
→ Last point-transitional provisions of the new law. They indicate that the holding of concession tenders started before the entry into force of the law in 2019, and further conclusion of contracts based on the results of this event will be carried out using the old legislation (Law of Ukraine On Concession).
Kasyanenko & Partners Law Company is an advanced law firm that will help in any issues related to the concession according to the new and old legislation, investments in the Ukrainian economy will become much more attractive and profitable. Turning to us for legal assistance, you provide yourself with effective cooperation with specialists of the highest level! We will calculate all the risks of investing!