Public Private Partnership Development Program - P3DP 42- 44 Shovkovychna Street, Office 11-D

Kyiv 01601 Ukraine

Telephone/Fax: +38 044 234 3525

www.ppp-ukraine.org

Legal Report

Construction and Operation of Kyiv City Ring Road from

Stolychne shose Str. to M-03 Kyiv – Kharkiv – Dovzhanskyi motor road in the Kyiv–Boryspil section on the terms of public-private partnership and concession

August 12, 2014

This research was made possible with the generous support of the American people through the United States Agency for International Development (USAID) The Author’s views expressed in this publication do not necessarily reflect the views of the USAID or the United States Government

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TABLE OF CONTENTS

1. INTRODUCTION ...................................................................................................................................... 2

1.1. Subject Matter of Analysis ................................................................................................................ 2

1.2. Assumptions ...................................................................................................................................... 3

1.3. Limitations and Qualifications........................................................................................................... 3

2. LEGAL ANALYSIS OF THE LEGISLATION IN THE AREA OF ROAD CONSTRUCTION ON THE

TERMS OF PPP ................................................................................................................................................. 4

2.1. Major laws and subordinate legislative instruments on public procurement and concessions .......... 4

2.2. Current Tax Laws............................................................................................................................... 6

2.3. Registration and Protection of Investments ....................................................................................... 6

2.4. Legislation on Investments, Construction, and Commissioning ....................................................... 7

2.5. Ukrainian Environmental Law........................................................................................................... 9

2.6. Special Regulations on Kyiv City Ring Road ................................................................................... 9

3. KEY STAGES OF THE ROAD CONSTRUCTION PROJECT: LEGAL DESCRIPTION ................... 10

4. SCENARIOS FOR IMPLEMENTATION OF THE ROAD CONSTRUCTION PROJECT: GENERAL

DESCRIPTION ................................................................................................................................................. 11

4.1. Public Procurement .......................................................................................................................... 11

4.2. Project Financing ............................................................................................................................. 12

4.3. Concessions as a Type of PPP ......................................................................................................... 13

5. CONSTRUCTION AND OPERATION OF ROADS ON THE TERMS OF CONCESSION ............... 15

5.1. General description of concession for construction and operation of motor roads. Key legal

premises for concession for construction and service of Kyiv City Ring Road ......................................... 15

5.2. Selection and Engagement of a Concessionaire: Procedural Issues ................................................ 16

5.3. Funding of a Concession Project: Legal Aspects ............................................................................ 18

5.4. Project Agreement ........................................................................................................................... 23

5.5. Land Issues ...................................................................................................................................... 30

5.6. Permits and Licensing Procedures for Building a Motor road ............................................................... 38

5.7. Road construction in concession projects .............................................................................................. 40

5.8. The operation of the motor road concession projects............................................................................. 41

5.9. Concessionaire’s return of investment ................................................................................................... 42

5.10. Early termination of the project (concession) contract ........................................................................ 45

5 .11. Dispute Resolution .............................................................................................................................. 46

5.12. Amending the Legislation. Miscellaneous ........................................................................................... 47

6. LEGAL BARRIERS THAT REQUIRE CHANGES IN LEGISLATION ............................................ 49

7. RECOMMENDATIONS ON THE MOST RATIONAL WAYS TO REDUCE THE POSSIBLE LEGAL

RISKS ............................................................................................................................................................... 70

1. INTRODUCTION

In this legal report (hereinafter the “Report”), we offer your our intermediate conclusions made based on the results of investigation and analysis of several issues regarding the legal aspects of construction and operation of Kyiv City Ring Road from Stolychne shose Str. to M03 Kyiv–Kharkiv–Dovzhanskyi motor road in the Kyiv–Boryspil section (hereinafter referred to as the “CRR”) on the terms of public-private partnership and concession (hereinafter the “Project”).

1.1. Subject Matter of Analysis

Based on the nature of the research, we have focused our attention exclusively on the legal aspects that appear to be the most important for the Project, specifically: (i) review of the applicable Ukrainian regulations on concessions, public-private partnership, and

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public procurement; (іі) the most practical ways for redemption and expropriation of Land Plots; (ііі) procedure of the concession bidding; and (іv) legal description of a concession agreement.

Our research was based on the Ukrainian law effective as of the date of the Report, as well as the application practice established in the respective areas. While forming the recommendations included in the Report, we also took into account the foreign and international experience.

The statements made in the Report are of the most general nature, reflecting only the selected aspects of the Project which, in our opinion, have the key importance; the Report only describes several options for the further development of the Project which we believe to be optimal. The report mainly consists of the answers to the questions stated by the customer and generalized conclusions of our legal analysis of the subject matter of our research. We did not raise any other questions other than stated above.

1.2. Assumptions

We used the following assumptions while preparing the Report:

- The land plots that have to be allocated for the construction of the CRR may include

land plots privately owned citizens and legal entities, held for permanent use, or leased.

- The land plots that have to be allocated for the construction of the CRR include agricultural and forestry land (covered by tillage or perennial plantations).

- The land plots that have to be allocated for the construction of the CRR include plots of

especially valuable land, land of the natural reserve fund (in particular occupied by nature reserve areas), and land with bodies of water.

- The legal conclusions made in the Report are based exclusively on the information and

documents publicly available from official sources.

- The CRR construction project will be performed according to the current law, excluding legislative changes that cannot currently be foreseen. The currently effective regulations will not be appealed against according to the procedure specified by law and will not become ineffective.

- The Project will be performed without active resistance on the part of certain

government agencies which may influence the performance of the Project. 1.3. Limitations and Qualifications

The analysis was performed based on the current Ukrainian law; no other law or legislation of other countries were taken into account. Consequently, the Report only covers the matters to which the Ukrainian law applies.

The Report is prepared exclusively for the Family Health International (FHI360) for evaluation of legal circumstances for the implementation of the Project in Ukraine, and cannot be used for any other purposes. The Report as a whole or certain provisions hereof shall not be used, distributed, quoted, or used in any other way except for the purpose of your internal evaluation of further activities under the Project. Neither the fact of the preparation nor the content of the Report shall not be disclosed to any third parties. No one except for the Family Health International (FHI360) may use

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and/or refer to the Report without prior written consent of a partner of Vasyl Kisil and Partners Law Firm.

The Report, as well as our obligations and liability, shall be governed exclusively by the Ukrainian law. Consequently, only the Ukrainian courts may resolve any possible disputes in connection with the Report.

With any questions, please contact Oleh Alioshyn, partner of Vasyl Kisil and Partners Law Firm; Nataliia Dotsenko-Bilous, advisor of Vasyl Kisil and Partners Law Firm, or Volodymyr Ihonin, chief lawyer of Vasyl Kisil and Partners Law Firm, at vul. Bohdana Khmelnytskoho, 17/52A, Kyiv, 01030 Ukraine, tel.: +380445817777. Roman Riabenko and Dariia Bohatchuk, lawyers of Vasyl Kisil and Partners Law Firm, also took part in the preparation of the Report.

2. LEGAL ANALYSIS OF THE LEGISLATION IN THE AREA OF ROAD CONSTRUCTION ON THE TERMS OF PPP

2.1. Major laws and subordinate legislative instruments on public procurement and

concessions

The major laws of Ukraine regulating the relations arising from, or in connection with, the engagement of private companies for construction, operation, and maintenance of motor roads are:

- The Economic Code of Ukraine of January 16, 2003, No. 437-IV, providing legal

grounds for development of special legislation on concessions;

- Law of Ukraine “On Motor Roads” of September 08, 2005, No. 2862-IV, defining the criteria for establishment of the status of roads and criteria for classification of roads by importance, and establishing the grounds for funding of construction and further use of motor roads. The law provides for construction and operation of motor roads on the terms of concession;

- Law of Ukraine “On Concessions” of July 16, 1999, № 997-XIV, defining all major

mechanisms, procedures, and principles for implementation of concessions and regulation of concession relations between the concessionaire and the concessor. All special laws on concession must be adopted in accordance with this law and must comply with the basic principles established in the said law.

- Law of Ukraine “On Concessions for Construction and Operation of Motor Roads” of

December 14, 1999, No. 1286-XIV, defining the special procedures for regulation of concession relations established in the area of construction and operation of motor roads on the terms of concession. This law is the main special law regulating the construction and operation of motor roads on the terms of concession; all other regulations and legislative instruments on the said issue must be in conformity with this law.

- Law of Ukraine “On Sources of Funding for the Road System of Ukraine” of

September 18. 1991, No. 1562-ХІІ.

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Under these legislative instruments, the Cabinet of Ministers of Ukraine is authorized to determine the state properties which may be granted under a concession.

According to these major legislative instruments, the Cabinet of Ministers of Ukraine and Ukravtodor (State Motor Roads Agency) have developed several special regulations and provisions with detailed concession procedures. Such special legislative instruments include:

- Resolution of the Cabinet of Ministers of Ukraine “On the Registry of Concession

Agreements” of January 18, 2000, No. 72, establishing a detailed procedure for registration of concession agreements;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Regulation on Concession Bidding and Execution of Concession Agreements for State and Municipal Property Granted under Concession” of April 12, 2000, No. 642, providing detailed regulation of the concession bidding procedures and step-by-step procedures a concessionaire has to follow in the course of the concession bidding;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for

Reimbursement of Free of Charge Travel by Motor Roads Constructed on the Terms of Concession” of July 06, 2000, No. 1065, which establishes a list of vehicles and cases of free of charge travel by motor roads constructed on the terms of concession, as well as the procedure for reimbursement of free of charge travel.

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Standard

Concession Agreement for Construction and Operation of a Motor Road” of October 04, 2000, No. 1519, establishing a standard concession agreement to be followed when drafting a concession agreement for construction, operation, and maintenance of a motor road;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Procedure of

Concession Bidding for Construction and Operation of Motor Roads” of October 04,

2000, No. 1521, establishing the procedure of concession bidding;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Technique for Calculation of Concession Payments” of April 12, 2000, No. 639;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for

Identification of Concession Properties Allowing the Concessionaires to Receive Discounts on Concession Payments, Allowances, Compensations, and Terms for Provision” of July 13, 2000 No. 1114;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Unified Rules

for Repairs and Maintenance of Motor Roads, Streets, and Railway Crossings and Rules for Operation and Protection Thereof” of March 30, 1994, No. 198;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Technique for

Calculation of Payments for Provision of Concession for Construction and Operation of Motor Roads” of March 12, 2003 No. 319;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for

Establishment of the Maximum Payment for Travel on Motor Roads Constructed on the Terms of Concession” of August 22, 2000 No. 1299, establishing the grounds and the procedure for setting the maximum amount of payment, change of the payment amount, and procedure for approval thereof.

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Please note that the mechanism of public procurement (purchase of goods, works, and services at the expense of the state) does not apply for the regulation of legal relations between the state (as represented by, for instance, Ukravtodor or the State Agency for Investment and National Projects) and an investor; instead, such relations are formalized by executing a concession agreement, under which the investors is a concessionaire and undertakes to fund the construction of the motor road at its own expense. In other cases the appropriate public procurement mechanism must be followed.

- Law of Ukraine “On Insurance” of March 07, 1996, No. 85/96-VR, as further amended and expanded, regulating the insurance relations and providing for mandatory insurance of property granted on the terms of concession (which is also reflected in the Law of Ukraine “On Concessions”). Obtaining insurance for the property granted on the terms of concession is an obligation of the concessionaire, which involves additional insurance costs.

- Law of Ukraine “On Public-Private Partnership” of July 01, 2010 No. 2404-VI,

establishing the organizational and legal grounds for cooperation between public

partners and private partners, as well as the basic principles of public-private partnership

on contractual basis. The procedures provided for by this law are somewhat different

from the protocols and procedures specified in the concession laws. 2.2. Current Tax Laws

Major tax and financial laws:

- Budget Code of Ukraine of July 08, 2010, No. 2456-VI to the extent related to the

general principles of the use of public funds, subventions, state programs, etc.;

- Tax Code of Ukraine of December 02, 2010 No. 2755-VI, as amended, establishing the rates and discounts, procedure of accrual, calculation, registration, and reporting for the purposes of tax payments;

- Tax Code of Ukraine of March 13, 2012 No. 4495-VI will apply in the course of the

import of products for the purposes of motor road construction; and

- The Law of Ukraine “On 2014 State Budget of Ukraine” of January 16, 2014, No. 719-VIІ, as well as the respective laws for the following years over the duration of the project, establish the amount of investments, state guarantees, and financial aid to be provided by the state for development of infrastructure projects, and may provide for certain tax discounts for entities involved in economic relations in certain sectors.

2.3. Registration and Protection of Investments

The investments are accounted for according to the following legislative instruments:

- Law of Ukraine “On Accounting and Financial Statements in Ukraine” of July 16,

1999, No. 996-XIV;

- Directive of the Ministry of Finances of Ukraine “On Approval of the Plan of Business Accounts and Instruction for Application Thereof” of November 30, 1999, No. 291, registered with the Ministry of Justice of Ukraine on December 21, 1999, No. 892/4185;

- Accounting Regulations (Standards) No. 1–34;

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- Directive of the Ministry of Finances of Ukraine “On Approval of the Regulation on the

Procedure of Accounting of Selected Assets and Transactions and Amendments to Selected Regulations of the Ministry of Finances of Ukraine on Accounting”

of December 19, 2006, No. 1213, registered with the Ministry of Justice of Ukraine on December 26, 2006 No. 1363/13237.

Law of Ukraine “On Investment Activity” of September 18, 1991, No. 1560-XII, as amended. This law defines and establishes the principles of protection on investments into a project as well as terms, guarantees, and procedure of recovery of the respective investments.

Law of Ukraine “On the Procedure of Foreign Investment in Ukraine” of March 19, 1996, No. 93/96-VR, has to be taken into account by foreign corporate investors (in particular under concession agreements).

Other legislative instruments regulating foreign investments include:

- Decree of the Cabinet of Ministers of Ukraine “On the System of Currency Reserves

and Currency Control” of February 19, 1993 No. 15–93;

- Resolution of the National Bank of Ukraine “On Regulation of Matters of Foreign Investment in Ukraine” of August 10, 2005 No. 280 registered with the Ministry of Justice of Ukraine on August 29, 2005 No. 947/11227.

2.4. Legislation on Investments, Construction, and Commissioning

The major laws establishing the general principles and requirements to be observed in the course of development and construction of real estate properties are:

- The Land Code of Ukraine of October 25, 2003 No. 435-IV as amended (hereinafter

the “LC”) governs the procedure of expropriation, disposal, acquisition, operation, etc. of land plots;

- Civil Code of Ukraine of January 16, 2001 No. 2768-III as amended regulates the

general civil law and contractual relations, matters of registration and transfer of ownership, property management, and work and service agreements;

- The Law of Ukraine “On State Registration of Property Rights to Real Estate and

Encumbrances” of July 01, 2004 No. 1952-ІV, as amended;

- Law of Ukraine “On Land Lease” of October 06, 1998 No. 161-XIV, as amended and expanded, as related to the termination of land lease;

- Law of Ukraine “On Architectural Activity” of May 20, 1999, No. 687-XIV, as

amended, to the extent regulating the development, approval, and adjustment of design documentation related to the construction of facilities;

- Law of Ukraine “On Regulation of Urban Development Activities” of February 17,

2011, No. 3038-VI, as amended and expanded, regulating all design procedures starting from the development of the general concept, general plan, and detailed plans of the territories, to the design, approval, public discussion, commissioning, etc., of specific facilities;

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- Law of Ukraine “On Foundations of Urban Development” of November 16, 1992

No. 2780-XII, as amended;

- Law of Ukraine “On Liability for Violations in Urban Planning” of October 14, 1994 No. 208/94-VR as amended, establishing the penalties for violation of the urban planning laws;

- Law of Ukraine “On Beautification of Populated Areas” of September 06, 2005

No. 2807-IV;

- Civil Defense Code of Ukraine of October 02, 2012, No. 5403-VI, as amended, regulating the relations connected with the protection of the population, territories, environment, and property from emergencies;

- Law of Ukraine “On Protection of Cultural Heritage” of June 08, 2000, No. 1805-III, as

amended.

The special legislative instruments and regulations on construction of roads are:

- Resolution of the Cabinet of Ministers of Ukraine “On Procedure of Commissioning of Finished Construction Projects” of April 13, 2011 No. 461, establishing the general procedure and requirements for commissioning of construction projects;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for

Approval of Construction Projects and Expert Assessment Thereof, and Invalidation of Selected Resolutions of the Cabinet of Ministers of Ukraine” of May 11, 2011 No. 560, establishing the procedure of expert assessment of investment programs and construction projects, and the related authority of government agencies and state institutions;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for

Expert Assessment of Urban Development Documents” of May 25, 2011 No. 548;

- Resolution of the Cabinet of Ministers of Ukraine “Selected Issues of Performance of Preparation and Construction Operations” of April 13, 2011 No. 466, adopting the Procedure for Performance of Preparation Operations and the Procedure for Performance of Construction Operations;

- Directive of the Ministry of Construction, Architecture, Housing, and Utilities of

Ukraine “On Approval of the Regulation on the Procedure of Suspension and Restoration of Construction Projects” of October 21, 2005 No. 222, registered with the Ministry of Justice of Ukraine on December 29, 2005 under No. 1582/11862;

- Directive of the Ministry of Regional Development, Construction, Housing and Utilities

of Ukraine “On Approval of the Procedure for Issue of a Construction Passport for Construction on a Land Plot” of July 05, 2011 No. 103, registered with the Ministry of Justice of Ukraine on July 22, 2011 under No. 902/19640;

- Directive of the Ministry of Health of Ukraine “On Approval of the State Sanitation Rules for Design and Construction in Populated Areas” of June 19, 1996 No. 173, registered with the Ministry of Justice of Ukraine on July 24, 1996, under No. 379/1404;

- Directive of the Ministry of Regional Development, Construction, Housing and Utilities

of Ukraine “On Approval of the State Construction Standard DBN A.2.2-3-2012

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“Content, Procedure of Development, Negotiation, and Approval of Construction Documents” of March 03, 2012 No. 98;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the General Terms

for Execution and Performance of Contractor Agreements in Capital Construction” of August 01, 2005 No. 668;

- Directive of the Ministry of Regional Development and Construction of Ukraine “On

Publication of Recommendations for Preparation of Annexes to Contractor Agreements in Capital Construction” of January 13, 2009 No. 2;

- various construction regulations, rules, and resolutions.

2.5. Ukrainian Environmental Law

The major special laws that have to be complied with in the course of construction project development and construction are:

- The Law of Ukraine “On Environment Protection” of June 25, 1991 No. 1264-XII, as

amended;

- Law of Ukraine “On Environmental Audit” of February 09, 1995 No. 45/95-VR, as amended;

- Law of Ukraine “On Protection of Land” of June 19, 2003, No. 962-IV to the extent

related to the requirements for construction from the standpoint of use and protection of land;

- Law of Ukraine “On Sate Supervision of the Use and Protection of Land” of June 19,

2003 No. 963-IV to the extent related to the state supervision of the use of land, in particular in the process of construction;

- Law of Ukraine “On Ensuring Sanitary and Epidemiologic Safety of the Population” of

February 24, 1994, No. 4004-XII;

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Types of Activity and Facilities of Increased Environmental Hazard” of August 28, 2013, No. 808, according to the construction of motor roads is considered to constitute an increased environmental hazard, and the motor road construction projects require state environmental audit.

The compliance of the construction project to the requirements specified in the abovementioned laws and special regulations developed based on such laws is verified at the stage of state expert assessment of the motor road construction project.

2.6. Special Regulations on Kyiv City Ring Road

- According to the Directive of the Cabinet of Ministers of Ukraine of April 11, 2011

No. 313-r “On Organization of Construction of Infrastructure Facilities in the Kyiv

Region”, as revised by the Resolution of the Cabinet of Ministers of Ukraine of

September 19, 2011, No. 982, the CRR is a component of the “Kyiv Region Infrastructure

Facilities” project, which, in turn, is a component of the Air Express national project. It is

specified that the feasibility studies require approval by the Cabinet of Ministers of

Ukraine and determine the project performance time. The function of the contracting

authority for the performance of the project components is entrusted to the

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Directorate for Construction and Management of the ‘Air Express’ National Project

and Other Infrastructure Facilities of the Kyiv Region, State Enterprise. The issues

of taking a loan under state guarantees for the implementation of the project shall be

reviewed at the stage of approval of the project feasibility study. The issues of

allocating land plots for the construction of infrastructure facilities in the Kyiv Region

shall be resolved by the State Agency for Land Resources, State Agency for Forest

Resources, Kyiv City and Kyiv Oblast State Administrations according to the prescribed

procedure.

