The year of 2010 will be remembered as one when the second attempt to pass a PPP Act finally succeeded. Ukrainian legal doctrine pronounced a new, for its nature, concept of a partnership between public and private sectors. Was it an evolutionary demand of time? Or was it a mere adherence to modern trends and another blind copy of Western ideas? Time will be the judge.
Infrastructure Retrospective
As was mentioned on many occasions before, even on the pages of this Handbook and elsewhere in the media, the Ukrainian government continually fails to deal on its own with the country's worn-out, self-destructive and obsolete infrastructure networks and facilities. Over the last few years more and more private investors have been allowed into this sphere. But it is only till very recently that these relations have been called a partnership.
Private investment into infrastructural facilities came under all kinds of lease, service, investment, operation and even concession agreements. Each such agreement is governed by a set of common civil laws relating to lease, services and investment as well as specific regulations regarding the leasing of public assets, purchase of services at public cost and several concession laws. This quite odd mixture of various regulations had little in common and instruments they provide could be substituted one by another depending on the particular interests of the parties in particular cases. No specific regulation set out a concept of treating private investors in infrastructure projects.
As an outcome of this situation only a few projects were actually run by private investors. One could speak only of several minor utility supply facilities in various places and a couple of port terminals built by major industrial and trading companies mainly for their own needs. Since 1999 only two road concession initiatives resulted in signed agreements although none of them has yet given a full start. More or less big projects, like airports and automobile roads, could never start without special laws being adopted. A lot of projects, even those which where equipped with special laws, failed to result as PPP transactions and ended up as traditional public procurement contracts.
Recent Developments
The coming Euro 2012 football championship blew new life into infrastructural activities in Ukraine. A special law was enacted in 2007 and a detailed program was elaborated by the government. Except for the stadiums and other sports facilities, the program also covered construction and renovation of roads, airports, railways, customs approaches, municipal transport, hotels, medical establishments, electricity lines, tourist infrastructure, theatres, museums and other leisure establishments, as well as financing the manufacture of souvenirs, specific educational programs, traffic safety and other specific objectives. Most of these were financed out of the state budget, various types of international aid and state loans; however, several private initiatives also appeared.
In early 2009 Ukraine updated its road concession legislation by total redrafting the On Concessions for Building and Operation of Automobile Roads Act (Road Concession Act). Parliament cleared-up a 1999 law of all old-fashioned provisions and unnecessary details to give the government more air in ensuring conformity of automobile concession regulations to the needs of particular projects. Two of them have been vividly discussed since that time: Lvov — Krakovets 84 km concession road being renegotiated at the investor's initiative; and the 214 km Kiev Outer Ring Road (Bypass Road) to be started at the government's initiative. In the course of preparing both said projects many more inconsistencies were revealed. However, even the existing regulatory field allows the starting of a road concession based on the availability payment approach in Ukraine.
At the end of 2009 a law that was very much anticipated and important for most linear infrastructural facilities was introduced in the land sphere. The On Alienation of Land Plots and Other Real Property Items Located on Them from Private Ownership for Public Needs or for Reasons of Public Necessity Act (Land Buy-Out Act), among other reasons, is aimed at resolving the issue of forced buy-out of private lands for construction of utility networks, roads, energy and other linear facilities as well as big plants and facilities of public service, like waste disposal, sewage systems, etc. Though the law is not perfect, its value should not be diminished. Actually, this is the very first workable land buy-out instrument in Ukrainian legislation. Many big greenfield projects failed in Ukraine because of the lack of such instrument over the past years, including bridges, new roads, metallurgy plants, etc. Hopefully, the situation will change with development of government regulations in pursuance of the mentioned law and its practical approbation of first land buy-outs.
Partnership Era
As shown above, Ukraine has been preparing its legislation for setting-up certain cooperation mechanisms between private and public sectors starting even since the late 1990s. However, no real PPP projects were started. Most private initiatives ended up in public procurement instruments or a kind of investment or other schemes, where the public party was little involved in performance. Rather, it kept acting as a principal, which allowed the use or operation of public infrastructure, took no contractual risks and collected its fees from the private party. No legislative reform has changed the attitude of state officials to private investors.
