L&M Finance Group


In October 2019, the new Law “On Concession” (hereinafter referred to as the “law”) entered into force. The new law not only repeals the two obsolete laws of 1999, but also introduces significant changes to a number of existing legislative acts. A brief review of the law allows you to highlight several key aspects that should be addressed to potential concessionaires:
  1. A concession may be used to carry out projects in any areas of economic activity, except for facilities in respect of which the law directly establishes restrictions or a ban on transferring them to concession.
  2. Participation in the concession tender may be accepted not only by residents, but also by foreign companies. At the same time, the legislator has fixed a number of restrictions and conditions for such entities - potential concessionaires. For example, if the shares or corporate rights of the company are more than 50% owned by offshore companies, as well as if the applicants themselves are registered in offshore jurisdictions, then they will not be allowed to participate in the tender. Along with this, the law enshrines the right to replace the concessionaire, with the transfer of rights and obligations to the new concessionaire on the conditions provided by legislative acts and the agreement.
  3. For the purpose of the best analysis and preparation of the concession project, participants involved in the concession are allowed to engage competent advisers. The last once, in turn, will take on part of the obligations to prepare a project carried out on a concession basis. The procedure and terms of payment for the services of such advisers should be approved by the Cabinet of Ministers of Ukraine in the near future.
  4. As of today, one of the most controversial issues remains the issue of concession payments. The law makes it possible to provide in the Agreement the conditions of legal relations in which both parties can bind themselves by mutual payments:
  • The concessor pays the concessionaire (if the concessionaire cannot receive the full reimbursement of his investments at the expense of consumers of services);
  • The concessionaire pays the concessor mandatory payment under the Agreement systematically and/or one-time).
  1. In order to fulfill their financial obligations, concessionaires may open target accounts with banks, including in hryvnia and foreign currency.
  2. The legislation also provides for a number of guarantees for concessionaires. In particular, the concessionaires are subject to the legislation in force on the day the concession agreement is concluded, unless the legislation:
- taxes or duties are reduced/canceled;
- simplified regulation of economic activity;
- the state supervision (control) procedures in the field of economic activity are weakened;
- mitigates the responsibility for the concessionaire or otherwise improves the position of the concessionaire;
A counterweight to these guarantees is an exception that relates to changes in legislation in the field of legislation on defense, national security, public order and environmental protection, licensing, rules and conditions for the provision of socially significant services in markets in the state of natural monopolies.
  1. Considering the fact that the new law repealed the earlier law “On Concession for the Construction and Operation of Roads”, the new law prudently added a separate section on this issue. According to the norms of the last one, the concession project on which the road is to be built can only be implemented if there is an alternative free transportation throughout the life of the road. At the same time, the conditions for free transportation on roads that were built on a concession basis, and the procedure for reimbursing the concessionaire for such free transportation are established by the Cabinet.
The real highlight of the new law was the opportunity to choose a mechanism for resolving disputes between the parties, including mediation, national or international commercial arbitration, international investment arbitration, including arbitration located abroad.
It should be noted that most of the provisions of the law make the regulation of concession activities more transparent, and key procedural issues more secure and secured by a number of guarantees, which fully complies with European and international practice.