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the Regulation on Projects in the Priority Areas of Socioeconomic and Cultural Development (National Projects)” of December 8, 2010 No. 1255 specifies the procedure for preparation and implementation of projects in the priority areas of socioeconomic and cultural development (national projects), including the CRR Construction Project.

- The Cabinet of Ministers of Ukraine, by its Resolution of July 17, 2013 No. 640

“Selected Matters of Construction of the Kyiv City Ring Road from Stolychne shose Str. to M03 Kyiv–Kharkiv–Dovzhanskyi motor road in the Kyiv–Boryspil section”,

- approved the preliminary feasibility study of the CRR project;

- specified that the project shall be implemented on the terms of concession for construction and operation of motor roads;

- authorized the State Agency for Investment and National Projects to hold the concession bidding (on the terms approved by the Ministry of Economic Development and Trade, Ministry of Finance, and Ministry of Justice, and approved by the Cabinet of Ministers of Ukraine) and execution of a concession agreement; and

- approved the cooperation within the project with the International Financial

Corporation (according to proposals of the State Agency for Investment and

National Projects).

- Resolution of the Cabinet of Ministers of Ukraine “On Approval of the List of State Properties Allowed to be Granted under a Concession” of December 11, 1999, No. 2293, as amended, allows the construction of the CRR on the terms of concession for satisfaction of public needs. The State Agency for Investment and National Projects is authorized to be the concessor.

3. KEY STAGES OF THE ROAD CONSTRUCTION PROJECT: LEGAL DESCRIPTION

The key stages for construction of the Kyiv City Ring Road from Stolychne shose Str. to M03 Kyiv-Kharkiv-Dovzhanskyi motor road in the Kyiv-Boryspil section (the CRR) are as follows:

1. Cabinet of Ministers of Ukraine, or an agency authorized by it, making the decision

to perform the PPP.

2. Determining the private partner for implementation of the public-private partnership (PPP) project for construction of the CRR based on the results of the bidding procedure.

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3. Execution of the concession agreement for construction of the CRR under PPP.

4. Withdrawal of land plots from private property, termination of rights for permanent use of land plots, and termination of lease agreements by the public partner (State Agency for Investment and National Projects) on the grounds of public need.

5. Development and approval of land surveying documents for allocation of land

plots for construction of the CRR. The implementation of this stage is the responsibility of the public partner.

6. Receiving of leased land plots for the Project performance time under PPP (5 to 50

years).

7. Development of the CRR construction project by a design organization engaged by the private partner. Mandatory state expert assessment of the project.

8. Procurement of a construction permit. Construction activities.

9. Commissioning of the CRR.

10. Distribution of concession income.

4. SCENARIOS FOR IMPLEMENTATION OF THE ROAD CONSTRUCTION PROJECT: GENERAL DESCRIPTION

4.1. Public Procurement

The public procurement shall be performed according to the annual plan prepared and

approved by the bidding committee (established by the contracting authority). The

information on public procurement is published on the website of the Ministry of

Economic Development and Trade of Ukraine. The public procurement is performed

according to the procedures established by the Law of Ukraine “On Public

Procurement” of April 10, 2014, No. 1197-VII. The procurement may be performed

through one of the following procedures:

- open bidding (single stage, where the contracting authority immediately establishes the criteria for evaluation of the bidders);

- two-stage bidding (at the first stage, all bidders submit preliminary bids without

indicating the price);

- request for quotes (for goods and services for which a continuous market exists, on condition that the price of such goods and services does not exceed UAH 300 thousand; the bid with the lowest price wins);

- pre-qualification of bidders (if the bidders need to be checked for qualification,

financial and economic situation, and technical and organizational capabilities; all bidders, but not less than two, who passed such qualification, shall be admitted); and

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- a negotiated procurement procedure (used as an exception, in particular in case with procurements related to the protection of intellectual property rights or execution of a procurement agreement with a winner of an architectural contest, in case of additional procurement, etc.).

If the open bidding, two-stage bidding, or bidder pre-qualification procedures are used,

it is also possible to execute framework agreements which may fully or partially

stipulate the material terms of the procurement agreement, as well as the bidder

evaluation criteria.

If the bidding documents require a collateral against the performance of the procurement agreement, the contracting authority may demand the winning bidder to provide such collateral. The contracting authority shall return the collateral against the performance of the procurement agreement after the winning bidder performs the agreement.

4.2. Project Financing

In case of implementation of the project using the funds of private investors on the terms of a loan, a public procurement mechanism as specified in the Law of Ukraine “On Public Procurement” of April 10, 2014 No. 1197-VII shall be applied.

The purchase of goods, works, and services using the funds of credits and loans provided under the international agreements between Ukraine and the International Bank for Reconstruction and Development, International Financial Corporation, Multilateral Investment Guarantee Agency, International Development Association, European Bank for Reconstruction and Development, European Investment Bank, Nordic Investment Bank, and other international monetary and credit organizations, shall be performed according to the rules and procedures established by such organizations, and in case no such rules and procedures are established, according to the abovementioned Law. The purchase of goods, works, and services on the terms of co-financing within the projects implemented using the abovementioned credits and loans shall be performed according to the rules and procedures established by the respective organizations, and in case no such rules and procedures are established, according to the abovementioned Law.

The Cabinet of Ministers of Ukraine shall make the decision on the provision of state guarantees and act as a guarantor in relation to the loans provided by foreign states, banks, and international financial institutions to the extent specified in the law on the State Budget of Ukraine, and in other cases according to international agreements signed by Ukraine and ratified by the Verkhovna Rada of Ukraine. According to the Budget Code of Ukraine, when state borrowings are made or state guarantees are given, the member of the Cabinet of Ministers of Ukraine responsible for formation and implementation of the state budget policy or the person acting as such member may, based on the decision of the Cabinet of Ministers of Ukraine, assume obligations on behalf of Ukraine related to the performance of such borrowings, in particular to refusal from sovereign immunity in possible legal action regarding the repayment of credits (loans) during the time the obligation to repay the borrowed funds is in effect.

The maximum limit of the state debt and maximum limit of state guarantees shall be determined for each budgetary period by the law on the State Budget of Ukraine.

State guarantees shall not be given to secure debt obligations of economic entities if the credits (loans) are planned to be repaid directly from the state budget funds, except for debt obligations under credits (loans) received from international financial institutions.

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A mandatory condition for provision of a state guarantee is execution of an agreement between the Cabinet of Ministers of Ukraine and the borrower about the payment for provision of the guarantee, material or other security of the obligations under the guarantee, reimbursement of the state budget costs for the performance of guarantee obligations, interest-based penalty for delay of such reimbursement, and the rights of the guarantor for direct debit transfer by the bank from the accounts of such economic entity to the benefit of the guarantor.

4.3. Concessions as a Type of PPP

The foundations of public-private partnership are established by the Law of Ukraine “On Public-Private Partnership” of July 01, 2010 No. 2404-VI. The construction and/or operation of motor roads, roads, bridges, overpasses, tunnels, and infrastructure thereof belongs to the spheres directly identified by the law as subject to public-private partnership (PPP). Concession is one of the agreements expressly provided for by the law as possible in the course of PPP. In order for the concession agreement in relation to state property to be regulated within the PPP framework, the respective decision has to be made by the Cabinet of Ministers of Ukraine or an agency authorized by it. The respective proposal may be prepared by the competent government agency (in cast of CRR, the State Agency for Investment and National Projects) or persons who may be private partners. The mechanism of public procurement (purchase of goods, works, and services at the expense of the state) does not apply for the regulation of legal relations between the state (as represented by, for instance, the State Agency for Investment and National Projects) and an investor; instead, such relations are formalized by executing a concession agreement, under which the investors is a concessionaire and undertakes to fund the construction of the motor road at its own expense.

The features of PPP include:

- The operations must have levels of technical and economic efficiency than the same

of the public partner without engaging a private partner; - Long-term relations (5 to 50 years) - Transfer of some risks in the course of public–private partnership to the private

partner; - Private partner’s introduction of investments to the target of the partnership from

legitimate sources; The main principles of performance of PPP include:

- equality of the public and private partners before the law; - prohibition of any discrimination of rights of public or private partners; - coordination of interests of public and private partner in order to produce mutual

benefit; - invariability of the designated purpose and form of ownership of properties owned

by the state, municipality, or the Autonomous Republic of Crimea transferred to the

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private partner throughout the effective period of the public-private partnership agreement;

- public and private partners’ recognition of the rights and obligations specified by the

Ukrainian law and established by the terms of the public-private partnership law; - fair division of risks related to the performance of the public-private partnership

agreements between the public and private partners; and - selection of the private partner on a competitive basis, except in cases specified by

law.

Funding of the motor road shall be performed according to the cost estimate for construction and operational maintenance thereof stipulated in the concession agreement. The agreement also stipulates the division of costs for construction and operational maintenance between the parties (funding using the state funds and funding at the expense of the concessionaire) indicating the amounts and duration of funding. The amount of funding for the costs of purchasing the required property and party responsible for such funding, as well as the amount of concessionaire’s compensations related to the transfer of ownership of the constructed properties to the state shall be established separately. The concessor may partly fund (co-finance) the construction and/or operation of motor roads on the terms of concession within the amounts and according to the procedure specified in the concession agreement at the expense of funds provided for in the special fund of the state budget for development of the network and maintenance of public motor roads. From the moment the concessionaire receives income from the operation of the motor road, the concessionaire shall make the concession payments according to the terms of the concession agreement regardless from the results of the economic activity. The concession payments shall be credited to the State Budget of Ukraine and used only for the funding of construction, renovation, repairs, and maintenance of public motor roads. Public-private partnership (PPP) may be funded using:

- financial resources of the private partner;

- financial resources borrowed according to the prescribed procedure;

- funds of the state and local budgets; or

- other sources not prohibited by law.

The funding of works under public-private partnership (PPP) for development (preparation) of surveying documents and expert assessment thereof shall be performed at the expense of the respective budgets or the person filing the proposal for public-private partnership. In the course of PPP, the payment for the development (preparation) of surveying documents and expert assessment thereof by the person filing the proposal for public-private partnership shall not give such person any advantages in the bidding for selection of the private partner against other bidders.

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5. CONSTRUCTION AND OPERATION OF ROADS ON THE TERMS OF CONCESSION

5.1. General description of concession for construction and operation of motor roads.

Key legal premises for concession for construction and service of Kyiv City Ring Road

According to Article 1 of the Law of Ukraine “On Concessions for Construction and Operation of Motor Roads”, concession is defined as “provision of a right for construction and/or operation of a motor road by the concessor to the concessionaire based on a concession agreement on condition of the concessionaire’s obligations to build and/or operate it”. The same law defines the construction of a motor roads as “set of road construction operations related to construction, reconstruction, and capital repairs of motor roads”.

The Law of Ukraine “On Concessions” defines concessions as follows: “provision of a right for creation (construction) and/or management (operation) of a concession property (leased) for the purpose of satisfaction of public needs by an authorized executive government agency or a local self-governance body under a concession agreement on a paid basis for a limited period of time to a legal entity or individual (business entity) on condition that the business entity (concessionaire) assumes the obligations to create (construct) and/or manage (operate) the concession property, material liability, and possible business risk”.

The abovementioned laws do not specify whether design operations and preparatory activities can be performed within a concession project, and who is responsible for such operations and activities. The respective proposals are given in Section 6 of the Report.

According to the state program for development of public motor roads and considering the socioeconomic effectiveness of such roads, the Cabinet of Ministers of Ukraine determines the concession properties in the sphere of construction and/or operation of motor roads and approves the list of such properties. The resolution to perform the construction and/or operation of motor roads on the terms of concession is made by the Cabinet of Ministers of Ukraine based on a feasibility study.

The list of state-owned properties which may be granted under concession was

approved by the Resolution of the Cabinet of Ministers of Ukraine of December 11,

1999, No. 2293 (as amended and expanded). In particular, the list includes the item

“Kyiv City Ring Road from Stolychne shose Str. to M03 Kyiv-Kharkiv-Dovzhanskyi

motor road in the Kyiv-Boryspil section”; the agency authorized to execute the

concession agreement (the concessor) is the State Agency for Investment and

Management of National Projects. The property may be granted under concession by

separate sections (stages) at the concessor’s discretion.

The Resolution of the Cabinet of Ministers of Ukraine of July 17, 2013 No. 640

“Selected Matters of Construction of the Kyiv City Ring Road from Stolychne shose

Str. to Kyiv–Kharkiv–Dovzhanskyi motor road in the Kyiv–Boryspil section”

(hereinafter also referred to as “Resolution of the Cabinet of Ministers of Ukraine

No. 640”) specifies that the City Ring Road project shall be implemented on the terms

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of concession for construction and operation of motor roads at the expense of private

investors as well as the funds of the state budget provided according to the law. 5.2. Selection and Engagement of a Concessionaire: Procedural Issues

5.2.1. Which procedures exist in relation to the procurement and the process of selection,

including, but not limited to, timeline, amount of work, prerequisites to be complied with (if any), bid submission, required documents, and establishment of criteria for participation in the bidding?

The general principles of the concession bidding are specified in the Law “On Concessions”. The procedure of concession bidding for construction and operation of motor roads is approved by the Resolution of the Cabinet of Ministers of Ukraine of October 04, 2000, No. 1521. According to the procedure, the bidding shall be performed in two stages. The preliminary evaluation stage is mainly intended to evaluate the identity of the bidder, their financial capability, and experience. At the second stage, the selected applicants provide detailed bids developed according to the full package of bidding documents.

The procedure specifies that after the bidding procedure is announced, any legal entity that wishes to take part in it shall send the bidding committee a concession application for participation in the bidding. Among other things, the following shall be attached to a concession application: (і) details confirming the applicant’s capability to ensure proper funding of the concession activity; (іі) documents on the applicant’s financial and material standing; (ііі) details about the experience possessed and capability of technological and organizational support of the concession activity. The concessor, based on the conclusions of the bidding committee, shall make the decisions to admit (dismiss) the applicants for participation in the bidding. Within two weeks after the concessor’s decision, the bidding committee shall notify the applicants about the admission to (dismissal from) the participation in the bidding procedure, indicating the grounds for refusal.

The procedure, submission deadline, and rules for preparation of the bids are determined by the bidding documents. Based on the conclusions of the bidding committee, the concessor shall make the decision about the winner of the bidding procedure within one week after receiving the minutes of the bidding committee. The bidding committee shall notify the winning bidder about such decision within five days.

Within five days after the decision on the winner of the bidding procedure is made, the bidding committee, upon authorization by the concessor, must send the winning bidder a notice and an invitation for negotiations for approval of the final version of the concession agreement and signature thereof, and publish the bidding results in printed media (specified in section 5.2.4 of the Report) within ten working days. Upon agreement, the Parties may make amendments and additions to the draft concession agreement which do not concern the material terms indicated in the bidding documents or in the bid of the winning bidder. The concession agreement shall be signed by the concessor and the winning bidder within one week after the approval of the draft concession agreement.

5.2.2. Are these procedures transparent and easy to comply with? Or are there

inconsistencies among different laws / legislative instruments regarding the implementation, or other “gray spots” in the law?

Given the insufficient practice of bidding procedures for construction and operation of motor roads according to the procedure approved by the Cabinet of Ministers (see

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section 5.2.1 of the Report), it is difficult to assess how transparent and easy to comply with such procedures are from a practical standpoint. It should be mentioned that the procedure was adopted according to a previous revision of the Law “On Concessions for Construction and Operation of Motor Roads”, which was fully revised in 2009. Thus the change of this procedure is possible and desirable.

According to article 3 of the Law “On Concessions for Construction and Operation of Motor Roads”, the terms of the concession bidding shall be approved by the central executive government body performing state management of public motor roads (Ukravtodor). At the same time, the Law of Ukraine “On Concessions” authorizes the concessor to approve the terms of the concession bidding. According to the Law “On Concessions for Construction and Operation of Motor Roads”, the concessor is the state as represented by the Cabinet of Ministers of Ukraine or an executive government body authorized by it, and not only the Ukravtodor; therefore, inconsistencies may arise when the abovementioned provisions are applied. In particular, as follows from the Resolution of the Cabinet of Ministers of Ukraine No. 640, the terms of the concession bidding in relation to the CRR have to be approved by the State Agency for Investment and National Projects, designated as the concessor, which does not conform with the provisions of the Law “On Concessions for Construction and Operation of Motor Roads”. It is an ambiguous issue whether some procedures specified in the Law of Ukraine “On Public-Private Partnership” must be applied to motor road concessions. The proposals of the changes necessary to remove the inconsistencies are provided in Section 6 of the Report.

Concessions (including motor road concessions) are one of the forms of public-private partnership provided for in article 5, part 1, of the Law “On Public-Private Partnership”. At the same time, article 5, part 3, of the same law specifies that the agreements made according to part one of the same article are regulated by the law taking into account the specific aspects provided for in this Law in case a decision for public-private partnership in relation to them is made according to the procedure prescribed by this Law.

According to the Law “On Concessions for Construction and Operation of Motor Roads”, the procedure of the concession bidding for construction and/or operation of motor roads shall be approved by the Cabinet of Ministers of Ukraine according to the law. A similar provision exists in the Law “On Concessions” (article 7. part 11). Therefore, taking into account the provisions of article 14, part 2, of the Law of Ukraine “On Public-Private Partnership”, which give the priority to special regulations, the procedure for selection of a private partner provided for in this Law does not apply to concession activities, since special laws regarding the concession bidding exist.

The respective proposals of amendments to the legislation are provided in

Section 6 of the Report. 5.2.3. Are there regulations regarding the selection procedure that contradict the best

international practices? Which remedies can be used to ensure transparency and equal conditions of the bidding process?

The procedure of concession bidding for construction and operation of motor roads approved by the Resolution of the Cabinet of Ministers of Ukraine of October 04, 2000, No. 1521 does not fully account for the best international practices. In particular, it does not ensure an ability to freely participate in the bidding procedure for non-resident legal entities, consortia, or other associations of legal entities. The matters of participation of several shareholders in a special purpose legal entity on the concessionaire’s side (for example, shareholders funding the project), as well as possibility of participation in

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such special purpose legal entity by the public partner as represented by a certain government agency.

The procedure does not specify whether an applicant may refer in its bid to the experience of its affiliates, such as parent companies or subsidiaries, consortia or other associations involving the applicant, etc.

The approved procedure does not provide for a separate stage for negotiations for clarification of requirements for the project. At the same time, it is possible to hold such negotiations between the stage of preliminary qualification and the stage of qualification with the selected applicants, if such negotiations are provided for in the bidding documents.

According to the procedure, the concession agreement becomes effective on the day it is signed. However, in the best international practice the entry of the agreement into force is often conditional on the performance of several preliminary requirements, in particular those related to the provision of funding (the so-called "commercial closure" or "financial closure").

5.2.4. Are competitive negotiations allowed (i. e. negotiations with several bidders

simultaneously with different versions of bidding documents provided to them for comments)?

According to the procedure of the concession bidding (see section 5.2.1 of the Report), the information about the announcement of a bidding procedure for award of new concession or renewal of expired concessions is published by the concessor in the “Uriadovyi kurier” and “Holos Ukrainy” newspapers or in the printed media of the respective local self-governance body. The procedure also specifies a rather extensive amount of information that must be contained in such announcement.

The applicants whose bids were admitted to the bidding procedure by the bidding committee receive the bidding documents. Provision of different versions of the bidding documents to the applicants is not provided for.

5.3. Funding of a Concession Project: Legal Aspects Which mechanisms does the law establish for participation of the state in the funding of the

projects? Does the law provide sufficient flexibility for the state support in the construction and operation of roads?

