1 ukraine: investment opportunities 1.telecommunications market: –the level of mobile penetration...
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Ukraine: Investment opportunities
1. Telecommunications market: – the level of mobile penetration in Ukraine reached
120.1% in 2008 vs 72% in the USA, and the rate of growth of the customers’ base in Ukraine was 117% in 2009 (State Commission of Statistics of Ukraine).
– In October 2010 Ukraine has launched a privatization tender for the state-owned telephone company "Ukrtelecom“, which controls about 80% of the landline market in Ukraine. The bidding will take place on 28 December. Excluded from the tender are:
• companies that are more than 25% government-owned (e.g."Deutsche Telekom" and "Norway’s Telenor"
• telecoms with more than a 25% share in Ukraine’s telecom market.
2. Agriculture
3. Black sea – “Sleeping Beauty”
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Ukraine: New Tax Code
The New Tax Code adopted by Verkhovna Rada (Parliament) of Ukraine on 7 October 2010 will fundamentally reform the tax system in Ukraine.
Key features:• Real estate tax is introduced for the first time in Ukraine;
• The current fixed individual income tax of 15% is replaced with progressive scale;
• Non-deductibility of payments to non-residents for works and services in the area of consulting, marketing, advertising, engineering;
• Regulation of the current simplified system of taxation (for small and medium size enterprises) will be changed substantially;
• Excise duties for fuel will be increased to compensate cancellation of transportation tax;
• Automatic attachment of tax lien from the first day of payment delay;
• Basic company profit tax rate will be gradually reduced to the level of 16% as of 2016 (currently it is 25%);
• Value added tax rate will be reduced from 20% to 17% as of 2014.
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Ukrainian State/Governmental counterparties: Cons
• Archaic, contradictory and overregulated legal environment
• Little flexibility, multilevel approvals, unfriendly bureaucracy
• Weak judiciary
• Occasional aggressive behavior by the Government as a regulator and as a contract counterpart, especially in privatization deals
• Occasional direct and indirect support by Government of “corporate raidership”
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Ukrainian State/Governmental counterparties: Pros
• Comprehensive legislation covering various types of transactions involving Government: Public Procurement Law, Privatization Laws, Public Private Partnership (PPP) Law, Concessions Law, Law on Production Sharing Agreements (PSA), etc.
• Acceptance of modern global mechanisms, such as PPP, Concessions, PSA
• Stabilization Clause stipulated for some of the mechanisms (e.g. for PPP)
• New Deregulation Campaign, licensing cancelled for 23 types of activity
• Strong international law protection remedies: ICSID Convention, Energy Charter, BITs
• Government yields to international pressure and publicity (recent examples: failed ArcelorMittal re-privatization attempt; settlement of Vanco Prikerchenskaya dispute)
• Business and legal community has increasingly strong voice (USUBC, AmCham, EBA, specific industry associations)
• Many Opportunities and Privileges for EURO 2012
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How to succeed in Ukraine
• Understand and skillfully navigate legal and regulatory regime: Try to be as compliant as possible, cutting corners backfires!
• Assess and mitigate risks, but accept certain risks to achieve important business results
• Educate the Government about benefits of your project, insist on transparency
• Do not hesitate to seek support of your Government (Embassy), EU, international institutions (IMF, IFC, OECD, EBRD, OIPC, etc.)
• Focus on monitoring your investment and on preventing abuses - in case of any concern – react immediately
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