Infrastructure investments and public-private partnership in Ukraine

Legal basis

The essential legal basis for PPP is found in the laws of Ukraine: On concessions, On concessions for the construction and operation of roads, On agreements on product distribution, On financial leasing, On leasehold of state property, and On management of state property objects. The draft law on PPP must now provide common and universal regulation for these laws.

(i) PPP Law (Draft Law)

In autumn 2008, the Cabinet of Ministers of Ukraine approved a draft law On the general provisions of development for public-private partnership in Ukraine. The legislation in Article 1 accomplishes this by giving a definition of PPP and qualifies it as:

“A system of relationships between the state and the private partner during the realization of which the resources shall be amalgamated along with the respective distribution of risks, liability and compensation between the state and the private partner for mutually profitable and long lasting cooperation with the purpose of the realization and/or modernization (reconstruction) of new objects requiring investments and for operation (use) of these objects”.

(Where it is written “state” it should be understood that this includes “municipal.”)

Article 7 provides for an efficiency (profitability) comparative analysis in the course of which the efficiency of the PPP is being compared with that of the traditional implementation of tasks before a decision is made on the completion of public tasks through PPP.

The most important regulation of the draft law is undoubtedly the guarantees.

First of all, Article 9 provides for a so-called right in perpetuity, pursuant to which the legal circumstances, which were valid at the moment of a contract's conclusion, are insured for the lifetime of the project, or until new conditions appear that are more favourable for a private partner. One more guarantee is provided in Article 11 which says that the state undertakes “to redeem all reasonably incurred expenses during the realization of PPP project as had been agreed by the contract parties”. With this regulation, the state practically undertakes full economic risk in the field of costs of the private partner. We will see how viable this appears.

Pursuant to Article 10, a PPP contract shall be grounds for obtaining all expedient licences, permits and documents ensuring the right of the private company to usage of relevant land plots, until it remains legally grounded.

All other provisions have the nature of a “letter of intent”.

(ii) Law on concessions

The law on concessions as of 1999 (On concessions) had to be amended with the adoption of the law On Public Private Partnership. The amendments are now in the development stage.

The law on concessions comprises 19 branches, especially municipal services and road construction. The right to a concession requires a duty payment to the “state”. The Cabinet of Ministers determines the concession duties. If the object at the end of the validity term of the agreement (minimum 10 and maximum 50 years) is privatised, then the concessioner has the first right or option to buy if he himself contributed a minimum 25% of the price of the object.

(iii) The concession law regarding road construction

The concession law on road construction is based on the law on concessions. The Law on concession for construction and exploitation of roads of 1999 was amended in 2008, although it is still in draft form. Thus, the specialised law is ahead of the general law.

At present, there are two projects based on this law in which a tender procedure was performed; however, the projects themselves are not completed. One of the reasons is the fact that the current law provides for the building of new “real tolls”, and alternative free-of-charge roads alongside them. The new project provides more freedom to the parties of the agreement and includes needed repair of available roads. The draft law envisages the concession right to be paid for, and “reimbursement of investments” can be based on the different models. The law names the following ways for financing:

• Payment for “passing (driving) through” by a user (“real toll”);

• Payment for the availability by the concessionee (“availability fee”);

• Reimbursement by way of usage of supporting enterprises (service establishments along the roads);

• State subsidy;

• Compensation payments (with unprofitable projects); and

• Other payments pursuant to the concession agreement.