The Law of Ukraine “On Sources of Funding for the Road System of Ukraine” provides for establishment of the State Road Fund of Ukraine. The income part of this fund shall be formed by the revenue from the excise tax and import duty for oil products, excise tax and import duty for the vehicles and tires imported into the customs territory of Ukraine, and other revenue to the State Budget of Ukraine in the amount specified in the law on the State Budget of Ukraine for the current year, as well as other revenue, in particular the fee for concession or lease of roads or road toll, voluntary contributions by legal entities and individuals, including foreign ones, associations of citizens, international organizations, etc.; and other revenue allowed under the Ukrainian law. Apart from the State Road Fund, the law provides for creation of territorial road funds.

The CRR Construction Project is covered by the Regulation on Projects in the Priority Areas of Socioeconomic and Cultural Development (National Projects), approved by the Resolution of the Cabinet of Ministers of Ukraine of December 8, 2010 No. 1255. According to the Regulation, the national projects are funded at the expense of (i)

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funds of private investors, international financial institutions, credit resources; and (іі) other sources and funds of the state and local budgets. State support for implementation of national projects may, in particular, be provided in the form of:

- co-funding from the state and/or local budgets;

- state and local guarantees according to the law in order to ensure the performance of debt obligations under the loans received by economic entities;

- issue of credits at the expense of the state or local budgets;

- full or partial reimbursement of interest on credits received by economic entities at the expense of the funds of the state or local budgets.

Therefore, the law provides sufficient flexibility for state support of the Project.

Which conditions does a private organization have to meet in order to receive maintenance

payments? Is the procedure of provision of availability payments sufficiently transparent and easy to comply with? Do the existing limits allow adjusting the availability payments?

The Law of Ukraine “On Concessions for Construction and Operation of Motor Roads” categorizes the payment for operational availability of the motor road contributed by the concessor as a source of the concessionaire’s income from operation of the motor roads. In order to receive the payment, the concessionaire must ensure the commissioning of the road. In order to receive such payment, the concessionaire must ensure the conformity of the transportation and operational status of the motor roads with the standards and regulations on maintenance of public motor roads. The requirements to motor roads are specified in the State Construction Standard DBN V.2.3-4:2007 “Transportation Structures. Motor Roads” as well as in other documents and regulations.

In pursuance of the Law “On Concessions for Construction and Operation of Motor Roads”, the Cabinet of Ministers, in its resolution No. 493 of July 11, 2013, approved the Procedure for Calculation of Payment for Operational Availability of a Motor Road Constructed on the Terms of Concession. According to the procedure, the payment for operational availability of a motor roads consists of a total of costs for the construction and operation of the motor road. The payment is calculated per month of operation of a road starting from the date of commissioning until the expiry of the concession agreement. The road construction costs include the costs of construction and reconstruction and/or capital repairs of the road according to the approved design documents and the provisions of the concession agreement. The road operation costs consist of the cost of small current repairs and operational maintenance of the road according to the approved standards and regulations for maintenance of public motor roads and provisions of the concession agreement. The procedure contains a formula for calculation of the operational availability fee.

Pi = B : S х Kb х Iі + E : 12 х D х Ke,

where Pi is the fee for one month of motor road operation, UAH thousands; i is the

month of motor road operation;

B are the costs of motor road construction, UAH thousands;

S is the duration of motor road operation starting from the date of commissioning until the expiry of the concession agreement, months;

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Kb is a factor determined considering the motor road commissioning time specified in the concession agreement;

E is the adjusted standard of annual financial costs of small current repairs and operational maintenance of 1 km of the motor road approved according to the procedure prescribed by the law, UAH thousands;

D is the length of the commissioned motor road, kilometers;

Ke is a factor determined considering the requirements to the operational availability and quality of the motor road specified in the concession agreement; and

Ii is the price index of construction and installation operations by building and

structure type.

The operational availability fee may be adjusted in case of change of the variables of the approved formula.

Does the law clearly define which government agencies may provide financial or economic

support in the course of project implementation (if necessary), and what kind of support can they provide? In particular, which subsidies for construction and operational payments are provided for, and on what terms?

The Law “On Concessions” mentions the “participation of the state and local self-governance bodies in the partial funding of concession properties of social importance” as one of the main principles of concession activities.

The Law “On Concessions for Construction and Operation of Motor Roads” states that the concessor may partly fund (co-finance) the construction and/or operation of motor roads on the terms of concession within the amounts and according to the procedure specified in the concession agreement at the expense of funds allocated in the special fund of the state budget for development of the network and maintenance of public motor roads (see section 5.3.1 of the Report).

Among the sources of the concessionaire’s income from the operation of the road, the law indicates, in particular, allowances and/or compensations provided by the concessor (the sources of the concessionaire’s income are described in section 5.9.1 of the Report). The law does not specify clear criteria for provision of such allowances or compensations. Other sources of the concessionaire’s income are determined by the concessor based on the feasibility study and/or design and budget documents, and are indicated in the bidding documents and the concession agreement.

According to the Law “On Concessions”, the concessor may provide the concessionaires of unprofitable and low-profit concession properties of high social importance with benefits related to concession payments, in particular in the form of payment by installments, deferred payment, full or partial exemption from the concession payments for a certain period of time, as well as stipulate the provision of allowances, compensations, or benefits. The procedure for identification of such properties, as well as the terms of provision of allowances, compensations, and benefits, was approved by the Resolution of the Cabinet of Ministers of Ukraine of July 13, 2000, No. 1114.

According to section 7 of the said procedure, the benefits related to concession payments may be provided to concessionaires in case if, over the last reporting year before the execution of the concession agreement, the operation of the concession property of high social importance produced loss or the profitability ratio (income to cost ratio) was lower than 25% of the (sub)industry average.

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Benefits related to concession payments may be provided, in particular, on the following conditions:

- if the amount of loss from the operation of the concession property exceeds the

amount of annual concession payment, the concessionaire is granted a deferment

of concession payments for a period of up to 2 years;

- if the amount of loss from the operation of the concession property is less than the amount of annual concession payment, the concessionaire is granted a deferment of concession payments for a period of up to 1 year;

- if the amount of income received by the concessionaire from the operation of the concession property after taxes and other mandatory payments is lower than the amount of annual concession payments, the concessionaire shall pay 50% of the concession payments with a deferment of the remaining payments for a period up to 2 years;

- if the amount of income received by the concessionaire from the operation of the concession property after taxes and other mandatory payments is lower than the amount of annual concession payments, the concessionaire shall pay 50% of the concession payments with a deferment of the remaining payments for a period up to 1 year.

According to the terms of the concession agreement, the concessionaires may receive other benefits. In specific cases, taking into account the national interests or interests of the region in providing the consumers with a maximum amount of goods (works, services), benefits in relation to concession payments, allowances, and compensations may be granted to concessionaires on newly created low-profit concession properties. Such a wide definition under certain conditions could be applied to the Project as well.

Moreover, the possibility of state support is also provided for in article 18 of the Law “On Public-Private Partnership”. According to the procedure of provision of such support approved by the Resolution of the Cabinet of Ministers of Ukraine of March 17, 2011 No. 279, state support may be provided:

- by providing state and local guarantees;

- by funding activities (programs) at the expense of the state or local budgets and

other sources according to the national and local programs; and

- in other form according to the law. The criteria and conditions for provision of state support and establishment of its form and amount are approved by the Ministry of Economic Development and Trade of Ukraine upon approval by the Ministry of Finances of Ukraine.

Does the law provide for tax discounts for an organization engaged in the project and

performing the implementation (in particular for the concessionaire)? Is the procedure of provision of subsidies and tax discounts sufficiently transparent and easy to comply with?

According to the Law “On Concessions”, the depreciation of a property granted under a concession has to be accounted for by the concessor or a body authorized by it. The concessionaire is notified about the amount of depreciation deductions on a quarterly basis within the period specified in the concession agreement. The concession payment to be made by the concessionaire for the respective period is reduced by the amount of

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depreciation deductions accrued (but not more than in the amount of the concession payment).

The concessionaire must perform the operations approved by the concessor for improvement of the concession property for the amount of accrued depreciation deductions by which the concession payment was reduced, according to the procedure and within the period specified in the concession agreement.

In practice, the application of the concession payment reduction mechanism may be complicated due to the fact that according to the Law “On Concessions”, the depreciation of a property granted under a concession has to be accounted for by the concessor or a body authorized by it, whereas the property itself is on the books of the concessionaire.

Section 153.7 of the Tax Code of Ukraine specifies that receiving property under

concession does not change the tax obligations of the concessionaire. At the same time,

the concessionaire increases the amount of costs by the amount of the accrued

concession payment based on the results of the tax period in which such payment is

accrued. The law does not provide for a special tax treatment for a concessionaire. Does the law allow the responsible organization (including, if necessary, the concessionaire) to

engage and structure the funding required for implementation of the project?

Yes. The procedure of funding and its structuring, in particular the financial model, are determined by the concessionaire and the concessor in the concession agreement and other agreements on the specific project.

According to the Law “On Public-Private Partnership”, the funding of a public-private partnership, in particular in the form of concession, may be performed using: financial resources of the private partner; financial resources borrowed according to the prescribed procedure; funds of the state and local budgets; or other sources not prohibited by law.

The Resolution of the Cabinet of Ministers of Ukraine No. 640 specifies that implementation of the Project is performed using the funds of private investors, as well as the state budget funds according to the law.

Does the law allow an organization to provide the required collateral against the project

assets in order to secure such funding?

The law does not prohibit an organization to provide the required collateral against the project assets in order to secure such funding. However, according to the law, the concessionaire only owns the property located outside the motor road right-of-way area, which does not have a significant commercial value within the project. Thus it is unlikely that sufficient funding will be provided with such collateral only. See also section 5.3.7 of the Report.

Does the law specify any restrictions regarding the provision of collateral against any state

assets included with the concession? Does this affect the capability of the concessionaire to finance the project?

The law imperatively states that the property established in pursuance of the terms of the concession agreement or received under the concession and placed within the right-of-way of the motor roads is state-owned property transferred to the concessionaire for use during the effective period of the concession agreement. Therefore, the main project

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assets, namely the public motor road and the respective land plots covered by the road, are state-owned property and cannot be privatized (see section 5.7.1 of the Report), and thus cannot be fully used as a collateral for the funding of the project.

Does the law provide for emergence of the respective rights of the borrowers to “step in” the

project, in particular: rights to direct the concessionaire’s activities? right for foreclosure on the pledged shares and restructuring of the project

company? right to use companies as an alternative/replacement of the project company? right to transfer the concession to a new organization?

The law does not provide for such rights of the borrowers, although it does not restrict the possibility of providing for the respective rights of “stepping into” the project in the concession agreement and other project agreement. The respective provisions may also be included in the approximate concession agreement.

5.4. Project Agreement 5.4.1. Does the law provide for a sufficient area of application and flexibility for the

parties to be able to negotiate the contents of a project agreement which would best suit the project needs?

The Law “On Concessions” specifies the material terms which must be defined in the concession agreement:

- parties to the agreement;

- types of activity, work, service provided according to the terms of the agreement;

- concession property (content an value of the property or technical and financial conditions for creation of the concession property);

- terms for allotment of the land plot, if necessary for the concession activity;

- list of activity types which require licensing;

- terms of setting and modifying the prices (rates) for the goods (works, services) produced (provided) by the concessionaire;

- effective period of the concession agreement, terms of recruitment and use of the labor of Ukrainian citizens;

- terms of use of domestic materials;

- terms and amounts of improvement of the concession facility and the procedure for reimbursement of the said improvements;

- terms, amount, and procedure of concession payments;

- procedure of use of depreciation deductions;

- restoration of the concession property and conditions for return thereof;

- liability for a failure to perform or improper performance of obligations that follow from the concession agreement;

- concessionaire’s insurance of the property received under the concession;

- procedure of amendment and termination of the agreement;

- procedure for resolution of disputes between the parties;

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- right to receive information and check the agreement performance;

- procedure and terms of transfer of the rights and obligations that follow from the concession agreement, in particular with provision of guarantees to the creditors; and

- procedure of use of intellectual property.

According to the provisions of Article 10 of the Law “On Concessions”, upon

agreement of the parties the concession agreement may include other terms, in

particular those provided for by special laws on concession activity in specific areas of

business.. Moreover, article 6 of the Civil Code of Ukraine allows deviating from some

provisions of the law which are not imperative according to the law.

The Resolution of the Cabinet of Ministers of Ukraine of October 04, 2000, No. 1519,

approved the standard concession agreement for construction and operation of a motor

road, which includes detailed provisions of a concession agreement. According to the

Economic Code of Ukraine (part 4, article 179), the parties are not allowed to deviate

from the terms of standard agreements approved by the Cabinet of Ministers of

Ukraine, but allows making their provisions more specific. The legal position according

to which the parties may not deviate from the content of the standard concession

agreement is reinforced by the practice of the Higher Economic Court of Ukraine1.In

order to avoid the risk of appeal against the concession agreement for construction and

operation of the motor roads, it is recommended to take into consideration the

provisions of the standard concession agreement when entering into such agreement.

The proposals on the respective amendments to the law are provided in Section 6 of

the Report. 5.4.2. What contract execution strategies and the related ways of risk distribution are

allowed by the law and are acceptable?

According to the law, the property created in pursuance of the terms of the concession agreement is either state-owned or municipal property. According to the concession agreement, the concessionaire receives the right to hold and operate the road as a concession property. Upon expiry of the concession agreement, the road is transferred to the state.

The terms described above correspond to the generally accepted ВОТ (Build – Operate – Transfer) model, under which the concessionaire performs the construction and operation during the specified period, after which the property is transferred to the state. Additionally to the construction and operation, the concessionaire is expected to perform the design of the road, which correspond to the DBOT (Design – Build – Operate – Transfer) model. It should be mentioned that the law does not provide an opportunity for the concessionaire to take part in the development of the design documents (see section 5.1 of the Report). It is proposed to eliminate this gap by making appropriate amendments to the laws regulating concessions as indicated in Section 6 of the Report.

1 Texts of the rulings of the Higher Economic Court of Ukraine of June 22, 2010, in cases No. 10/454/09 and

15/201/09, stipulating the legal standpoint described, are available at:

http://www.reyestr.court.gov.ua/Review/10275432; http://www.reyestr.court.gov.ua/Review/10275430.

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The project may acquire the signs of DFBOT (Design – Finance – Build – Operate – Transfer). According to such model, the concessionaire is also responsible for the funding of the project.

The classification of risks related to public-private partnership is specified in the Technique for Identification, Evaluation, Type Recognition, and Management of Risks Related to Public-Private Partnership, approved by the Cabinet of Ministers of Ukraine Resolution No. 232 of February 16, 2011 (hereinafter referred to as the “Risk Identification Technique”). The Risk Identification Technique identifies the following groups of risks: (1) risks related to the influence of external circumstances beyond the partners’ control; (2) political risks; (3) risks related to the partners’ failure to comply with the contractual terms; (4) commercial risks; (5) financial risks; and (6) environmental risks.

Considering the absence of a paid road network in Ukraine, the issue of traffic on the newly constructed road is highly important in the context of construction of new roads on the terms of concession. Potential concessionaires are often ready to take part in concession projects only on condition that the risk of insufficient traffic will be assumed by the concessor and, depending on the financial model, will reimburse the concessionaire for the losses caused by insufficient traffic. It is reasonable to supplement the laws with a provision allowing the concessionaires of unprofitable or low-profit motor roads to be given reimbursement of losses due to low intensity of traffic on such motor roads. The respective legislative amendments are specified in Section 6 of the Report.

The standard concession agreement for construction and operation of a motor road places the liability for the risks related to construction, operation, and lease of a motor road, including the risks related to ensuring the traffic safety. In particular, the standard concession agreement stipulates that the concessionaire shall bear the risk of accidental destruction of, or damage to, the motor road. At the same time, the Law “On Concessions” vests the risk of accidental loss or damage of the concession property with the concessor, unless specified otherwise in the concession agreement.

The abovementioned provisions of the standard concession agreement significantly restrict the capability of the parties to freely distribute the risks, considering the parties’ obligation to observe the provisions of the standard agreement as specified in section 5.4.1 above.

5.4.3. Does the law provide for other (unjustified) restrictions of the right of the parties

to negotiate other fundamental provisions of the project agreement?

As specified in section 5.4.1 above, according to article 10 of the Law “On

Concessions”, in addition to the material terms, the parties to a concession agreement

may agree on other terms of such agreement. However, the provisions of article 179,

part 4, paragraph 4, of the Economic Code of Ukraine prohibit the parties to deviate

from the provisions of the standard concession agreement approved by the Cabinet of

Ministers of Ukraine. Instead, the parties are only allowed to make the provisions of the

Standard Concession Agreement more specific. We are aware of certain court

judgments (see section 5.4.1 of the Report) in which the court invalidated provisions of

a concession agreement because they were not provided for by the respective standard

agreement and were not directly specified in the law.

5.4.4. Does the law contain clear requirements regarding the time frame and the

procedure of preparation, negotiation, signature, and approval of the project

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agreement? Does the procedure allow rational use of time and is it easy to comply with? Does the law contain a clear definition of the government agency authorized to prepare, negotiate, and sign the project agreement?

According to the Procedure of Concession Bidding (section 5.2.1 of the Report), within five days after the winning bidder is determined, the bidding committee, on instruction from the concessor, must send the winning bidder a notification and an invitation for negotiations for approval of the final version of the concession agreement and signature thereof.

According to the Law “On Concessions”, the information about the results of the concession bidding shall be published in the “Uriadovyi kurier” or “Holos Ukrainy” newspapers or in the printed media of the respective local self-governance body within ten days after the decision about the winning bidder is announced. The concession agreement shall be signed with the winning bidder not later than three months after the bidding results are published. Based on a written request from the winning bidder, this time can be extended.

The procedure of the concession bidding (section 5.2.1 of the Report) specifies that the concession agreement shall be signed by the concessor and the winning bidder within one week after the approval of the draft concession agreement.

The provisions provided above specify clear time limits and facilitate rational use of time during the execution of a concession agreement.

The procedure of preparation and negotiation of a concession agreement is not clearly regulated. According to the Law “On Concessions for Construction and Operation of Motor Roads”, the resolution to perform the construction and/or operation of motor roads on the terms of concession is made by the Cabinet of Ministers of Ukraine based on a feasibility study. According to the said law, the concessor authorized to enter into a concession agreement is the state as represented by the Cabinet of Ministers of Ukraine or an executive government body authorized by the Cabinet of Ministers of Ukraine to hold the concession bidding, execution of a concession agreement, and performance of the obligations stipulated in it. For the CRR, such authorized agency is the State Agency for Investment and National Projects (see section 5.1 of the Report).

The concession agreement does not require approval by a competent authority upon the

signature, however, it requires registration with a notification to the State Property

Fund of Ukraine (see section 5.4.6 of the Report). 5.4.5. Does the law provide for other (unjustified) restrictions of the right of the parties

to amend the project agreement at later stages of project implementation? How does the law guarantee that the right to renegotiate the provisions of the project agreement at later stages does not affect the fairness of the selection procedure?

The current law stipulates the general rule that the provisions of an agreement may be

amended based upon agreement of the parties or through a court procedure. The special

laws regulating the relations of concession for construction and operation of roads do

not contain a prohibition of amendments to concession agreements after they are

executed. In particular, article 9 of the Law “On Concessions” directly stipulates the

right of the parties to modify the duration of the concession agreement within the time

limits specified in the same Law (10 to 50 years) upon agreement between the parties.

Moreover, section 56 of the standard concession agreement for construction and

operation of a motor road specifies that “in case of circumstances that require the terms

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of this agreement to be amended, a party must notify the other party in writing /?/ days

in advance. In such case, a supplementary agreement about amendment of the terms of

such agreement is made, signed by the concessor and the concessionaire, and

becoming an indispensable part of this agreement”.

At the same time, according to the procedure of the concession bidding (see section 5.2.1 of the Report), after the winner of the concession bidding is determined and before the respective concession agreement is executed, the parties may agree to make amendments and additions to the draft concession agreement to the extent not related to material terms specified in the bidding documents and in the winning bidder’s bid. Such approach may be expanded to apply to the cases of amendment of the concession agreement after it is signed. Therefore, the parties to a concession agreement may agree to amend it, however, such amendments may not affect the material terms of the agreement specified in the bidding documents and in the winning bidder’s bid. However, the law does not directly stipulate this approach. Moreover, considering the provisions of Article 179, part 4, of the Economic Code of Ukraine, and the existing judicial practice (see section 5.4.1 of the Report), when amendments are made to the concession agreement, it is not recommended to deviate from the provisions of the Standard Concession Agreement for Construction and Operation of a Motor Road.

