Ukraine: Ukraine Roundup

Overview

The new Ukrainian government controlled by President Volodymyr Zelenskyy's Servant of the People party settled into office early September and laid out an ambitious plan for legislative and economic reform. With a one-party parliamentary majority in place for the first time in Ukrainian history, expectations are high that a series of groundbreaking legislative developments will be possible in the coming months. Below are some of the key developments.

Launch of an agricultural land market

President Zelenskyy instructed the Cabinet of Ministers to submit a draft law to parliament on the creation of a farmland market by 1 October. The Ukrainian parliament is set to lift the longstanding moratorium on agricultural land sales by 1 December 2019, with the sale of land expected to begin by New Year 2020. Ukraine's moratorium on farmland sales dates back to the early 2000’s. It is a highly sensitive issue due to the significant economic and social importance of agriculture within Ukrainian society. Opponents fear that land sales will allow oligarchic groups and international corporations to consolidate ownership of the country's agricultural wealth at the expense of smallholders and private farmers. Nevertheless, President Zelenskyy's commanding one-party parliamentary majority means that he will likely be able to launch the land market as planned.

Big privatization push

The Ukrainian parliament has received instructions to lift legislative restrictions on the privatization of certain state enterprises and objects by 1 October as part of efforts to prepare the ground for a major privatization push in the months ahead. Prior to 1 December, privatization preparations are to get underway at most major state-owned enterprises earmarked for sale, including the recruitment of independent investment advisers. The first public auction will take place no later than 1 April 2020.

Investment promotion initiatives

The Ukrainian parliament is set to pass a concession law by 1 October, followed by a law stimulating investments and strengthening existing protection of foreign investment by New Year 2020. A separate group of MPs will continue efforts towards greater currency liberalization and look at measures to reduce interest rates in order to revitalize the loan sector for businesses.

Domestic energy production

The Ministry of Energy will prepare to issue new permits for oil and gas production in the country by New Year 2020 as part of efforts to boost domestic production and reduce dependence on Russian energy imports.

Casinos set to return

Ukrainian MPs will prepare the necessary legislation by 1 October in order to return the gaming industry to Ukraine. Casinos will likely be able to operate in certain allocated zones such as five-star hotels and designated resorts. The gaming industry thrived in post-Soviet Ukraine prior to a ban in 2009 following public campaigns over the social damage it was causing along with a number of high-profile tragedies in gambling institutions due to poor public safety provisions.

Disputes angle

Judicial reform ex novo: The Ukrainian parliament and President Zelensky have announced a hard reboot of the Ukrainian court system. In that vein, the Ukrainian parliament has adopted in the first reading a draft law improving the current system for appointment of judges. In particular, the draft law proposes a new procedure for the formation of the High Qualification Commission of Judges to be composed of 12 members appointed by the High Justice Council on a competitive basis. The draft law also provides for establishment of a new body, the so-called Ethics Commission, to oversee compliance by members of the High Qualification Commission of Judges and the High Justice Council with professional ethics rules. Additionally, the Ukrainian parliament has registered a draft law strengthening criminal liability of judges for willful rendering of unlawful judgements.

Launch of the Anti-Corruption Court of Ukraine: On 5 September 2019, the High Anti-Corruption Court of Ukraine entered into operation. It is called to review and decide all cases concerning corruption-related offences.

New concession law: On 13 September 2019, the Ukrainian parliament passed a new draft law “On Concessions” in the first reading. The draft law introduces a new dispute settlement mechanism providing for a wide choice of dispute resolution methods available to parties, including negotiations, mediation, expert determination, national and international commercial arbitration, as well as investment arbitration. In comparison, the current concession legislation allows for the settlement of disputes by means of litigation or international arbitration only. The new draft law also provides that the state may agree to waive its sovereign immunity in concession contracts.

Difficulties related to paying out of feed-in tariff: A new system of feed-in tariff compensation for renewable energy producers was introduced in 2019. Increased transmission tariffs set by Ukrenergo were supposed to be the source of repayment. However, this system was challenged in the Ukrainian courts, which resulted in temporary difficulties regarding repayment of debts owed to renewable energy companies operating in Ukraine. In late August 2019, the government attempted to rectify the situation by changing the mechanism of feed-in tariff repayment, which should have helped with settling debts owed to renewable energy producers.

Exposure to investment disputes: There is growing concern that the rapid legislative initiatives of the new government in certain fields may have a rather sudden and unpredictable effect on business. This, for instance, concerns revision of Ukrainian tax regulations. As result of these rapid changes, some businesses will benefit from the reforms, while others may incur unspecified losses. In time, this may lead to new investment disputes initiated by foreign investors against Ukraine.

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.

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