The Law of Ukraine “On Concession” (the Concession Law) took force on 20 October 2019. The Concession Law is expected to simplify and clarify rules applicable to concession and define roles of both private and public stakeholders.
The new law envisages significant changes coming to regulation of the most common form of public private partnership. In contrast to previous approach to concession regulation the Concession Law will cover all spheres where concession mechanism is applied including the sphere of natural monopoly and highways.
The draft law used as a ground for the Concession Law has been developed in cooperation with private and state experts and in accordance with best international practices.
Among various novelties proposed by the Concession Law, we would like to emphasize the following:
- Additional guarantees for creditors. The Concession Law provides for possibility to enter into a direct agreement to be executed by creditors, a concessor and a concessionaire. That document may include, among others, procedure and grounds for change of a concessionaire upon application of creditor (the so called “step-in right”); compensation to be paid by the state party in case of termination of concession agreement under the state party’s decision etc. The direct agreement should be executed within 180 business days after entering into the concession agreement unless other term is prescribed by the concession agreement.
- Dispute resolution. Any dispute under a concession agreement can be resolved by an international arbitration based in Ukraine or abroad (if the concessionaire’s shareholder is an entity with foreign investments).
- Selection of a concessionaire. The Concession Law provides for tighter deadline for conducting the selection of a concessionaire. In addition, there is a new option of competitive dialogue procedure being the special type of the tender procedure where a concessionaire negotiates requirements for tender documentations with tender participants chosen at pre-qualification stage. The competitive dialogue is available if it is impossible to clearly identify technical and/or qualitative characteristics of the concession project, or if it is unknown what technical, financial and legal decisions and negotiations can be offered by potential bidders. Thus, for making the best decision on the parameters of the project it is necessary to hold negotiations with the tender participants (for example, in case of implementation of innovative projects, large integrated infrastructure project, etc.).
- Special procedure for an existing lessee. The Concession Law envisages that the existing lessee may use special mechanism which allows converting the lease into concession.
- Land plots allocation. The Concession Law sets out simplified procedure for obtaining right for land plots required for concession activity.
In addition, on 2 October 2019 the Parliament has abolished the Law of Ukraine “On List of State-Owned Property Prohibited for Privatization” which included the number of state-owned infrastructure objects including all Ukrainian ports.
We believe that above-mentioned changes would allow unblocking the concession and other form of public private partnership for foreign investors.