Another guarantee against abusive practices is the provision of article 14 of the Law “On Concessions”, according to which concession agreements are subject to mandatory registration. According to the Resolution of the Cabinet of Ministers of Ukraine of January 18, 2000 No. 72 “On the Registry of Concession Agreements”, in case of change in the details entered into the registry of concession agreements, the concessor shall submit the respective information to the State Property Fund, a note whereof is made in the respective registry (see section 5.4.6 of the Report).

5.4.6. Does the law provide a proper agreement management mechanism? In particular,

which government agency is responsible for control and supervision of performance of the project agreement?

According to article 14 of the Law “On Concessions”, according to which concession agreements are subject to mandatory registration. According to the Resolution of the Cabinet of Ministers of Ukraine of January 18, 2000 No. 72 “On the Registry of Concession Agreements”, the respective registry is introduced for the purpose of registration of concession agreements between concessionaires and executive government agencies of local self-governance bodies authorized to enter into concession agreements. The registry is maintained by the State Property Fund.

According to article 17 of the Law “On Concessions”, the right to supervise the concessionaire’s compliance with the terms of the concession agreement belongs to the concessor.

Additionally, the authority to supervise certain aspects of the concessionaire’s activity performed in connection with the execution of the concession agreement, is vested with the authorized supervisory bodies.

For instance, the Law “On Motor Roads” gives the State Agency for Motor Roads of

Ukraine some authority for supervision in the area of the road system, in particular

supervision of compliance with the environment protection laws, road condition and

safety, traffic conditions, and fees charged for travel on public motor roads. The state

agency responsible for the management of public motor roads annually verifies the

conformity of the condition and use of a paid road with the requirements and makes

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proposals to hold the persons responsible for violation of road maintenance rules and

standards liable.

The architecture and construction supervision of compliance with the regulations, rules, and standards for construction of roads is exercised by the State Architecture and Construction Inspectorate of Ukraine and its territorial bodies.

The supervision authority also belongs to the agencies performing civil defense supervision of adherence to, and compliance with, the provisions of the law in the areas of technogenic and fire safety, internal affairs agencies, land use and protection supervision agencies, nature protection agencies, etc.

5.4.7. Does the law provide for supervision mechanisms for the activity of an

organization performing implementation under an agreement, in particular as related to the timeline of performance, conformity with the construction, environment protection, service, and other standards? Does the law provide for the possibility to reduce the availability payments by a state agency or other sanctions due to the quality of work of the organization performing implementation?

The law gives the competent government agencies the authority to supervise the concessionaire’s activity (see Section 5.4.6 of the Report).

The current law provides for the possibility of reducing availability payments in case of

the concessionaire’s failure to comply with the terms of the concession agreement. For

instance, under the Procedure for Calculation of Payment for Operational Availability

of a Motor Road Constructed on the Terms of Concession approved by the Resolution

of the Cabinet of Ministers of Ukraine of July 11, 2013, No. 493, the amount of payment for the operational availability of a motor roads paid by the concessor is calculated using a formula which includes the following coefficients:

- Ke coefficient: determined taking into account the motor road operational

availability and quality requirements specified in the concession agreement;

- Kb coefficient: determined taking into account the time of commissioning of the motor road specified in the concession agreement.

Therefore, the amount of operational availability payment will be reduced proportionally in case the above coefficients change.

As specified in article 15 of the Law “On Concessions”, in case of one of the parties’ failure to fulfill its obligations under a concession agreement, such agreement may be terminated through a court procedure before it expires.

According to the general provisions of the Civil Code of Ukraine, each of the parties to the concession agreement must reimburse the other party for the damage inflicted in connection with the failure to perform, or improper performance of, its obligations under such agreement. Moreover, the person operating the motor roads may be required to reimburse the users for the material losses resulting from a traffic accident caused by improper road condition or safety. The Law “On Concessions” requires the concessionaire to reimburse the concessor for the losses resulting from destruction or deterioration of the motor road, unless the concessionaire proves that such destruction or deterioration were not through his or her fault.

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The current law also provides for administrative and criminal liability for violation of construction regulations and standards. For instance, the Law “On Liability for Offenses in Urban Planning” and the Administrative Offenses Code of Ukraine prescribe administrative liability in the form of fines for violation of construction regulations, state standards, and rules. Article 275 of the Criminal Code of Ukraine establishes criminal liability for officials guilty of violating the rules related to safe operation of buildings and structures in the course of design or construction in the form of a fine, corrective labor, arrest, or imprisonment with prohibition to hold certain positions or engage in a certain activity for a certain time. There is also liability for the damage to environment and other violations.

5.4.8. Does the law specify the (maximum) duration of a project agreement?

According to article 9 of the Law “On Concessions”, the concession agreement is

effective for the period specified in the agreement, which cannot be shorter than 10

years or longer than 50 years. Therefore, the minimum duration of a concession

agreement is 10 years, and the maximum duration is 50 years. 5.4.9. Does the agency signing the agreement have enough flexibility to negotiate the

required duration?

Considering the provisions of article 9 of the Law “On Concessions”, the duration of a concession agreement may be 10 to 50 years depending on the arrangement between the parties (see section 5.4.8 of the Report). Additionally, according to the same article, the parties may agree to modify the duration of the concession agreement within the time limits specified above.

At the same time, the bidding procedure (section 5.2.1 of the Report) requires the duration for which the concession is granted to be specified along with other material details in the bidding announcement. This appears to be reasonable, since the duration of the concession has significant influence on the financial model to be developed by the concessionaire. Considering the approach presented in section 5.4.5 of the Report, after the bidding procedure is announced (with announcement of the concession duration), the change of the concession duration may theoretically be found to be an infringement of rights of other applicants.

5.4.10. Does the law contain any (unjustified) restrictions regarding the right of the

responsible organization for negotiation of the terms of various agreements within the project or other agreements with the third parties required for implementation of the project (for example, agreements for construction/operation and maintenance, shareholding/direct agreements)? For example, are there (unjustified) requirements regarding the government approval, application of local directives, etc.?

Article 18 of the Law “On Concessions” provides for the concessionaire’s right to engage third parties for special activities at the concession property on a contractual basis.

However, in such case the concessionaire is liable for such parties’ compliance with the concession agreement and the Ukrainian law.

It should also be kept in mind that the law allows the concessionaire to fully or partially transfer its property rights under the concession agreement or the concession properties to the third parties only on condition of the concessor’s approval.

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The parties may make a provision in the concession agreement to require the concessionaire to secure the concessor’s approval for key contractors and key agreements executed in performance of the main agreement, or specify a different procedure for selection of all or key counterparties and negotiation of agreement terms by the concessor or another entity independent of the concessionaire.

5.5. Land Issues

5.5.1. Legal Status of a Land Resources User in Concession Projects

The concessionaire acquires the right for construction of a motor road based on a concession agreement from the moment it acquires the right to use the land plots allocated for the construction of the motor road.

The Land Code of Ukraine specifies that the concessionaire acquires the rights to land plots on the terms of lease. Lease is a paid agreement involving monthly payment for the use of the land plot. The lease is entered for a period specified in the concession agreement for performance of the PPP project, but not less than 5 and not more than 50 years.

The lessee may use the land plot exclusively for its designated purpose.

In case the authorized agency (the Cabinet of Ministers of Ukraine) makes a decision to perform public-private partnership (PPP), the surveying projects for allocation of land plots and other surveying documents which, according to the law, is required to provide a land plot for use, as well as the documents regarding the land plots required for the private partner to perform such partnership, shall be developed on the order of the public partner (the State Agency for Investment and National Projects).

The State Agency for Investment and National Projects must secure the approval of the

surveying documents with the respective state agencies or local self-governance bodies

according to the procedure specified by law, and, in the cases specified by law, to

receive a positive opinion of the state surveying expert service according to the

procedure specified by law.

The documented costs of the public partner and/or the person who filed the request for performance of the public-private partnership for development (preparation) of surveying documents and expert assessment thereof, shall be reimbursed by the private partner according to the terms of the agreement made within a public-private partnership.

The procedure and conditions for the private partner’s acquisition of rights to use land plots are specified in the terms of the bidding for selection of the private partner for execution of a public-private partnership agreement (concession agreement).

After the PPP agreement expires, the private partner must vacate the land plot provided

to it for performance of the PPP. 5.5.2. Ways of acquisition of rights for land plots

The Land Code of Ukraine specifies only one way for the concessionaire to acquire the rights to land plots, which is provision of land plots to the concessionaire on the terms of lease. The right to use the land plots for concession activity is not granted on a competitive basis.

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After entering into a concession agreement and in pursuance of such agreement, the concessionaire and the owner execute a land plot lease agreement. Since the State Agency for Investment and National Projects is the concessor and not the owner of the land plots, the decision of the land plot owners (government agencies and local self-governance bodies) is also required in order to enter into the lease agreements.

The lease agreement is notarized, with the notary registering the concessionaire’s right of lease in the State Registry of Property Rights to Real Estate. The right of lease emerges from the moment of such registration.

5.5.3. Expropriation of land plots from private property as a prerequisite for the

concessionaire’s acquisition of rights to the land plot

For the purposes of construction and operation of the CRR, the land plots located within the planned CRR placement territory have to be transferred into state or municipal ownership. For this, the private ownership of such land plots by individuals and legal entities has to be terminated.

The current law provides for the following possible ways to terminate private ownership of land and transfer it to state/municipal ownership, which potentially may be used for the purposes of CRR construction and operation:

- land plot buyout for money for social needs;

- land plot buyout in exchange for another equivalent land plot for social needs; and

- alienation of a land plot on the grounds of social necessity.

The buyout procedure is regulated by the Law of Ukraine “On Alienation of Privately Owned Land Plots and Other Real Property Located Thereon for Social Needs or on the Grounds of Social Necessity” of November 17, 2009 No. 1559-VI. In the following paragraphs, we will look into the procedure using the example of expropriation of land plots which (from the point of view of the specified competent authorities) are located outside of Kyiv in the territory of Kyiv Oblast (especially on the left bank of the Dnieper River). As regards the implementation of this procedure in the territory of Kyiv (in particular on the right bank of the Dnieper River), it will be performed in a similar way with other competent authorities (in particular with participation of Kyiv City State Administration). The procedure is as follows:

1) The State Agency for Investment and National Projects contacts the owners and users of

land plots for notarized consent for expropriation of the land plots.

2) The State Agency for Investment and National Projects ensures the approval of the placement of the CRR according to the procedure specified in article 151 of the Land Code of Ukraine, namely as follows:

- The State Agency for Investment and National Projects contacts the Kyiv

Oblast State Administration with an adequately supported application for selection of location of land plots due to the buyout of privately owned land plots on the grounds of social needs (for the construction of the CRR).

- Within one week, the Kyiv Oblast State Administration shall direct the

application for review by the Central Administration of the State Land Agency in Kyiv Oblast and the Urban Planning and Architecture Department of Kyiv Oblast State Administration. In case the land plots are located within populated

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areas, the respective applications shall be sent for review by the local self-governance bodies as well (village, settlement, or city councils).

- Within ten days, the aforementioned agencies shall provide Kyiv Oblast State

Administration with conclusions about the possibility of allocation of land plots for construction of the CRR.

- Within two weeks, the Kyiv Oblast State Administration shall review the land

plot selection materials and make the decision for approval of the said materials, thereby giving the permission to develop the land plot allocation project.

3) The State Agency for Investment and National Projects shall develop, and secure the

approvals for, the land plot allocation project through the following stages:

- The State Agency for Investment and National Projects shall develop and approve the order for development of a land plot allocation project and order the development of the land plot allocation project from a legal entity or individual who holds a license for surveying operations;

- The State Agency for Investment and National Projects or the design works

contractor shall secure the approval for the project by the Central Administration of the State Land Agency in Kyiv Oblast and Urban Planning and Architecture Department of Kyiv Oblast State Administration.

- The projects for allocation of land plots belonging to especially valuable land

requires approval by the Verkhovna Rada of Ukraine. The projects for allocation of land plots in the nature reserve and other nature protection, historical, cultural, or forestry areas require approval by the Cabinet of Ministers of Ukraine.

- The State Agency for Investment and National Projects shall submit the projects

for allocation of land plots of especially valuable land, forestry land, or the land

of water reserve, nature reserve, health improvement, recreational, historical, or

cultural value to the Central Administration of the State Land Agency in Kyiv

Oblast for mandatory state expert assessment.

- The State Agency for Investment and National Projects shall ensure the establishment of the buyout price for the land plots and real properties and perennial plantings located on such land plots.

4) The State Agency for Investment and National Projects shall provide the land plots

placement approval materials and the approved land plot allocation project, along with the positive conclusion of the state surveying assessment, to the Kyiv Oblast State Administration, which shall, within two weeks, adopt the resolution for buyout of land plots and other real property located on them for social needs, and notify the owners about the decision made.

5) The owners of land plots and other real property located thereon shall give their consent

for, or refusal from, such buyout within one month.

6) The representatives of the Kyiv Oblast State Administration shall negotiate with the owners, users, pledge holders, etc., of the land plot or other real property located thereon regarding the buyout price, time period, and other terms of buyout or exchange.

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7) The Kyiv Oblast State Administration shall determine the appraisers authorized for expert valuation of land plots and real properties located thereon. The reports on expert valuation shall be reviewed by the appraisers for expert valuation of land plots and state expert assessment by the Central Administration of Land Resources in Kyiv Oblast. When establishing the buyout price of a land plot, the buyout price shall include the value of the land plots and real property located thereon, as well as costs incurred by the owners due to the early termination of their obligations to third parties. If the owner does not agree with the valuation performed by the appraiser, the owner may, at his or her own expense, engage another appraiser in order to establish the value of the real property or review the valuation report for such property.

8) In case agreement is reached with the owner about the execution of a land plots

purchase and sale agreement, the State Agency for Investment and National Projects shall ensure that an amount of money that equals the buyout price and an amount of money required to reimburse the costs of tearing down the real property is credited to the account of the Kyiv Oblast State Administration.

9) The Kyiv Oblast State Administration shall execute the contract of purchase and sale

and arrange for notarization and state registration thereof with the State Registry of Legal Transactions. If during one week after the decision for buyout of the land plot and other real property located thereon for social needs (і) the contract of purchase and sale is not executed with the owner; or (іі) the representatives of Kyiv Oblast State Administration fail to recourse to court for expropriation of such property, or (ііі) the court resolves to refuse the claim and the resolution enters into force, the respective resolution of the Kyiv Oblast State Administration for buyout of the land plot and other real property located thereon shall become void.

10) The Kyiv Oblast State Administration shall perform the payments under the contract of

purchase and sale in monetary form using the funds received from the State Agency for Investment and National Projects.

11) Teardown of the real property that has been bought out shall be ensured by the Kyiv

Oblast State Administration according to the procedure specified in the Resolution of the Cabinet of Ministers of Ukraine of November 8, 2007, No. 1314 “On Approval of the Procedure for Write-Off of State Property”.

Buyout is possible only subject to the consent of the owner and only on condition of notice about the future buyout being made at least three months before the planned future buyout. In case of the owner’s refusal to perform the buyout, the government agencies/local self-governance bodies shall have only one year to recourse to court for expropriation of the land plot or other real property located thereon. The buyout is a cost intensive operation, as it has to be performed at the buyout price established based on the expert valuation and accounting for all losses, including lost profit, incurred by the owners due to the buyout of the land plot for social needs.

The algorithm of actions in case of exchange of privately owned land plots for equal municipally owned land plots is not explained in the Law “On Alienation of Privately Owned Land Plots and Other Real Property Located Thereon for Social Needs or on the Grounds of Social Needs”, and therefore has to be the target of adjustment of regulations to make the Law more detailed.

The list of social needs which may constitute grounds for expropriation are specified in article 146 of the Land Code of Ukraine, which, in particular, includes such grounds as construction and maintenance of infrastructure lines and facilities of the transportation and energy infrastructure (roads, gas pipelines, water lines, power lines, airports, oil and

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gas terminals, power stations, etc.) Thus the construction of the CRR meets the legal definition of social needs, and therefore may constitute grounds for expropriation of land plots from the land users for social needs.

In the absence of the written consent of the land user for expropriation of the land plots, the land plot shall be expropriated based on the resolution for temporary expropriation of the land plot. In such case, based on the provisions of article 149, part 10, of the Land Code of Ukraine, if the land user does not agree with the expropriation of the land plot, the issue shall be submitted to court.

The procedure of expropriation of land plots consists of the following stages:

1) The Kyiv Oblast State Administration files a claim for expropriation of the land plot and

property located on it with the administrative court (at the location of the defendant). In addition to the statement of claim, the Kyiv Oblast State Administration must provide the documents confirming technical impossibility to build the CRR without termination of ownership rights for the aforementioned land plots and real property.

2) The administrative court shall review the stated claims and, should it allow the claim, establish the buyout price and the procedure for payment of such price, as well as the list and procedure of providing property to replace the alienated property. Simultaneously with the satisfaction of the stated claims for expropriation, the court may allow the claims for teardown of the real property located on the land plot being alienated.

3) The Kyiv Oblast State Administration shall arrange full preliminary reimbursement of

the value of the land plot and real property located on it in monetary form by wire transfer to the owner’s account or by depositing the funds at a notary’s office at the location of the land plot. This actions shall be taken before the respective court of appeals makes its resolution.

4) The State Registration Service shall perform the state registration of the state or

municipal ownership of the land plot or other real property items located thereon which have been bought out on the grounds of a court judgment.

Expropriation shall be performed only on condition of advance payment and on condition of completion of all stages of the land plot buy-out procedure.

The expropriation process may be delayed by appeals against the court ruling about the expropriation in a superior court.

Permanent Land Use

The current legislation of Ukraine provides for the withdrawal of land from the permanent land users

for social and other purposes without any compensation to the latter. This can be effected by the

decision of central and local government authorities subject to consent of the land-users.

According to Art. 149, Part 1 of the Land Code, public or municipal property (land) granted for

continuous use can be withdrawn for social and other purposes following the decision of central and

local government authorities.

In other words, this rule clearly stipulates that the official paper confirming the intention of a central

or local authority to withdraw land from the owner or a land-user is the decision of such an authority.

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This decision shall be taken by a central or local government authority vested with such powers in

accordance with applicable law.

If there is a land-user’s consent for withdrawal of land, the relevant authority shall decide to

withdraw it. The land-user’s consent shall be made in writing and notarized.

Termination of Long Term Land Lease

If the land located within the CRR construction easement boundaries has been leased with the expiry

date falling beyond the scheduled date of CRR construction commencement, the lease contract shall

be terminated on the grounds specified in the contract or in the law.

For the purposes of CRR construction and in accordance with Art. 31 of the Law On Land Lease,

termination of lease contract shall be possible based on the following reasons:

Buy-out of land for public use or expropriation of private property (land) for public good;

Termination of contract by mutual consent;

Termination by the court in case of a substantial breach of contract;

Unilateral termination if provided for in the lease agreement.

5.5.4. Withdrawal of Land from the Special Nature Reserves

Special Nature Reserves (SNR) shall be established without withdrawal of land, water and other

natural facilities from their owners or users. Activities that do not conflict with the aims and

objectives of the SNR shall be carried out according to the general environmental protection

requirements. The objectives, research profile, the nature and the mode of operation of the SNR shall

be identified in the TORs in accordance with Art. 5 of the Law On the Nature Reserve Fund of

Ukraine. In accordance with the national building codes (Section 10.4, DBN 360-92**) the SNR

lands shall not be used for constructing buildings, structures and communication lines. This

corresponds to Art. 40, Part 2 of the Law On the Nature Reserve Fund of Ukraine. According to this

Law, the protected zones cannot be used for construction of industrial and other facilities. Should the

type of incorporation change in terms of the land hosting the reserves, the landlords are required to

provide for their protection and preservation followed by a relevant official extension of their

security commitments. Thus, for the purposes of construction it is required to withdraw land from the

reserve and remove land from the current landlords and land-users.

Parts 3 and 4 of Art. 5 of the Law On the Nature Reserve Fund of Ukraine do not include provision

of a corporate status to the SNR. Article 12 does not provide for the Establishment of SNR

administration. According to Part 5 of the same Article, management of the areas and facilities of the

natural reserve fund lacking special administration authorities shall be carried out by the enterprises,

institutions and organizations in charge of these areas and facilities.

