On 6 April 2016, the Cabinet of Ministers of Ukraine (CMU) amended the procedure for holding the auctions for sale of the special permits for subsoil use (the “Procedure”).The Procedure became effective on 12 April 2016.

In our view the Procedure has become more transparent given that the interested parties must now be better informed of all stages of the auction and the auction committee is now subject to a slightly stricter regulatory regime. We also think that even though it would now take more time to conduct an auction, the participants would actually be in a better position to assess offered subsoil areas before making their bids.

Below we provide a summary of the most important changes to the Procedure.

  1. The auction procedure
    1. The auction may be initiated by any legal entity or individual. The proposal nominating a particular subsoil area for auctioning and including a work programme must be reviewed by the permitting authority – the State Service for Geology and Subsoil of Ukraine (SSGS) within 10 days following its submission. SSGS must then notify the applicant and the general public of its decision within three business days and in the case of refusal, the decision of the SSGS must be justified and include references to the applicable legislation.
    2. The auction package, purchased by the auction participants, will now also contain the draft work program, list of the available geological information and copies of the approvals from the state authorities (its price remains unchanged – 3.12% of the initial lot price, but at least EUR 150 and max EUR 2,500 (approximately));
    3. The timeline for registration (submission of the bids) in the auction has been extended from 15 to 75 days following the day of the auction announcement;
    4. The Procedure also revised the contents of the application, which must now also include:
      1. information on the applicant’s related parties;
      2. ownership structure, also disclosing the ultimate beneficial owner of the applicant; and
      3. certificate (issued in the form of a letter) evidencing that the applicant has sufficient human and technical resources to perform the work program.
    5. The auction committee takes a decision on registration of the applicant as a bidder for the auction within 30 days following submission of the application, but at least 10 days prior to the auction;
    6. The auction committee will not accept the application in particular if:
      1. the applicant had previously refused, as a result of  previous auctions, to sign the auction minutes or to enter into a special permit sale and purchase agreement for no valid reason and was prohibited from participation in the subsequent subsoil auctions regarding such special permit;
      2. liquidation/bankruptcy proceedings were commenced with respect to the applicant;
      3. law enforcement bodies and reporting entities reported that the applicant is involved in  terrorism financing activities and operations in Ukraine; and
      4. tax authorities reported that the applicant has unpaid debts for taxes and mandatory payments in the recent tax period; and
      5. the bidders for the same auction are related parties.
  2. Consents of the authorities involved
    1. Before putting a subsoil area to an auction, the SSGS must obtain consents from the following authorities:
      1. local self-government authorities at the location of the subsoil area, having now up to 90 days (previously – 30) after receipt of the inquiry to approve the auctioning of the subsoil area and provide their response; and
      2. the Ministry of Ecology and Natural Resources (the response must be provided within 30 days); approval of the State Labour Service of Ukraine is no longer required.
    2. if the consent is not received within the established timeframes, the consent shall be deemed to have been granted in accordance with the “tacit consent” principle.
  3. Transparency
    1. All sessions of the auction committee shall be public;
    2. The auction shall be broadcasted in a real-time mode on SSGS official web-site and/or with involvement of mass media;
    3. SSGS must timely (usually within 3-5 days depending on the type of information) publish on its official web-site information in respect of:
      1. review of proposals with nominations of subsoil areas for auction;
      2. applicants’ registration;
      3. time and place of each session of the auction committee;
      4. review of the applications on participation in the auctions; and
      5. auction winners.

Law: Resolution No 277 of the Cabinet of Ministers of Ukraine “On Bringing Amendments to the Procedures, Approved by Resolutions No 594 and 615 of the Cabinet of Ministers of Ukraine on 30 May 2011 and Abolishment of Certain Resolutions of the Cabinet of Ministers of Ukraine” dated 6 April 2016