The Parliament Adopts A Law On The Privatisation Of The Coal Mining Sector

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On 12 April 2012 the Parliament of Ukraine adopted the Law "On the Peculiarities of the Privatisation of Coal Mining Enterprises" (hereinafter – the "Law").
Ukraine Energy and Natural Resources

On 12 April 2012 the Parliament of Ukraine adopted the Law "On the Peculiarities of the Privatisation of Coal Mining Enterprises" (hereinafter – the "Law").

Coal mining companies, including state-owned coal mining companies, coal mines, open-pit coal mines and also any stakes in coal producing companies held by the state (hereinafter – the "Coal Producers") may now be privatised in accordance with the procedure established by this Law.

The key provisions introduced by the Law are as follows:

  • The Ministry of Energy and Coal Industry, the State Property Fund of Ukraine and its regional bodies will be the competent public authorities responsible for the privatisation of companies operating in the coal sector. The Cabinet of Ministers of Ukraine (CMU), however, is yet to adopt a list of the specific Coal Producers which shall be subject to privatisation;
  • The starting price for a Coal Producer will be calculated in accordance with the methodology due to be adopted by the CMU. In any event, the Law expressly provides that the value of commercial reserves will not be included in the starting price;
  • The applicable permits for coal production activities will be reissued in the name of the prospective investor, free of any charges and payments. However, the depreciated cost of such permits will be included in the opening price for the Coal Producer;
  • A 3-year moratorium is imposed on any bankruptcy proceedings and any debt, which may have accumulated by the time the privatisation process is completed, may trigger the forced sale of the assets of the Coal Producer;
  • The authorised privatisation mechanisms are: (i) the auction procedure (where the highest price is the main criterion for the selection of a winner); (ii) the investment tender procedure (where the suggested volume of investments is the key factor); and (iii) any other procedures envisaged by law (such as the purchase of the object by the concessionary or lessee);
  • The investment tender is to be held by the tender commission (formed by the Ministry of Energy and Coal Industry, the State Property Fund of Ukraine and as approved by the CMU) based on the bids of the potential investors;
  • Only those bids which have obtained prior approval by the Ministry of Energy and Coal Industry of Ukraine may be submitted to the tender commission for review;
  • The tender documentation is to include: (i) the registration and charter documents of the bidder, (ii) the tax return (in the event that the potential investor is an individual); (iii) a bank guarantee, letter of credit and/or any other documents which can be offered as security for the performance of the bidder's financial obligations; (iv) a business plan; (v) documents evidencing the financial capabilities of the investor (including data on its profitability and accounts payable and receivable over the previous 3 years); (vi) documents evidencing the absence of any tax indebtedness;
  • The winning investors will sign with the State a sale and purchase agreement, containing a number of obligations (including detailed financial, social and production commitments) to be performed by the investor within the established timeframe (which is not to exceed 5 years).

Law: Law of Ukraine "On Peculiarities of Privatisation of the Coal Mining Enterprises" dated 12 April 2012, No. 4650-VI.

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The original publication date for this article was 14/05/2012.

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