It is assumed that a portion of the CRR will pass through the Zhukiv Ostriv SNR. Zhukiv Ostriv is a

landscape reserve of local significance and it was established by the resolution of the Kyiv City

Council No. 147/649 on December 2, 1999. Property description: "The woodland yet retains

exceptional wealth of animal and plant life, valuable spawning areas and pristine meadows." The

SNR limits have been approved by the Kyiv City Council on August 22, 2007, Reg. No. 162/1996.

This landscape reserve is a part of the Nature Reserve Fund.

Establishment of a reserve was effected in violation of the procedure set forth in Art. 52 of the Law.

It has been done in the absence of a prior approval of the State Environmental Protection Department

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in Kyiv. However, after consideration of this issue, the courts have concluded that this violation is

formal and does not affect the legitimacy of the resolution to establish a reserve.

The TORs of the Zhukiv Ostriv local significance landscape reserve were approved in 2003 by the

Head of the State Department of Environment and Natural Resources in Kyiv and agreed with both

Kyivzelenbud CEO and the director of Holosiyivsky regional landscape park. According to the

information received from the environmental NGOs, Paragraph 3.1 of the Zhukiv Ostriv TORs

implied that construction, reclamation and any other work that may lead to hydrological changes are

prohibited on its territory.

Kyiv City State Administration adopted Resolution No. 30/87 on September 28, 2006 to establish a

municipal company - Zhukiv Ostriv aiming "to preserve integrity, improvement and development of

Zhukiv Ostriv environment, its protection and creation of recreation conditions for the residents".

Later, the resolution was abolished by Kyiv City Council on October 27, 2011, Reg. No. 393/6609,

because the company has neither been established nor incorporated in the prescribed manner and its

establishment was not economically feasible. In this regard, it should be concluded that Zhukiv

Ostriv reserve is still run by Kyiv City Council.

According to preliminary data, the CRR will also pass through the territories that now belong to the

reserves of national significance within Kyiv. According to Art. 5, Part 1 of the Law On the Nature

Reserve Fund, the objectives, research profile, the nature and the mode of operation of the territories

and facilities of the national nature reserve shall be determined by the TORs approved by the

Ministry of Environmental Protection.

Starting a construction project requires abolishing the status of natural reserve fund for the

construction area. According to Article 54 of the Law On the Nature Reserve Fund, reserve

boundaries can be changed in a manner similar to establishing a reserve simply by changing its

boundaries in consultation with the Ministry of Environment and the Natural Resources of Ukraine

based on the appropriate expert opinion. According to Article 54 and 53 hereto, the resolution to

change the boundaries of Zhukiv Ostriv local reserve shall be adopted by the Kyiv City Council and

for the national reserves – by the President of Ukraine. In accordance with Articles 51 -53 of the

Law, one shall justify the need to make the territory a part of the nature reserve fund. The law does

not specify whether any community needs or requirements are taken into account when making such

a justification for the use of land for purposes that run counter to the protection requirements.

As to the lands that are privately owned or used, one should also go through the withdrawal

procedure for the purpose of the project as described in the previous sections. Further, this is

followed by changing the land designation and allocation of land.

5.5.5. Potential issues and risks in relation to acquisition of land and the rights for

constructing roads

We assume that the CRR will pass through the land that is currently not physically allocated (in situ),

but the owners of land shares have the right to physically allocate it (in situ) and acquire property

rights for allocating the land in situ under the Law On the Procedure of Allocating Land (in situ) to

the Owners of Land Shares. Currently, the owner’s certificates for such land plots (shares) are the

only title documents used for exercising the right to claim land (share) to be allocated in situ.

To alienate such property, one must first physically allocate the land and receive a government

statement confirming the right to own this property (title) followed by the registration of the title.

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Please note that the current legislation provides for the termination of rights (titles) to such land plots

(shares) solely by voluntary will of the owners.

5.5.6. Methods of control in relation to the contractor (or concessionaire) in terms of use and

exercising the owner’s rights for the Project faculties and assets, including the contractor’s

obligations in terms of zoning and spatial planning. Oversight mechanisms and compliance

with environmental standards by the contractor.

When deciding to implement a PPP Project, the Cabinet of Ministers of Ukraine analyzes

effectiveness of its implementation, which includes a detailed study of socio-economic and

environmental impacts of PPPs.

One of the responsibilities of the concessionaire under the concession agreement for building and

operating a motor road is adherence to the legislation of Ukraine during design, construction, repair

and maintenance of roads in terms of environmental safety, protection of historical and cultural

monuments, minerals, forests and land that are assigned to accommodate a road.

During the process of architectural design, the customer or the design bureau receive urban planning

information and restrictions that specify zoning-related requirements.

During construction on the allocated property, the construction shall be carried out in accordance

with the design, which should also pass a mandatory evaluation. The evaluation procedure includes

checking the design for compliance with the legal requirements for construction, including

environmental requirements. The concessionaire as the customer in the construction project is free in

determining the features of the design and the design requirements within the limits of the project

implemented under a concession agreement and in compliance with such requirements. The

construction design shall be approved by the customer and set all the parameters of the construction.

The authorities of the National Environmental Inspection participate in supervision (control) in the

field of environmental protection, rational use, restoration and protection of natural resources. The

Inspection has the right to receive information and perform audit and following the results publish

binding recommendations and orders in case of violations of the environment protection legislation.

5.5.7. Opportunities for the implementing organization to receive additional property rights

(such as land-use rights) associated with the Project and required to fulfill their obligations, for

example,

for access or passage through a property owned by third parties

Land ownership rights for CRR construction purposes shall be provided solely for the purposes and

to the extent necessary for such construction.

If necessary, the owner or tenant (concessionaire) can obtain a term easement - the right to limited

paid or free use of someone else's property (land plots). This easement may be established by the

contract or a court order. In particular, the easement may be granted for the purpose of passage,

transit, laying utility lines, etc. for the period of occurrence of such necessity. The right of easement

is subject to registration in the State Register of Material Rights to Immovable Property.

If the PPP agreement is expected to provide communication and power lines, pipelines and other

utility lines for further use (operation) and/or management where easement has been already

established for with this purpose, such easement may be exercised by the private partner on behalf of

a public partner.

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The availability of such easements shall be specified in the competition requirements to select a

private partner and in the contract concluded under the public-private partnership.

5.5.8. Legally established but unnecessary restrictions on changing land designation and

compensation for deforestation. The party responsible for compliance with these procedures.

Options for streamlining these procedures.

Compensation for losses in agriculture and forestry caused by removal of agricultural and forest land

for CRR construction purposes will not be effected in accordance with Article 208 of the Land Code.

In case of withdrawal of agricultural land, forests and shrubs for purposes not related to agricultural

and forestry production, as is the case when withdrawing land for construction of CRR, the current

legislation provides for compensation to the land-users. The amount of such damages and

reimbursement claims shall be determined separately in each case and established in the resolution to

withdraw or allocate the appropriate land plot for use. In the case of voluntary rejection of the right

to continuous use, such losses shall not be reimbursed.

Land owners and land users shall be compensated losses incurred due to withdrawal (buy-out) and

temporary occupation of property and imposed restrictions. The amount of such losses shall be

determined in accordance with the decisions of the commissions organized by local state

administrations.

5.5.9. Regulating tunnel construction effects: damage to the environment, damage to

communication lines, dissatisfaction among the population, etc.

Tunnel construction is carried out in accordance with the approved building codes, regulations and

national standards. In particular, the national standards of Ukraine DSTU BD.2.2-10:2009

"Resource, Element-based Construction Work Estimate Standards. Tunnels and Subways.

Maintenance Processes" and DSTU BA.3.2-9:2009 "Occupational Safety Standards. Repair of Urban

Bridges, Overpasses and Tunnels. Safety Requirements."

Land ownership right extends to the space located above and below the surface area to the height and

the depth necessary for construction of buildings and structures.

In the process of architectural design, the customer or a design bureau shall receive urban planning

data, information about restrictions and specifications that define the features of construction on the

land including restrictions arising due to the environment protection requirements and availability of

infrastructure (communication and utility lines). If the project involves any violations of the

established restrictions, they should be removed by the competent authorities prior to the project

evaluation.

Compensation for losses in agriculture and forestry caused by removal of agricultural and forest land

for CRR construction purposes will not be effected in accordance with Article 208 of the Land Code.

Construction allows for temporary disturbance of landscaping, if required by the design. In practice,

the implementation of such a disturbance shall be agreed with the relevant services responsible for

this infrastructure. However, the legislation does not mandate the constriction customer or the

developer to provide an alternative service delivery to the residents.

5.6. Permits and Licensing Procedures for Building a Motor road

Following the conclusion of the land lease contracts for the construction of the CRR and concurrent

registration of the lease, the concessionaire receives the right to develop the land.

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To be eligible for commencing construction works, the concessionaire (as the customer) shall obtain

a permit to commence CRR construction work for a facility of category 4 or 5. The assignment of a

complexity category 4 or 5 to the facility shall be made according to the criteria set by the Cabinet of

Ministers on April 27, 2011, Reg. No. 557.

Evaluation of CAT4 and 5 construction projects financed from public funds, the funds of public and

municipal enterprises, institutions and organizations, as well as loans issued under government

guarantees shall be carried out by an expert state-owned organization. The evaluation shall involve

(including on the basis of civil law contracts) the experts on sanitary and epidemiological safety,

environment, occupational safety, energy conservation, fire, emergency, nuclear and radiation safety

experts who passed professional certification.

The customer, general contractor or a contractor are not required (if construction work is carried out

without the involvement of subcontractors) to obtain other permits for construction works and

removal of vegetation within the construction site if a construction permit is available.

5.6.1. Requirements for receiving permits and licenses. The procedure and timing.

A construction permit is issued by the state architectural and construction oversight authorities free

of charge within ten working days from the date of registration of the application.

A comprehensive list of documents required for receiving administrative services and requirements

hereto have been approved by the Order of the State Architectural and Construction Inspection on

March 1, 2013, Reg. No. 39:

1) Permit application following a prescribed format;

2) Copy of the document confirming land ownership or user right (i.e., a copy of the lease contract);

3) Construction design papers, developed and approved in accordance with the law;

4) Copy of the document confirming the ownership of the building or a structure, or a written

consent of the owner for construction works in case of reconstruction, restoration or repair;

5) Copy of the license authorizing construction works, certified in the prescribed manner (submitted

if necessary);

6) Copies of appointment papers for the persons responsible for construction works and the persons

engaged in architectural and engineering supervision;

7) Copies of duly certified qualification papers.

Should the state architectural authority fail to grant permission for construction work or refuse to

issue it within ten days, the customer shall apply to the Ministry of Regional Development,

Construction and Housing and Utility Services requesting action within ten working days associated

with the issuance of this permit or refusal to issue. If the construction work permit or official refusal

is not issued during this period, the right to perform construction work shall be in effect on the tenth

working day following the registration of the application in the Ministry, while the permit is

considered issued.

5.6.2. The ratio between the Project contractor’s capacity to receive the construction permit

and its land rights. (Unjustified) legal restrictions.

A concessionaire shall enter into a separate lease contract for obtaining the right to develop land.

Further, the concessionaire (as the construction customer) shall obtain a permit to begin construction

works according to the procedure presented in the preceding paragraph. The procedure for obtaining

the right to start construction has become much simpler with the entry into force of the Law No.

3039-VI of 17 February 2011, which eliminated unnecessary legal restrictions of the right to develop

land.

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5.7. Road construction in concession projects

5.7.1. Legal status of a motor road as a subject matter of civil law

The legislation defines motor road as a "linear system of engineering facilities designed for

continuous, safe and convenient movement of vehicles" (Art. 1 of the Law On Public Roads). The

Law identifies the following types of roads:

- Public roads;

- Streets and municipal roads;

- Corporate (service) roads;

- Roads built on private land.

Public roads meet the needs of the society in road passenger and freight transport. Public roads are

owned by the state and are not subject to privatization. Public roads, which due to the expansion of

city limits became a part of the municipal street and road network can be transferred to municipal

ownership free of charge by the resolution of the Cabinet of Ministers (Article 7 of the Law On

Public Roads).

The State Road Service administrates public roads in Ukraine (article. 9 of the Law of Ukraine "On

roads").

Public roads may be offered for concession. According to Article 2 of the Law On Concessions for

Construction and Operation of Motor roads, property created pursuant to the terms of the concession

agreement or received as concession and located within the road easement area is subject to the

public property rights transferred to the concessionaire’s possession and use during the term of the

concession agreement; the property located outside the road easement area acquired by the

concessionaire is owned by the concessionaire.

Municipal streets and roads are municipally owned and run by local governments.

Some portions of municipal streets and roads that overlap with the national motor roads shall not be

subject to privatization. Road lanes, man-made structures (bridges and overpasses), technical means

of traffic control and lighting in the streets and roads of municipalities can be transferred to public

ownership and from public to municipal ownership free of charge by the resolution of the relevant

local authorities and the Cabinet of Ministers (Article 16, the Law On Public Roads).

Corporate (service) roads – commercial service roads owned by corporations or individuals.

Managing, operating and development of corporate (service) roads are carried out by corporations or

individuals, which property accommodates them (Article 22 of the Law On Public Roads).

Roads built on private land – the roads located in the areas owned by corporate (no-government)

organizations or individuals. Motor roads on private land can be transferred in public or municipal

property by the owners based on the resolution of the Cabinet of Ministers or local governments

(Article 25 of the Law On Public Roads).

CRR is a public motor road.

5.7.2. Does the law contain any unjustified restrictions in terms of the ability of the parties to

agree on the relevant provisions for the design and construction of the project (including in

relation to: (a) applicability of construction standards - national and international; (b)

development, review and approval of building plans and specifications; (c) design

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development; (d) concessor’s right to oversee construction process; (e) concessor’s powers to

amend the design, if necessary; (f) the procedure of testing, inspection, approval and

acceptance of the facility; g) latent defects and responsibility)?

With respect to (a) the applicability of the national and international construction standards:

According to Article 11 of the Law On the Building Codes use of building codes or their individual

provisions is mandatory for all entities regardless of the type of incorporation, which carry out

construction, urban planning, architectural activities and manufacture products for construction

purposes. International, regional and national (state) building codes, regulations, standards and other

countries’ standards shall be used in Ukraine in accordance with the international treaties of Ukraine

ratified by the Parliament. In this case, the specified article found that if the building codes feature a

reference to standards, then these standards become mandatory.

Thus, the parties cannot derogate from the government approved building codes, regulations and

standards that are binding in Ukraine. However, the parties may agree on the conditions for the use

of other (additional) building codes, regulations and standards for construction and/or operation of

motor roads, including international.

As to (c) the development of the design:

The legislation does not provide for the concessionaire to participate in the development of design

papers. This gap is proposed to be solved by making the appropriate changes to the laws governing

concessions, as defined in Section 6 of the Report.

As to (b) the development, review and approval of construction plans and specifications; (D)

concessor’s rights to supervise construction; (E) concessor’s powers to amend the design, if

necessary; (F) the procedure of testing, inspection, approval and acceptance of the facility; (G)

latent defects and responsibilities:

The law does not contain any significant undue restrictions relating to the ability of the parties to

negotiate and agree to relevant provisions of the concession agreement, without derogating from the

binding procedures provided for by the law in the area of urban development (e.g. commissioning of

a newly-built facility), and in compliance with mandatory Ukrainian building codes and standards.

5.8. The operation of the motor road concession projects

5.8.1. Does the law foresee any (unnecessary) restrictions in terms of operation of completed

facilities or the parties’ rights to agree appropriate conditions hereto?

According to Art. 30 of the Law On Public Roads, the functioning of paid public roads shall be

organized either by the enterprises reporting before a government authority responsible for public

motor roads or concessionaires. This provision does not provide for the conditions for participation

of private concessionaires in such activities, as well as possible participation of the contractors

involved by the concessionaire. We recommend to initiate appropriate amendments to the law as

stated in Section 6 of the Report.

5.8.2. What is the legal framework regarding maintenance of concession roads? Does the law

say which party (public/private) shall assume the cost of maintaining concession roads? Does

the law provide for a proper oversight mechanism by a government authority to maintain

concession roads according to the safety standards?

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According to Article 1 of the Law On Concessions for Construction and Operation of Motor roads,

in terms of motor road maintenance, the concessionaire’s actions shall aim to ensure continuous and

safe operation of the motor road in accordance with the standards and norms of road maintenance

and the concession agreement provisions. A typical concession agreement to build and operate a

motor road also establishes a concessionaire’s duty to operate the motor road.

The Law On Concessions for Construction and Operation of Motor roads specifies that the

concession provider can partly finance (co-finance) construction and/or operation of roads based on

the concession conditions to the extent and in the manner specified by the concession agreement

using the funds provided by the National Budget’s special fund for the development and maintenance

of public roads. A typical concession agreement for the construction and maintenance of roads

implies the need to determine the distribution of road construction and operational maintenance costs

between the parties (the amount of financing from public funds and by the concessionaire, including

the planned period).

According to Article 7 of the Law On Concession for Construction and Operation of Motor roads,

concessionaire shall:

Maintain technical condition of the motor road in accordance with the standards and norms of

public road maintenance;

Hand over the road to the concessor after the expiry of the concession agreement in the

condition that meets the standards and rules of construction, reconstruction, repair and

maintenance of public roads, which apply at the time of transfer.

Supervision over the concessionaire’s compliance with the concession agreement shall be

concessor’s responsibility by law.

According to Art. 30 of the Law On Public Roads, the state authority responsible for public motor

roads (Ukravtodor) shall perform compliance checks in terms of the status and the use of toll roads

in line with established requirements and make proposals for bringing those violating the road

maintenance rules and regulations to justice.

Road safety control measures can also be carried out by law enforcement agencies and the agencies

responsible for monitoring the use and protection of land, the authorities exercising supervision over

civil defense, environmental authorities and other.

5.9. Concessionaire’s return of investment

5.9.1. ROI Methods

Under current law, the concessionaire receiving a motor road in concession shall at its own risk and

financial responsibility undertake to carry out construction and/or operation of such road; instead, the

concessionaire is entitled to receive revenue from the motor road operation.

According to Article 4 of the Law On Concession for Construction and Operation of Roads, the

concessionaire’s revenue sources from the operation of the motor road include:

Fares for using the motor road;

Charge for operational readiness of the road, paid by the concessor;

Fees for using motor road service facilities, paid by the user;

Grants and/or compensations provided by the concessor;

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Other revenue sources of the concessionaire shall be established by the concessor on the

basis of a feasibility study and/or project estimates and specified in the bidding documents

and the concession agreement."

A typical concession agreement for the construction and operation of road provides the following list

of the sources of ROI:

Introduction of motor road user fees, and

Receiving profit from the use of relevant structures of the concession road and roadside

infrastructure.

5.9.2. Does the law allow/enable an organization (including the concessionaire) to charge

money based on the tariffs or charge fees from the customers directly for the use of services

when needed?

Article 4 of the Law On Concessions for Construction and Operation of Motor roads affirms the

right of the concessionaire to charge fees from the users of the toll road and also the fees for using

roadside infrastructure. Thus, according to the Law On Public Roads, public road can be classified as

a toll road on the condition of significant improvements and availability of an alternative free

passage and this road shall not be subject to privatization.

The above provisions suggesting that the fees charged for using the motor road belong to

concessionaire’s revenue sources are not consistent with the provisions of Art. 29 of the Law On the

Roads, according to which "the fare shall be paid to the State Budget of Ukraine, it shall be

earmarked and used primarily to repay the loans and the costs associated with the repair and

maintenance of toll roads, and also to finance construction, reconstruction, repair and maintenance

of other public motor roads.'" To resolve this conflict it is recommended to initiate amendments to

the legislation. Relevant suggestions are given in Section 6 of the Report.

5.9.3. Does the law allow the contracting authority (or any other government authority) to pay

the organization for services when needed?

The Law On Concessions for Construction and Operation of Motor roads expressly provided that

the concessionaire’s source of revenue may include the following payments by the concessor:

- Fees for the operational readiness of the motor road;

- Grants and/or compensation.