A situation like this could not but give birth to a legislative initiative of a conceptual law attempting to raise the comprehension of PPP ideas among state officials. The law was discussed in Parliament and in public for over two years. Many seminars, round tables and conferences were called to promote the PPP ideas and substantiate the goals of the law. USAID, EBA, AmCham and other NGOs were involved too. Finally the law was passed and promulgated.
The On Public-Private Partnership Act (PPP Act) is rather general. It is not aimed at introducing specific PPP instruments or detailing the bidding procedures or essentials of the contracts. Its greatest value is announcing the partnership concept at the level of national law. The law gives a definition and general principles of PPP, names the ways of doing PPP and the areas where it may be applied. Today, any state official may refer to a document of highest legal effect and find out that it should act as a partner towards a private investor, partake in performance of the contract, bear certain risks and responsibilities and provide guarantees to the private investor.
Among particular messages the law addresses the general procedure for commencing a PPP project in any area and further develops the issue of land, state guarantees and certain other investment-protective instruments. The issues, not governed by the law, shall be governed by special laws for concessions, product sharing, joint venture, lease, investment, etc.
"To Do" List
Despite lots of rumors around the new PPP Act, one should not forget that it is not the final point in developing the legislative environment for attracting competitive private initiatives into the infrastructure sector. The act itself requires up to ten government regulations to be adopted in its pursuance.
New regulations should still be adopted to detail the procedures contemplated by the Land Buy-Out Act. The updated Road Concession Act also requires all subordinate legislation to be updated in accordance with it. Many changes are required to the laws governing construction and operation of automobile roads in order to evade the inconsistencies with the Road Concession Act.
Special concession laws are also timely in other areas. For example, the On the Specifics of Granting in Lease or Concession theFacilities of Central Water and Heating Supply and Water Draining from Municipal Ownership Act has been adopted by the Parliament after over two years of discussion. It also requires subordinate legislation to gain full effect.
One should bear in mind that no specific infrastructural legislation may rule out certain troublesome matters of contract law, taxation, investment protection, regulatory and other areas of the Ukrainian regulatory environment. The overall development of legislation in Ukraine should in the first instance exclude controversial and unfitting provisions from laws, make it uniform, more practical and flexible for steady growth of the sector and economy in general.
Attitude
It is also our deep belief at the Vasil Kisil & Partners law firm that not only parliamentarians should draft laws. The situation is always better seen from inside. Law firms dealing closely with matters in their day-to-day activities are much better placed to raise valuable legislative initiatives and partake in various work groups on amending the laws. Special discussion committees are often called by government authorities and NGOs, like the EBA and ACC.
Wanting the government to act as a partner towards the private sector, it is desirable for private companies to act as partners themselves and help the government develop its legislation.
Vasil Kisil & Partners are known for their authorship of the new Road Concession Act. Later, when working on a feasibility study for the Kiev Bypass Road we detected lots of inconsistencies of this and other concession and road construction and operation laws. Our proposals to amend those laws were again presented to Ukravtodor. We have also prepared several procedures in pursuance of the new Road Concession Act, which could be filed to the Cabinet of Ministers for their adoption in place of current out-of-date regulations in respective fields.
We never miss an opportunity to contribute to discussion and comment on legislative initiatives both individually and as part of task forces and work groups arranged on a matter. We always encourage our colleagues and clients to join our efforts in developing the Ukrainian legal environment and sharing our thoughts and experience.
Vasil Kisil & Partners
Through relentless focus on client success, the Vasil Kisil & Partners team delivers integrated legal solutions to complex business issues. In Ukraine, the Vasil Kisil & Partners brand is synonymous with great depth and breadth of legal expertise and experience, which has created superior value for our clients since 1992.
Vasil Kisil & Partners is a Ukrainian law firm that delivers integrated business law, dispute resolution services, tax law, energy and natural resources law, intellectual property law, international trade law, labour and employment law, real estate and construction law, as well as public private partnership, concessions & infrastructure law.
The firm serves international and domestic companies, as well as private individuals, dealing in agriculture, banking, chemical, construction, financial, energy, high-tech, general commodities, insurance, IT, media, metallurgy, pharmaceutical, real estate, shipbuilding, telecommunication, trading, transport, and other industries and economy sectors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