In addition to the concessionaire’s sources of income from the operation of the road as indicated by

the above law (see Par. 5.9.1 of the Report), the concessor can identify other sources of income of

the concessionaire. These additional sources of income shall be determined by the concessor on the

basis of a feasibility study and/or project estimates and specified in the bidding documents and the

concession agreement.

Thus, the concessor, if necessary, may establish an additional source of concessionaire’s income in

the form of payments made to the concessionaire by a contractor/public authority. Payments for

services shall be appropriately earmarked in the appropriate budget.

5.9.4. When appropriate, does the law have relevant measures to regulate prices and tariffs

established by the organization? At the same time, whether the law provides sufficient

flexibility in terms of adjusting their prices based on the actual market demand (traffic flow)?

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Art. 4 of the Law On Concessions for Construction and Operation of Motor roads, provides that the

Cabinet of Ministers shall determine the maximum and minimum amount of fees for using the toll

roads constructed under the terms of the concession.

The Cabinet of Ministers’ Decree No. 1299 of August 22, 2000 approved the procedure for setting

maximum amount of fees for using the toll roads constructed under the terms of the concession. The

procedure provides that the maximum amount of fees for using the toll roads constructed under the

terms of the concession shall be determined by applying general pricing principles based on

projected traffic volume and the type of vehicles using these roads. In accordance with the specified

procedure, maximum fares established by the Cabinet of Ministers may be revised at the initiative of

the concessionaire. In this case, before drafting of the state budget for the next fiscal year, the

concessionaire shall submit the concessor with the papers specified in the concession agreement. The

concessor shall consider the papers within one month and if the concessionaire’s offer of a new

maximum fare is upheld, the concessor shall submit it for approval to the Cabinet of Ministers.

A typical concession agreement for the construction and maintenance of roads requires establishment

of a fixed fare (in UAH) during the first year of the road operation.

The Law On Concessions for Construction and Operation of Motor roads implies that the Cabinet of

Ministers shall determine the procedure of free passage by the roads constructed under the terms of

the concession and its reimbursement. The procedure for redressing free passage by the roads

constructed under the terms of the concession has been approved by the Cabinet of Ministers on July

6, 2000, Reg. No.1065. The above Procedure defines the list of vehicles that are eligible for free

passage by the roads constructed under the terms of the concession and the procedure of receiving

appropriate compensation.

5.9.5. Which measures have been prescribed by the law for prevention of non-payment and

punishment of the offenders?

The law does not set any special conditions to prevent payment evasion in the concession activities

and punish the offenders, such as imposing of fines for administrative violations.

The general provisions of the Civil Code of Ukraine provide that in case when the debtor breaches

his commitments, he must pay the creditor money as forfeit (fine or penalty).

5.9.6. Does the law set any standards or requirements for services provided by the concession

road operators?

Yes, the law established such standards and requirements.

The Law On Public Roads imposes the development of standards and regulations for the

construction, reconstruction, repair and maintenance of roads on a public authority managing roads

in consultation with the relevant government authorities responsible for road safety. Adoption of the

national standards for the construction, reconstruction, repair and maintenance of roads shall be

carried out by the central executive body responsible for the national policy in the sphere of technical

regulation.

The Order No. 391 of the State Agency of Motor roads of Ukraine (Ukravtodor) issued on October

12, 2012 approved the TORs of the Industry Building Codes and the Regulations Fund, whereby the

relevant Fund shall collect information on the current regulations in Ukraine in the field of public

roads, organize, register, store, update it and create conditions for the use of these documents by

enterprises, institutions, organizations and commercial companies which report to Ukravtodor.

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The list of technical standards in road construction and maintenance is available on the Ukravtodor

website: http://www.ukravtodor.gov.ua/tekhnichne-regulyuvannya.

On March 30, 1994, the Cabinet of Ministers approved (Reg. No. 198) the Uniform Rules of repair

and maintenance of roads, streets, railroad crossings and the terms of use and safeguarding them.

They apply to automobile (country) roads, streets and public roads, railway crossings within the

alienation zone and red lines and shall be mandatory for their owners or their authorized agencies,

organizations engaged in repair and maintenance of road facilities and the users. According to this

Regulation, the basic requirement for the transport and operating conditions of road facilities is the

compliance of controlled parameters of their individual elements and facilities in general to DSTU

3587 "Traffic Safety". Roads, Streets and Railway Crossings. Operating Condition Requirements."

Motor roads and road maintenance requirements are also regulated in the national building codes,

including DBN V.2.3-4: 2007 "Transport Facilities. Motor roads."

5.10. Early termination of the project (concession) contract

5.10.1. Does the law impose any (unjustified) restrictions on the parties’ ability to agree the

rights and the procedure of contract termination best suited to the project?

Article 15 of the Law On Concessions provides the following grounds for the termination of a

concession agreement:

Expiration of the concession agreement;

Court liquidation of the concessionaire, including in connection with bankruptcy;

Revocation of a business license issued to the concessionaire;

Termination of the subject matter of the concession (destruction of road or damage which

precludes its further use);

Termination of the concession agreement by parties’ agreement;

Termination of the concession agreement by the court at the request of either party in the

event of default of the parties and for other reasons as prescribed by the laws of Ukraine.

The said law and the Standard Concession agreement to build and operate a motor road do not

provide for any other grounds for termination of the concession agreement apart of the above.

However, one should note that in accordance with the Commercial Code of Ukraine (Art. 179, Part

4), the parties are not allowed to derogate from the conditions of standard contracts approved by the

Cabinet of Ministers, although it is allowed to specify their provisions.

We’re aware about some case law (see. Par. 5.4.1 of the Report) showing that after considering a

dispute the Supreme Economic Court of Ukraine ruled that the parties could not envisage any

additional grounds for unilateral termination of the agreement in the concession agreement, unless

such grounds were prescribed by the law and by the relevant standard contract. With these in mind,

there is a risk of court invalidating the provisions of the concession agreement involving other

grounds for the termination of the contract rather than the ones established in the Law On

Concessions and in the standard contracts.

However, one should note that the foregoing court policy is inconsistent with Art. 651 of the Civil

Code, which stipulates for the right of the parties to the contract agree on the reasons for its

termination and, in particular, the right to establish a possibility to unilaterally terminate the contract.

To avoid ambiguous application of the law, it is recommended to initiate amendments to the

legislation. Relevant suggestions are given in Section 6 of the Report.

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5.10.2. Does the law provide adequate conditions for the beneficiaries of compensation

payments after its expiry (including, but not limited to time and the procedure of receiving

such payments)?

Should the concessor decide to offer benefits subsidies and compensation, the decision shall include

the amount of benefits, subsidies and compensation and eligibility conditions and terms pursuant to

the Procedure of selecting concession facilities where the concessioner may be eligible for benefits in

terms of concession payments, subsidies, compensation and their provision conditions approved by

the Cabinet of Ministers on July 13, 2000, Reg. No. 1114.

Contract termination shall not discontinue the liabilities to pay the compensation that arose before

contract termination.

In case of breaching the deadlines or conditions by the concessor, it can be subject to penalties such

as forfeit (fine, penalty) in the manner prescribed by the law and the terms of the contract.

5.10.3. Does the law provide for sufficient transparency in terms of transferring certain

(public) assets to the government and keeping of other (private) assets by the concessionaire?

The law On Concessions determines that transfer of facilities into concession does not involve the

transfer of ownership rights to the concessionaire and does not terminate the public or municipal

ownership rights to these facilities. Property created pursuant to the concession agreement shall be

the subject matter of public or municipal ownership rights. The property acquired by the

concessionaire pursuant to the concession agreement shall belong to him by the right of ownership

and can be transferred to the public or local community ownership after the expiry of the concession

agreement in accordance with the conditions stipulated in this Law and the concession agreement.

According to the Law On Concessions for Construction and Operation of Motor roads, property

created pursuant to the terms of the concession agreement or received as concession and located

within the road easement boundaries shall be a subject matter of public property transferred into the

concessionaire’s possession and use for the duration of the concession agreement. The property

acquired by the concessionaire and located outside the road easement boundaries shall be the subject

matter of concessionaire’s ownership. The Law On Public Roads defines easement as "land granted

in the prescribed manner for building the road."

In the event of termination of the concession agreement, its expiry, liquidation of the concessionaire

in connection with bankruptcy or revocation of the business license, the concessionaire is obliged to

return the concession property to the concessor under the conditions specified in the concession

agreement.

The procedure for transfer of assets, particularly in terms of documents and deadlines may be further

regulated in the concession agreement.

In order to more clearly define the legal status of the assets acquired or constructed during the

concession project, it is necessary to appropriately amend the legislation as described in Section 6 of

this Report.

5 .11. Dispute Resolution

5.11.1. Does the legislation provide for the parties to the project agreement a sufficient scope of

rights and flexibility so that they could agree on the dispute resolution mechanisms that best

meet the needs of the project (including the choice of the law/international

arbitration/mediation)?

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According to Article 16 of the Law On Concessions, disputes arising from concession agreements

shall be considered in court in accordance with the laws of Ukraine. Disputes arising from

concession agreements between non-residents shall be settled in the manner prescribed by the law

and may be considered by the international arbitration at the jurisdiction specified in the contract.

However, the Law On International Commercial Arbitration also includes litigation as the

competence of international commercial arbitration for the companies with foreign investment

established in Ukraine (disputes between themselves, their members, as well as other corporations in

Ukraine), which under the law of Ukraine are considered residents. Hence, current law allows

arbitration courts to also consider disputes involving the residents of Ukraine - companies with

foreign investment if the dispute does not fall under the exclusive competence of the Ukrainian

courts. According to Art. 77, Part 1 of the Law On International Private Law, Ukraine’s court

jurisdiction is exclusive in cases with a international component, especially if the real estate being

the subject matter of the dispute is located on the territory of Ukraine.

It is expedient to amend the legislation that directly provides for the possibility of resolving disputes

arising from the concession agreements by the international arbitration tribunal in accordance with

the procedure laid down in the legislation. The proposals for relevant changes are mentioned in

Section 6 of the Report.

The possibility to resolve disputes through mediation is not available.

5.11.2. Are there any "gray areas" allowing to bypass dispute resolution mechanisms

stipulated in the project agreement? What possible obstacles may arise during the enforcement

of arbitral awards?

According to the Law of Ukraine On International Commercial Arbitration, arbitral award

regardless of the jurisdiction where it was made shall be considered mandatory and enforced in

Ukraine after submission of a written request to the competent court if the Ukrainian court has not

refused to recognize or enforce such a decision.

The Law On International Commercial Arbitration provides an exhaustive list of grounds for refusal

to recognize or enforce the award.

In general, there should not be any obstacles with the enforcement of the award if the award has been

properly documented and the arbitration clause correctly drawn. However, we cannot exclude the

other party delaying enforcement through procedural means. Also, we are aware of some cases of

complications arising during enforcement of arbitration awards in connection with participation of

the prosecutor as a defender of the interests of the state in parallel and related disputes in Ukraine.

5.12. Amending the Legislation. Miscellaneous

5.12.1. Does the law sufficiently protect the implementing organization from changes in the

law?

The law provides for the concessionaire organization sufficient protection against changes in

legislation.

The Law On Concessions expressly determines that the terms of the concession agreement are valid

for the entire duration of the contract, including when after signing the contract, the laws establish

the rules that deteriorate the concessionaire’s situation.

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According to the Law On Concessions, the government shall ensure compliance with the legally

established conditions for performance of activities by the concessionaires related to the

implementation of concession agreements, protection of their rights and legal interests. The changes

to the law should not worsen the conditions of project implementation by the concessionaires under

the terms of the concession.

5.12.2. Does the law contain any (unjustified) restrictions in terms of: transfer of technologies

necessary for the facility’s operations? Training contractor’s personnel? "A share of local

production" in the total volume of goods, services and personnel involved in the project

implementation? Operation, maintenance and supply of spare parts (if necessary) by the

concessionaire some time after the contract termination?

Regarding the transfer of technology needed for facility’s operation:

According to the Law On Concessions, the procedure of using facilities falling under the intellectual

property rights is one of the essential conditions of the concession agreement. The obligation of the

concessionaire and the conditions of technology transfer after the termination of the concession

agreement can be specified in the concession agreement.

Regarding training of contractor’s personnel:

A concessionaire has the right to contract third parties to perform special assignments on the

concession facility; however, the concessionaire is responsible for complies with the terms of the

concession agreement by the third party and the laws of Ukraine. Thus, if the concessionaire

involves contractors to perform some work, he shall arrange for appropriate training of such persons.

The law does not set any undue restrictions on personnel training.

As for "the share of local production" in terms of goods, services and personnel involved in the

project implementation:

The Law On Concessions established the following obligations of the concessionaire:

− Conclude labor contracts in compliance with the labor law, usually with the citizens of

Ukraine;

− Use technologies, materials and equipment of domestic production on the concession site,

unless otherwise provided by the terms of the contract.

Among the essential conditions of the concession agreement, the Law On Concessions mentioned

employment of the citizens of Ukraine and requirements to use domestic raw materials, which the

parties must establish in the contract.

A standard concession agreement for construction and maintenance of roads has been approved by

the Cabinet of Ministers on Oct 4, 2000, Reg. No. 1519. It provides, inter alia, for the requirement to

attract at least 90% of workers - the citizens of Ukraine and use 70% of domestic materials. This

limitation is considered unjustified. These provisions of the Standard Concession Agreement are

based on the provisions of the previous version of the Law On Concessions for Construction and

Operation of Motor roads that are not mentioned in the new version of the law. We recommend to

initiate bringing the standard contract in compliance with the current version of the law, which does

not impose such restrictions.

With respect to operations, maintenance and supply of spare parts (if necessary) by the

concessionaire some time after contract termination:

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The legislation does not contain any requirements for the concessionaire to operate or maintain and

supply spare parts some time after the termination of the concession agreement. However, by parties’

agreement, such requirements may be stipulated in the relevant concession agreement.

6. LEGAL BARRIERS THAT REQUIRE CHANGES IN LEGISLATION

Regulation Issues Proposals Comments

The Law On Public Roads No.2862, September 8, 2005

Art. 1 "Easement zone" is

defined as land provided

to accommodate the road.

Narrow down the definition

of "easement zone" to

"parts" of the land where

the road elements defined in

Art. 9, Part 1 hereto, are

actually located or specify a

different mechanism for

determining the boundaries

of the "easement zone"

according to DBN V.2.3-

16:2007.

According to Art. 2, Part 5

of the Law On Concession

for Construction and

Operation of Motor roads,

the property acquired by

the concessionaire and

located outside the

easement zone is a subject

matter of concessionaire’s

ownership

rights. With the

purpose of separation from

public property one should

clearly define the concept

of the "easement zone".

Art. 9 There have been

identified facilities,

structures and other motor

road components that can

be located both within and

outside the easement zone

to accommodate the road;

however the legal basis

for building a motor road

on the relevant property

outside the easement zone

has not been defined.

One should define integral

parts of a motor road as

facilities, structures,

mechanisms and equipment

used solely for the purposes

of operation and

maintenance of the motor

road. Narrow down the list

of motor road components

located outside the easement

zone as defined in Part 3

and exclude "dual use"

facilities such as service

facilities, parking lots, etc.,

which may be privately

owned and therefore should

not be determined as

components of a motor

road.

As public roads can only

be owned by the state, the

motor road components

should include only the

facilities that are directly

and technologically related

to the road and ensure its

functioning. Road

components should not

include facilities that may

belong to private persons.

Art. 9 The motor road

components include

facilities and structures

that could theoretically

be privately owned, but

according to this Law if

such facilities and

Supplement Art. 9 with a

separate part giving a

tentative list of road

infrastructure facilities

located outside the easement

zone which can be both

According to Art. 7, all

public roads are publicly

owned and are not subject

to privatization. It is

necessary to separate the

components of the motor

50 / 81

buildings belong to the

motor road components,

they cannot be privatized

in view of the provisions

of Art. 7 hereto.

public and private, including

gas stations, motels, parking

lots, camper rest areas,

service centers and more.

Also its important to define

that the facilities, buildings

and equipment that can be

used to serve the needs of

the motorists can be built

within the easement zone;

however they are not an

integral part of the motor

road and may be privately

owned.

road, one being its integral

part and serving directly

and exclusively for the

operation of the motor

road. The other being the

facilities and components

that are used to meet the

needs of motorists.

Art. 27 It is not stated that the

basis and a prerequisite

for assigning a road to the

category of toll roads

could be construction of

such a road. The Article

stipulates that a

prerequisite for referring a

road to the category of toll

roads can be a substantial

improvement of this road

and provision of an

alternative for free

passage of vehicles.

The conditions of referring

the road to a toll road

category should be

supplemented with a new

condition i.e. building of a

motor road. Establish it as

follows: "Referring the road

to a toll road category only

upon the condition of

construction or substantial

improvement of this road,

on terms that are acceptable

under the applicable

legislation and provision of

an alternative for free

passage of vehicles."

The proposal is aimed at

addressing the need for

clarification about the

future referral of roads

built under the concession

terms to the category of toll

roads.

Art. 28 Charging fees for using

toll roads has been

imperatively laid upon a

state authority managing

public motor roads thus

preventing introduction of

fees by the road operator

(concessionaire).

Remove the phrase "and

charging toll for using

them" from the standard.

Alternatively, Art. 28 can be

supplemented by a separate

part, which would allow

government authority

responsible for public motor

roads delegate its authority

for charging toll to the

operator of the

With the current version of

the law, the toll road

operator (concessionaire)

cannot administer fees for

using the toll road, which

increases the risks of the

concessionaire and

consequently affect the

economic performance of

the project.

51 / 81

corresponding road.

Art. 29 It’s been determined that

the payments go to the

National Budget of

Ukraine and are

exclusively earmarked

and used primarily to

repay the loans and the

costs associated with the

repair and maintenance of

toll roads and to finance

construction,

reconstruction, repair and

maintenance of other

public roads, which is

against the concession

law.

Supplement it with the

provision that the fare paid

for using toll public motor

roads that were built from

the funds raised by the

concessionaire under the

concession and/or other

relevant agreement shall be

credited into the

concessionaire’s account

and shall be used both to

maintain proper road

condition, meeting the

relevant concessionaire

agreement requirements and

for other purposes

determined by the

concessionaire under the

concession agreement.

It sets a distinction

between directing the

payments for using public

motor roads, built or

improved under conditions

other than the concession

agreement and fees for

using toll roads that were

built by the concessionaire

under the concession

and/or any other

agreement.

Art. 30 Operation of public toll

roads is provided by

public road maintenance

enterprises reporting

before a government

authority responsible for

public motor roads or by

the concessionaires.

Participation of a private

concessionaire in such

activities is not provided

for, neither participation

of the contractors

involved by the

concessionaire.

Amend Art. 30 clarifying

that the operations of the

toll public roads constructed

under the terms of the

concession shall be

provided by the

concessionaires and/or

engaged persons on terms

and in the manner

prescribed by the

concession agreement. Art.

30, Part 2 about the annual

public administration

inspections of public motor

roads should be removed or

restricted in relation to the

roads constructed under the

terms of the concession

A concessionaire may use

contractors to ensure the

operation of public toll

roads built under

concession terms. The

conditions and procedures

should be defined in the

contract. The procedure for

inspecting the road built as

a concession should be

determined accordingly in

a concession agreement.

Art. 31 The Law established that

the agencies securing the

operation of toll roads

bear the responsibility for

their technical condition,

Change the wording from

"Regulatory agency

responsible for the

operation of toll roads ..." to

"persons securing the

Considering the proposal to

Art. 30 of the Law (see.

above) the operation of toll

roads can be arranged not

only by government

52 / 81

compliance with the

regulations and standards

of maintenance and repair

of roads and payments of

appropriate

compensations.

operations of toll roads ..."

agencies but also y private

law entities, in particular

the concessionaire and/or

involved individuals

(contractors).

Art. 38 The law does not envisage

concessionaire’s ability to

generate revenue from

road advertising, which is

handed into concession

and operated and

maintained by the

concessionaire.

Amend it with a separate

part, whereby posting of

advertising along the motor

roads transferred into the

concession, including

outside the road’s easement

zone shall be agreed with

the concessionaire.

Concessionaire has the right

to receive payments from

the owners of concession

road advertising.

The concessionaire shall be

responsible for the road

condition, its operation and

has a right to all revenue

received from the use of

this road.

The Law On Concessions No.997-XIV, July 16, 1999

Par. 6, Art.

3, Part 2

Concessions may be

granted for construction

(road construction works

associated with

construction,

reconstruction and major

repairs) and/or operation

of motor roads, road

facilities and other road

structures.

Supplement the concession

concept as follows "design:

building (a system of road

construction works

associated with the

construction, reconstruction

and major repairs) and/or

operation of motor roads,

road facilities and other

road structures.

The question whether a

concessionaire can make a

design independently is not

clearly resolved by the law.

Given that the design

stages, in particular,

include development of

working documents and a

working draft performed

directly prior to

construction and usually

provided by construction

companies, such an

opportunity should be

directly provided.

Art. 3, Part

6

It specifies that the

ownership right to a

relevant property shall be

exercised by the

concessor in accordance

with the law. However,

the law does not specify

Provide the agency

exercising powers of the

owner of land in relation to

the land plots to be

transferred into concession

with the duty to pass these

plots on to the concessor.

This will help avoid

involvement of third

parties (public authorities

and local governments)

that are not parties to the

concession and bear no

responsibilities within the

53 / 81

the procedure of

mandatory transfer of land

to the concessor by the

agency vested with the

powers of the owner at the

time of signing the

concession agreement.

Provide for concessor’s duty

to demand such a transfer.

project.

Par. 11,

Art. 7, Part

2

It specifies that the

concessor acts as the

customer and carries out

activities related to the

approval and adoption of

property management

projects in terms of

allocation of land, other

property management

papers developed for the

purpose of leasing land to

the concessionaire for

carrying out concession

activities.

Enhance the powers and

duties: "... delegate certain

functions of the land-use

project customer to the

concessionaire in the cases

provided by the concession

agreement and agree the

land management project

with the concessionaire."

Changes are proposed in

view of the feasibility to

expand opportunities for

participation and control of

the concessionaire to

develop land use design

and making changes to it

before its final approval.

Art. 10 The term "conditions for

granting a land plot" has

quite a narrow meaning

for the purposes of the

concession agreement.

Replace it with "conditions

of land use."

Will allow for the

registration of rights to use

land by the concessor and

taking necessary actions by

the concessor on behalf of

the concessionaire as a

developer without directly

giving the rights to the

concessionaire to use land.

Art. 18,

Part 2, Art.

3, Part 6,

Art. 10,

Part 3

The law provides that the

land of public or

municipal property where

a concession facility is

located is leased out to the

concessionaire and does

not provide other legal

basis for concessionaire’s

land-use. In addition, Art.

18, Part 2 of the Law

require the concessionaire

to enter into land lease

Provide legal basis for land

use pursuing concession

activities, except for the

land lease. The issue of land

use, if necessary, should be

decided before the

enactment of concession. It

is also important to exclude

the concessionaire’s

obligation to enter into land

lease contracts within one

year from the effective date

The land title may be

registered to a concessor or

third parties, but the

concessionaire should be

able to use them for the

purposes of the contract.

The procedure, the terms

and responsibilities in

connection with the

registration of land title

should be defined in the

concession agreement

54 / 81

agreements no later than

one year after the

effective date of the

concession agreement.

of the concession agreement

from Art. 18, Part 2.

considering the specifics of

a particular project and the

current legal status of land.

Part. 1,

Art. 1, Art.

10, Part 1,

Art. 12,

Part 1,

The law does not provide

private partners with

exemption from payment

of the concession fees

when granting a license to

create (build) a new

facility.

Provide for the cases in the

law where the

concessionaire may be

exempt from payment of

concession fees, particularly

in the case of a concession

for establishment

(construction) of new

facilities and in other cases

provided by the law.

Should a concessionaire

receive payment from the

concessor for the

operational readiness of

constructed road,

concession fees from the

concessionaire shall be

deemed uneconomical. The

draft Law On Amendments

to Certain Legislative Acts

of Ukraine (regarding the

removal of regulatory

barriers to the development

of public private

partnership in Ukraine and

stimulate investment)"

(hereinafter - the "Bill")

provides appropriate

proposals.

Art. 12,

Part 4,

The Law provides for the

possibility of giving

compensation only to the

concessionaries of loss-

making and low-profit

concession facilities that

are of great social

importance.

To supplement the Law with

the provision whereby the

special laws in certain areas

of economic activity can

provide for benefits and

compensation for the

concessionaries of other

concession facilities in

certain cases.

This addition in the Law

On Concessions for

Construction and

Operation of Roads

associated will allow for

providing concessor

compensation to the

concessionaire to offset the

losses due to low traffic

(below are the proposals to

the relevant law).

Art. 16 The current wording of

the law provides that

disputes arising from

concession agreements

shall be reviewed by the

court in accordance with

the laws of Ukraine;

disputes arising from

Provide that the disputes

arising from concession

agreements shall be settled

in the manner prescribed by

the law and may be

reviewed by the

international arbitration at

the jurisdiction specified in

The Law of Ukraine On

International Commercial

Arbitration allows

arbitration courts to also

consider disputes involving

the resident enterprises

with foreign investments.

The ability to resolve the

55 / 81

concession agreements

with non-residents shall

be settled in the manner

prescribed by the law and

may be considered by the

international arbitration at

the jurisdiction specified

in the contract.

the contract.

dispute in arbitration is a

more attractive condition

for foreign investors.

Art. 15,

Part 2, Art.

16, Part 3,

The law does not contain

instructions for the

parties’ right to agree on

the termination grounds in

the concession agreement.

In case of breach of the

concession agreement, the

parties may request

termination of the

concession agreement in

accordance with the laws

of Ukraine.

It should be possible for the

parties to the contract to

agree the grounds for its

termination: the parties have

the right to demand

termination of the

concession agreement on

the grounds specified in the

concession agreement and

in accordance with the laws

of Ukraine.

The grounds for

termination of the

concession agreement

should be agreed with the

parties in a concession

agreement.

Art. 17 Concessionaire has no

opportunities to

participate in the

development of design

documents.

Allow the concessionaire to

participate in drafting of the

design documents and give

him the right to participate

and/or involve third parties

based on the

concessionaire’s initiative to

develop design papers and

design solutions in

connection with the

construction of the

concession facility.

The right of the

concessionaire to

participate in drafting

design documents must be

explicitly stated in the

legislation.

The concessionaire has no

right to participate in the

development and approval

of the land use papers.

Allow the concessionaire to

participate in the

development of land use

papers and the right to

participate and/or involve

third parties based on the

concessionaire’s initiative in

developing land use papers.

Expand the rights of the

concessionaire with the

right to participate in the

development and approval

of land use. This right is

relevant if the

concessionaire will acquire

land rights.

Par. 2, Art. The law does not provide Foresee the possibility of A part of the property,

56 / 81

20, Part 1 an opportunity for the

concessionaire to acquire

the title for the property

established pursuant to the

concession agreement in

the cases provided for in

such agreement.

acquiring private property

rights by the concessionaire

for the property (a share)

created pursuant to the

concession agreement and

to acquire property in joint

ownership of the

concessionaire and the

concessor in cases and in

the manner prescribed by

the concession agreement

and applicable law.

which the law does not

imperatively define as the

subject matter of law of

public or municipal

property, the

concessionaire may acquire

it as private or common

property if this is done

together with the

concessor.

The Law On Concessions for Construction and Operation of Motor roads No.1286-XIV,

December 14, 1999

Art. 1 Construction of roads

only envisages

implementation of a

number of road

construction works

associated with

construction,

reconstruction and repair

of the motor road, but it

does not include

concessionaire’s

participation in the design

and development of the

construction project, i.e.,

depriving the

concessionaire of

participation in the stages

preceding road

construction.

Construction of road - a

system of design, research

and road construction works

associated with the

construction design,

construction, reconstruction

and repair of motor road.

The question whether a

concessionaire can design

independently is not clearly

defined. Given that the

design stages, in particular,

include development of

working documents and a

working draft performed

directly prior to

construction and usually

provided by construction

companies, such an

opportunity should be

directly provided.

Art. 2, Part

1,

In selecting concession

facilities one shall provide

for a possible alternative

passage pursuant to the

Law of Ukraine On Public

Roads.

Exclude. The need for an alternative

passage occurs only after

assigning a motor road to

the toll roads category.

Art. 2, Part

3,

In terms of transfer of the

rights for road

The concession agreement

should establish grounds for

The current wording can be

interpreted as the need to

57 / 81

construction to a

concessionaire, the

concession agreement

shall enter into force on

the date when the right to

use land granted in the

prescribed manner for

road construction comes

into effect.

the use of land. The

agreement can enter into

force prior to providing the

concessionaire with a

possibility of using the land.

The contract may provide

for its early termination if

the concessionaire does not

get that opportunity during

the period specified in the

contract.

provide the concessionaire

with the right to lease land

that is not always possible

due to the fact that the road

should be in public

ownership; it’s not

advisable, since it

significantly increases the

cost of the concession

project.

Art. 2, Part

5,

It has not been determined

what kind of property

located in the easement

zone and created pursuant

to the terms of the

concession agreement or

received as concession

shall be recognized as

public property.

It is necessary to limit the

concept of "property" as

used in Par. 1, Art. 2, Part 5

of the Law with a concept of

"integral parts of the motor

road," as this term is

defined by the Law "On

Public Roads." Road service

facilities, structures,

facilities located in the road

easement zone or outside it

and that are not an integral

part of the motor road shall

be the property of the

concessionaire or the person

having the right to build

such road service facilities,

buildings and other facilities

provided by the

concessionaire or with his

consent in accordance with

applicable law.

It is necessary to clearly

distinguish between those

facilities that are built by

the concessionaire and

transferred to public

ownership, and the

facilities selected for

construction with

subsequent transfer to

private ownership for

which the concessionaire

has the right to and where

the concessionaire has the

ability to transfer such

rights to third parties.

Art. 3 It has not been expressly

provided for an exemption

from having to comply

with the public

procurement procedures

during concession

bidding.

Directly establish that in the

case of concession bidding,

competitive bidding

procedure stipulated by the

current legislation of

Ukraine to regulate relations

arising during procurement

of goods, works and

services for public funds is

not applicable.

58 / 81

Art. 3, Part

2,

The law lays the authority

for approval of concession

bidding requirements

exclusively on

Ukravtodor. However,

according to the law On

Concessions, concession

bidding requirements shall

be approved by the

concessor. Ukravtodor is

not the only executive

authority which may act

as concessor in granting

road concessions, because

according to the Law, a

concessor here is the State

represented by the

Cabinet of Ministers or its

authorized executive

body.

Amend Part 2, Art.3 of the

Law and to provide that the

terms of the concession

bidding shall be approved

by the "Concessionaire".

According to the Decree of

the Cabinet of Ministers of

July 17, 2013, No.640, the

power to conduct a

concession competition for

building CRR was assigned

to the State Investment

Agency, which is

inconsistent with the

current version of the Law

(Art. 3, Part 2).

Art. 4, Part

1,

It was determined that in

addition to the

concessionaire’s sources

of revenue from the

operation of the road

explicitly mentioned in

this Article and other

sources of revenue shall

be determined by the

concessor on the basis of

a feasibility study and/or

project estimates and shall

be specified in the bidding

documents and the

concession agreement.

Expand the list of

concessionaire’s sources of

revenue contained in Art. 4

by adding the following

sources: compensation of

the costs of the

concessionaire for

construction of roads,

compensation associated

with low traffic and other

forms of public support.

Receiving payments for

using the toll road, made by

the user should allow for

indirect receipt of such

payments, when firstly such

fee goes to the budget and

then the concessionary shall

fully or partially pay it to

the concessor. To

supplement the list as

follows: "other sources not

prohibited by law, as

A concessionaire shall be

entitled to receive all types

of income allowed by law

from using the road

transferred into concession,

provided that the

concessionaire and

concessor agreed this in the

contract.

59 / 81

defined in the concession

agreement." Instead, Par.6,

Art. 4, Part 1 should be

deleted.

Art. 4 The law provides that one

of the concessionaire’s

sources of revenue shall

be concessor

compensations. Thus, in

accordance with the above

Article, the procedure for

calculating and providing

compensation is

determined by the Cabinet

of Ministers. Current

legislation does not

provide direct indication

of the possibility of

compensation to the

concessionaire for losses

due to insufficient traffic.

To supplement the

provisions of the Law

whereby concessionaires

can be granted

compensation for losses

incurred due to low traffic,

in the cases and manner

prescribed by the relevant

concession agreement.

Potential concessionaires

are often willing to

participate in concession

projects only if the risk of

insufficient traffic will be

assume by the concessor

and, depending on the

financial model, the

concessor will compensate

the loss of low traffic.

Art. 6 The law requires the

concessionaire to make

concession payments in

all cases.

Supplement the provisions

that concession payments

may not be made if the

concession road is not

defined as a toll road, or

otherwise as determined in

consultation with the

concessor in the concession

agreement.

Simplify the system of

payments. Depending on

the funding model, a

concessionaire may receive

payment from the

concessor, a part of which

he must return as

concession fees. Due to

these cash flow the amount

of budget financing only

increases (cash flow)

without changing the

economic nature.

Art. 7 There has not been

envisaged any legal status

of newly created facilities

the right to build which

belongs to the

concessionaire, neither

opportunities and the

concessionaire’s rights to

attract investors and give

them the right to build

road service facilities on

Provide that if the

concessionaire or of the

entity authorized by the

concessionaire exercises the

right to build road service

facilities on the property of

the road management

authority as a part of the

road transferred into

concession, the right to own

such facilities arises with

the concessionaire or the

Attracting investors can

reduce the required funding

for the project at the cost of

their implementation

(funding) of some

construction of road

service facilities.

60 / 81

road managing authority’s

property transferred into

concession.

person receiving the right

from the concessionaire,

except for facilities that are

part of motor road.

The Law On International Private Law No. 2709-IV, June 23, 2005

Art. 77,

Part 1,

The Law refers disputes

with a foreign component

to the exclusive

jurisdiction of Ukrainian

courts if the property

being the subject matter of

the dispute is located on

the territory of Ukraine.

This situation prevents the

consideration of disputes

by foreign courts

(including arbitration)

with foreign components

about the property

situated in the territory of

Ukraine.

Lack of coverage of

Ukrainian courts’ exclusive

jurisdiction in the disputes

arising from PPP contracts

in respect of immovable

property situated in the

territory of Ukraine is

favorable to foreign

investors.

The Bill proposes to

supplement Art. 77, Part 1

of the Law about the

exclusive jurisdiction of

Ukrainian courts with the

following exception: "apart

from the cases concerning

the conclusion,

modification, termination

and performance of

contracts concluded in the

framework of public-

private partnership where

the immovable property is

a subject matter of such

partnership, and the

dispute does not concern

the origin, suspension and

registration of material

rights to such subject

matter ".

The Law On the Sources of Financing Roads in Ukraine No.1562-XII, September 18, 1991.

It is not expressly

provided for the

possibility of building

roads under the terms of

the concession agreement.

To provide the possibility of

building roads on the terms

of concession.

Art. 5 It’s been determined that

the fare for using the

roads shall be paid to the

road fund which

contradicts the Law On

Concessions, whereby the

above-mentioned fees are

a source of

concessionaire’s revenue

from the operation of the

road.

Provide that the fare for

using the toll road

transferred to concession or

built under concession

requirements may be

forwarded to the

concessionaire or concessor

under the terms of the

concession agreement.

The Law On Alienation of Land Plots and Other Real Property Located Thereon for Social

61 / 81

Needs or on the Grounds of Social Necessity, November 17, 2009, No. 1559

Art. 4, Part

4,

The alienation principles

determine that buy-out

and expropriation shall be

carried out as an

exception and in

compliance with

environmental safety

requirements, ensuring

future sustainable use of

land should the facilities

be built only on the

alienated land or if such

construction on the other

land plots will directly

cause considerable

material damage or

adverse environmental

effects to a relevant

territorial community,

society or the state as a

whole.

Replace or at least

supplement the specified

standard with a reference

that buy-out and alienation

are subject to prior approval

of the construction

feasibility study developed

in the established manner as

defined in Art. 8 and 9 of

the Law and the report on

the environmental effects of

construction.

Unclear wording needs to

be clarified. The proposed

documents should remove

otherwise possible risk of

challenging the decisions

concerning the purchase

and expropriation on the

basis of their invalidity.

Approved feasibility study

and the report on the

environmental impacts

should be considered

sufficient justification for

such decisions.

Art. 5 There have been

established general

principles for determining

the buy-out price and

provided that its amount

shall be approved by the

executive authority or

local government buying

the land, or by the court,

however there is no

mechanism (formula) of

calculating it and there is

no procedure of taking

into account the amount

of loss (including lost

profits) incurred by the

owner as a result of such

buy-out.

Develop and adopt a method

of determining the buy-out

price of the land, for

example at the level of the

Cabinet of Ministers of

Ukraine.

The Regulations on the

procedure of determining

the buy-out price of land,

in particular the procedure

for determining the value

of land and real estate

located thereon, and

damage caused to the

owner of land due to buy-

out need further detail at

the level of a subordinate

legal act.

Par. 2, Art.

7, Part 2

It specifies that the

location is agreed in

accordance with Article

151 of the Land Code of

Ukraine.

Supplement it, providing

that the actions required for

approval are made by the

executive authorities and

local governments eligible

for buy-out or corporations

Art. 151 determined that

the agreement is carried

out on the initiative of

corporations interested in

buying out land. The

proposed changes will

62 / 81

interested in buying out land

on the basis of agreements

with the above authorities

concluded in accordance

with the current legislation

of Ukraine.

allow providing the

possibility of approval of

land allocation in the

concession agreement by

the concessionaire.

Art. 12,

Art. 16

No deadline has been

established from which

the relevant executive

authority or local

government acquires the

right to appeal to court for

compulsory alienation of

land and other immovable

property located thereon

for public use based on

the grounds which allow

expropriation of this

property for social needs.

It is important to clearly

establish the deadline after

the expiry of which the

body issuing the decision

concerning the purchase of

land and other immovable

property located thereon

may apply to the

Administrative Court for the

compulsory alimentation of

the property. This period

could be, for example 2

months from the date of

notification about the buy-

out for public needs, if the

owner has not agreed to

negotiate the price, or 6

months after obtaining

consent of the owner to

negotiate, provided that the

parties failed to reach an

agreement with the owner

on the terms of purchase.

Lack of regulated

procedures for

determining "equivalent"

land plots that may be

offered from public and

municipal property in

exchange for private land.

Develop the necessary

subordinate legislation, such

as at the level of the Cabinet

of Ministers aimed at

detailing the Law on the

procedure of defining

"equivalent" land that may

be granted in exchange for

the property that is

redeemable or subject to

forced removal.

There has not been

provided opportunities to

purchase land shares that

Amend the Law with a

separate Article whereby:

The law does not permit

buy-out, forced removal or

expropriation of land

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have not yet been

physically allocated and

there is no procedure of

their expropriation. The

status of former collective

farm land using which

land shares are allocated

has not been separately

regulated.

- Stipulate

compulsory

allotment of land

shares (in situ),

followed by its

removal under the

conditions

prescribed for buy-

out and

expropriation of

land.

It also requires amendments

to the Law of Ukraine On

the Procedure for (in situ)

Land Allocation to the

owners of land shares."

shares. First, it is necessary

to allocate the relevant land

in situ and give the title

documents to the owners.

Then buy-out, forced

removal or expropriation

can be performed under the

standard conditions.

However, the current

legislation does not allow

forced issuance of deeds

for the distributed land. We

consider it appropriate to

address this issue by

amending the relevant

laws.

The Law On the Procedure for (in situ) land allocation to the owners of land shares, No.997-

XIV, July 16, 1999

The Law does not provide

for such grounds for in

situ land share allocation

as buy-out (removal) for

public purposes and does

not involve the state as an

entity with the right to

allocate land in situ.

Implement comprehensive

amendments to the Law

providing for the possibility

of compulsory allotment of

land (shares) (in situ),

followed by its removal

under the conditions

prescribed for buy-out and

expropriation of land and its

registration as public

property.

Also require amendments

to the Procedure of state

registration of rights to

immovable property and

restrictions approved by

the Cabinet of Ministers.

The Law On the Nature Reserve Fund, No. 2456-XII, 16.06.1992

Art. 54,

Part 1

It specifies that the change

of borders and the

abolition of the status of

the nature reserve fund are

made similarly to their

creation, in coordination

with the Ministry of

Environment and Natural

Resources on the basis of

appropriate expert

opinion.

Supplement it by

additionally providing for

the opportunity (besides the

expert opinion) to justify

changes in the boundaries

(cancel the status) of the

natural reserve fund based

on appropriate justification

of the availability of public

or social need. Thus, the

presence of national interest

In the law this will allow

balancing the interests for

the conservation of the

nature reserves and

implementation of socially

important projects by

opening legal ways to

address the issue.

64 / 81

may be the reason for

changing the boundaries of

the nature reserve of

national significance and the

presence of local

community interests - local

significance.

The Law On Public-Private Partnership, No.2404, July 1, 2010

Art. 1, Part

1

The current wording of

the Law provides that:

"the features of

participation of several

persons on the side of the

private partner in the

bidding to select a private

partner for PPP

implementation shall be

established by the Cabinet

of Ministers of Ukraine."

This provision of the Law

should be deleted; instead,

we should complement Art.

1 with a position

determining the procedure

for regulating relations

between private partners on

a contractual basis.

A contractual procedure for

regulating relations

between private partners is

provided in the bill.

Art. 1, Part

1

The law does not provide

for establishment of a

corporation dedicated to

the implementation of

PPP by a winner of the

competition which could

facilitate participation of

foreign business in PPP.

Since the private partner

selection competitions can

involve foreign corporations

and/or individuals, it is

advisable to let the winner

(s) of such competitions to

create a separate entity for

the purpose of concluding

the contract under PPP.

Provisions allowing the

competition winner to

create a corporation for

concluding a contract

under a public-private

partnership are provided in

the bill.

Art. 1, Part

1

The law does not provide

for participation of a third

party - the company,

which is owned by the

public partner in the

contract under PPP.

Allow for the involvement

of public and municipal

enterprises to participate in

the contract under the PPP

on the public partner’s side,

due to the fact that the

implementation by a public

authority or local

government of all partner

functions under the PPP

agreement can be

ineffective.

Corresponding changes are

envisaged in the bill.

Art. 6, Part

1

The law provides that

public procurement in

PPP shall be made

pursuant to the legislation

It is not feasible to apply the

Law On Public

Procurement and On

Special Aspects of

The bill contains a

provision according to

which the laws on public

procurement do not apply

65 / 81

on procurement of goods,

works and services for

public funds.

Procurement in certain

areas of economic activity

for procurement of goods,

works and services carried

out under the PPP with a

special selection procedure

of the private partner

supplying goods and

services.

to PPP projects.

Art. 7 The possibility of private

partner acquiring the

property created or

purchased by him in the

PPP is not envisaged.

It should be possible for a

private partner to acquire

ownership of the facilities

created or acquired by him

in the PPP, in cases which

do not conflict with existing

legislation and provided in

the relevant PPP contract.

Art. 17 The law provides for an

opportunity to amend or

terminate the contract in

case of a significant

change in circumstances

which the parties were

guided by in the contract.

The parties cannot

provide for additional

grounds in the contract for

amending or terminating

the contract.

To make it possible for the

contracting parties to

identify in such a contract

the basis for amendments

and termination of the

contract and include

appropriate procedures.

Art. 19 The law does not provide

for the procedure of

settlement of disputes

arising from agreements

concluded in the

framework of PPP.

To provide for the

settlement of disputes

arising from agreements

concluded in the PPP

framework in particular, it

should be possible to review

such disputes in arbitration

at the jurisdiction chosen by

the parties.

The ability to resolve a

dispute by arbitration is a

more attractive condition

for foreign investors.

The Civil Code of Ukraine No.2768-III, January 16, 2001

Chapter 70 The issues of property

management have been

regulated without

considering the

peculiarities of concession

relations.

Supplement it with a

separate Article 1045-1

"Features of managing

facilities transferred into

concession" where one

should clearly define that

The operation of the

concession facility by its

legal nature is similar to

civil and legal institution of

property management.

However, the Civil Code of

66 / 81

these features were

determined by law and the

provisions of Chapter 70 of

the Civil Code of Ukraine

shall apply, unless otherwise

provided by concession.

Ukraine stipulates a

number of conditions -

non-specific to the

concessions, in particular,

the need for notarization of

the property management

contract, the status of

property acquired in the

management process,

ability to unilaterally refuse

management, regime of

trusts and more.

The Law On Public Procurement, No. 1197-VII, April 10, 2014

Art. 2, Part

3

It is not expressly

provided that in the case

of using public funds for

construction of roads

under concession

agreement, the procedure

of procurement of goods,

works and services for

public funds provided for

in the law does not apply.

Foresee that in case of the

use of public funds for

construction of roads under

the terms of concession, the

Law On Public

Procurement and the

procedures provided for in

the said Law do not apply.

The bill provides for the

appropriate amendments.

The Law On Special Aspects of Procurement in Certain Areas of Economic Activity, No.

4851-VI, May 24, 2012

Art. 4, Part

1

The Law does not ensure

that its scope is not

covering procurement of

goods, works and services

for public funds that are

carried out in the

framework of PPP,

particularly in

procurement carried out

pursuant to concession

agreements.

Foresee that in case of the

use of public funds for

construction of roads under

PPP, including concessions,

the provisions of the Law

will not apply.

The bill provides for

amendments to Art. 4, Part

1 of the Law, which

introduced additional

exceptions to the

application of the

provisions of the Law.

The Law On Lease of Public and Municipal Property, No.2269-XII, April 10, 1992

Art. 1 The Law does not provide

for the legal regulation

features of usage of public

or municipal property

Foresee that the private

partner’s use of the property

created or acquired by him

pursuant to the contract

Relevant offers foreseen in

the bill.

67 / 81

created or acquired

pursuant to a private

partner’s agreement

concluded under the PPP

after the transfer of title

for such property to the

government or local

community.

entered into under the PPP

shall be regulated by the

Law On Public-Private

Partnership upon the

transfer of the title for such

property to the state,

territorial communities or

the ARC.

The Procedure of Concession Bidding for Construction and Operation of Motor Roads

approved by the Cabinet of Ministers of Ukraine on October 4, 2000, No.1521.

New version developed

according to the ‘99

edition of the Law On

Concessions to Build and

Operate Roads.

Make the Procedure for

organizing concession

bidding for construction and

operation of motor roads

comply with the Law On

Concession to Build and

Operate Roads and the

world practice of concession

bidding, subject to

consideration of the

following most common

remarks.

The phases, their

deadlines, the legal status

of the concessionaire in

each phase of the

concession bidding and

the liability of persons

organizing concession

bidding are not clearly

defined.

Clearly define the stages,

deadlines and those

responsible for conducting

certain stages of the

concession bidding.

It does not allow

negotiating the terms of

the concession agreement

and construction design

prior to submitting the

final proposal to the future

concessionaries.

Provide an opportunity to

discuss the construction

design and draft concession

agreement before future

concessionaires send their

bids and the terms of such a

stage.

It was established that the

decision about the

winning concessionaire

shall be taken during

closed session.

Review the bids of the

concession bidding

participants at open

meetings; however, the

bidders should remain

It will enable to hold an

objective meeting to select

the winner of the

concession bidding and the

reasons for the future

concessionaires providing

68 / 81

anonymous. competitive conditions to

raise funds for construction

and maintenance of roads

while the future

concessionaires can to

track and learn about the

objective data, which is the

basis for selecting the

winner.

A Standard Concession agreement for Construction and Operation of Motor Roads

approved by the Cabinet of Ministers on October 4, 2000, No.1519.

The approved standard

concession agreement

does not meet the

requirements of today and

the international

standards.

Cancel or at least change the

wording to comply with the

Law of Ukraine On

Concessions for

Construction and Operation

of Motor Roads. Use the

phrase "model contract"

instead of the "standard

contract".

The agreement provides for

conditions that do not

comply with the

legislation. Under Art. 179,

Part 4 of the Commercial

Code of Ukraine, the

parties may not derogate

from the content of the

model contract, but shall

have the right to specify its

conditions. Instead, the

model contract is only

recommended for

application as the parties

may alter some of its terms

or amend its contents.

Concession Insurance Procedures

There is no defined

procedure for insuring

concession facilities.

Develop and adopt a

Resolution of the Cabinet of

Ministers on the procedures

and rules for introducing

compulsory insurance of

property transferred into

concession and a method of

calculating insurance rates.

Develop and adopt a model

insurance contract.

The Decree of the President of Ukraine On Concessions for Construction and

Reconstruction of Roads, No.735/98, 07.04.1998.

The Decree does not Amend the Law On The Decree was adopted in

69 / 81

comply with current laws.

According to the

Constitution, the Decree

was in effect until the

entry into force of the

relevant laws passed by

the Parliament in 1999.

However, the suspension

of the Decree in

connection with the

adoption of special laws is

not formalized as an act of

law.

Concessions to Build and

Operate Roads with a

provision noting that "In

connection with the entry

into force of this Law, the

Decree of the President of

Ukraine No. 735/98 of

04.07.1998 On Concessions

for Construction and

Reconstruction of Motor

roads shall be terminated in

accordance with paragraph

4, Chapter XV of the

Transitional Provisions of

the Constitution of Ukraine.

accordance with Par. 4 of

the Transitional Provisions

of the Constitution of

Ukraine, which authorized

the President issue decrees

on economic issues

unregulated by the laws for

three years after the entry

into force of the

Constitution of Ukraine.

70 / 81

7. RECOMMENDATIONS ON THE MOST RATIONAL WAYS TO

REDUCE THE POSSIBLE LEGAL RISKS

This section reviews the legal risks of the Project for Construction and Operation of Kyiv City Ring

Road (the “CRR”) analyzed in the course of preparation of this Report. These risks require special

attention due to their importance for the Project and capability of being reduced by legal means. The

risks listed in this section do not represent an exhaustive list of all risks pertaining to the Project.

In this section of the Report, we review the possible ways to manage the identified risks which may

be applied, in particular, if the proposals for legislative amendments presented in Section 6 of the

Report are not taken into account.

The risks are distributed by Project development stages. The distribution is rather arbitrary, and a

certain risk may manifest itself at other stages of the project than formally indicated below.

STAGE I Cabinet of Ministers of Ukraine, or an agency authorized by it, making the

decision to construct the road on the terms of concession

The decision to develop the Project on the terms of concession has already been made and stipulated

in the Resolution of the Cabinet of Ministers of Ukraine of July 17, 2013, No. 640.

7.1. Application of the Law “On Public-Private Partnership” to the Project

General Description of the Risk Situation

According to article 5, part 1, of the Law “On Public-Private Partnership”, concessions are one of the

forms of public-private partnership. This generally corresponds to the global practice, which shows

that concessions, in particular for construction of motor roads, are one of the most popular forms of

public-private partnership.

The Law “On Public-Private Partnership” establishes several procedures fully or mostly serving the

same purposes as the similar procedures provided for the specialized concession laws, in particular

the Laws “On Concessions”, “On Concessions for Construction and Operation of Motor Roads”, and

other laws and subordinate legislation (for more details, see section 2.1 of the Report). Such

“competing” procedures, in particular, are the following:

- proposals for performance of public-private partnership (article 10);

- public-private partnership performance analysis (article 11);

- assessment of the socioeconomic and environmental impact of the public-private partnership

(article 12);

- making the decision for performance of public-private partnership (article 13); and

- supervision of performance of agreements executed within the public-private partnership

(article 21).

Potential Consequences of the Risk Situation

Application of the procedures provided for in the Law “On Public-Private Partnership” to the Project

will make it unreasonably complicated, as it would require compliance with additional (as compared

to the special concession laws) requirements.

71 / 81

Risk Management Mechanisms

Article 5, part 3, of the Law “On Public-Private Partnership” specifies that “the agreements made

according to part one of the same article are regulated by the law taking into account the specific

aspects provided for in this Law in case a decision for public-private partnership in relation to them

is made according to the procedure prescribed by this Law”. This provision allows interpreting it in

such way that if a decision to perform the concession project in the framework of public-private

partnership is not made, the provisions of the Law “On Public-Private Partnership” shall not be

applied to such project.

The Resolution of the Cabinet of Ministers of Ukraine No. 640 of July 17, 2013 stipulates that the

Project shall be performed on the terms of concession for construction and operation of motor roads;

the decision to implement the Project in the framework of a public-private partnership was not made.

Therefore, considering the provisions of part 5, article 3, of the Law “On Public-Private Partnership”,

the special aspects provided for in this law shall be applied to the Project only if an additional

decision to perform it on the terms of public-private partnership is made.

STAGE II. Development of Bidding Documents. Holding the Concession Bidding.

Announcement of the Winning Bidder

7.2. Declaring a concession bidding procedure void

General Description of the Risk Situation

According to section 25 of the Procedure of Concession Bidding, the bidding procedure may be

declared void in the following cases:

- no bids were received during the bid submission period;

- none of the submitted bids meets the bidding criteria;

- all bids submitted are prepared with violation of the conditions specified in the bidding documents,

and improvements may alter the position of the applicant; or

- the requirements of the bidding committee to bring the bids in conformity with the conditions

contained in the bidding documents are not complied with by any applicants within the specified

time.

Potential Consequences of the Risk Situation

Inability to hold the bidding procedure to award the concession, in particular due to low interest in

the Project, clearly prevents its development.

Risk Management Mechanisms

Considering the most critical Project risks before the bidding documents are prepared and the

bidding procedure is announced. Discussion of the draft concession agreement with the applicants,

which would allow regulating the ways to reduce (some of) the Project concessionaire’s risks in the

agreement before the bids are submitted by the potential concessionaires.

Recommendations

The Project should be presented in advance to the potential bidders, for example, in the form of a so-

called “road show”, and consider the critical objections regarding the Project in the course of

development of bidding documents. Such documents, to the extent possible, should provide for

72 / 81

reduction of the Project risks for the concessionaire and/or ways to compensate them, which would

make the Project more attractive for the potential concessionaires.

It is desirable to include the draft concession agreement offered for review by the potential

concessionaires to the concession documents, whereas the Concession Bidding Procedure should

provide for a discussion of the draft concession agreement with the qualified bidders (see also

section 7.3 of the Report).

STAGE III. Award of the Concession Agreement for the Construction of the CRR to the

Winning Bidder

7.3. Failure to reach an agreement with the concessor regarding the terms of the concession

agreement

General Description of the Risk Situation

According to article 8 of the Law of Ukraine “On Concessions”, the concession agreement shall be

signed with the winning bidder not later than three months after the bidding results are published

according to the procedure and conditions specified in this Law. Besides, according to the

Concession Bidding Procedure, the concession agreement shall be signed by the concessor and the

winning bidder within one week after the approval of the draft concession agreement. The

concession agreement is deemed entered into starting from the day an agreement on all material

terms has been reached and the text of the agreement is signed by the parties.

The provisions of section 38 of the Concession Bidding Procedure specify that the concessor has the

right to annul the results of the bidding and commence negotiations with other applicants in case an

agreement regarding the terms of the concession agreement is not reached with the winning bidder

due to the latter setting unacceptable conditions for the execution of the agreement. The procedure

does not specify the consequences of such negotiations with another bidder, specifically whether the

concessor may enter into an agreement with another bidder without holding a new bidding

procedure.

Is should be mentioned that the model concession agreement for construction and operation of a

motor road approved by the Resolution of the Cabinet of Ministers of Ukraine of October 04, 2000

No. 1519 does not meet the current needs of concession relations and is unable to regulate the

parties’ relations regarding the Project development effectively. Nevertheless, according to article

179, section 4 of the Economic Code of Ukraine, the parties only may make the provisions of the

model agreement more specific, but are not allowed to deviate from its content.

The Law does not provide for a mechanism to force the concessor to negotiate the terms of the

concession agreement if they are not specified in the bidding documents and in the winning bidder’s

bid.

Potential Consequences of the Risk Situation

The long procedure of negotiation of the terms of the concession agreement may delay the

commencement of the Project, or, in the worst case, make Project development impossible if the

concessor and the winning bidder fail to agree upon the terms of the concession agreement. In such

case, the concessor may cancel the decision about the winning bidder.

Assessment of Risks from the Standpoint of the Public and Private Partners

The provisions of section 38 of the Concession Bidding Procedure provide a wide range of

opportunities for the concessor to cancel the bidding procedure results as early as at the stage of

preparation for signature of the concession agreement, considering the fact that the said Procedure

73 / 81

does not specify the procedure of cancellation of the bidding results and does not specify the criteria

by which the conditions required by the winning bidder are deemed inacceptable.

Risk Management Mechanisms

The key provisions of the concession agreement in the bidding documents (concessor’s

responsibility), as well the provisions of the winning bidder’s bid (concessionaire’s responsibility)

should be made more detailed. Inclusion of the draft concession agreement to the bidding documents.

Negotiation of the draft concession agreement with the qualified applicants before they submit their

bids.

Recommendation

There should be an opportunity to discuss the draft agreement with the applicants who pass the

qualification before they submit the final bids. This would allow to have a project agreement agreed

upon both by the concessor and the bidders by the time of the concessor’s evaluation of the bids.

The current revision of the Procedure of Concession Bidding for Construction and Operation of

Motor Roads requires the protocol on the bidding result to include, in particular, the justification for

the selection of the winning bidder and the bidders ranking second and third. Should it for some

reason be impossible to enter into the agreement with the winning bidder, the concessor must have

the right to enter into the agreement with the bidder ranking second, or, if such bidder refused, with

the bidder ranking third. It is desirable to specify such possibility in law by amending the Concession

Bidding Procedure for Construction and Operation of Motor Roads.

STAGE IV. Acquiring Funding for the Project (Financial Closure)

7.4. Inability to acquire sufficient funding for the Project

General Description of the Risk Situation

Due to various circumstances, the concessionaire may fail to acquire the funding required for proper

implementation of the Project and specified in the concession agreement. In the global practice, as a

rule, acquisition of funding is a condition precedent to the concession agreement, the so-called

"financial closure". If this condition is not met, i. e. the concessionaire fails to acquire the required

funding within the time specified in the agreement, the agreement is terminated. The failure to

acquire funding may be caused by a refusal of the financial institutions engaged by the

concessionaire (the “sponsors”) to fund the Project. Given the relatively high risks of the Project, the

financial institutions may desire state guarantees for the Project goals. The Budget Code of Ukraine

specifies the procedure of giving state guarantees. The respective guarantees have to be provided for

in the state budget. The decision to provide state guarantees for the Project has to be made by the

Cabinet of Ministers of Ukraine. The inability to give state guarantees for the Project goals, in turn,

may cause the financial institutions on the side of the concessionaire to refuse from funding the

Project.

The Concession Bidding Procedure for Construction and Operation of Motor Roads allows the

concessor to cancel the decision on the winning bidder if the winning bidder fails to provide the

guarantees specified in the bidding documents which confirm the winning bidder’s capability to

provide proper funding of its concession activity.

Potential Consequences of the Risk Situation

Inability to acquire sufficient funding makes the implementation of the Project impossible. At the

same time, the agreement with another concessionaire may be executed after a new concession

bidding is held.

74 / 81

Assessment of Risks from the Standpoint of the Public and Private Partners

The refusal of financial institutions engaged by the concessionaire to fund the project for the reasons

beyond the concessor’s control are the responsibility, and thus the risk, of the concessionaire. If the

concessor fails to ensure the compliance of obligations assumed by it under the agreement, in

particular as related to ensuring the provision of state guarantees and/or other participation in the

funding of the Project, the risk and the obligation to reimburse the losses incurred by the

concessionaire are borne by the concessor.

Risk Management Mechanisms

Negotiating the terms and procedure of (co-)funding of the Project by all of its participants in

advance, including the financial institutions and the insurer, as well as signature of the required

agreements and preparation of other documents.

Recommendations

By the time of participation in the concession bidding, the concessionaires must negotiate with the

financial institutions the terms and procedure of their participation in the Project. The bidding

documents must require the bidders to provide a written confirmation from the financial

organizations about their readiness to fund the project (letters of intent, guarantee letters).

Simultaneously with the execution of the concession agreement with the winning bidder, agreements

must be made with other participants involved in the Project, including the financial institutions and

the insurer.

It would be reasonable to make amendments to the legislation in order to allow the concessor to enter

into the agreement with the bidder that ranked second, and, if the latter refuses, with the one that

ranked third, without holding a new bidding procedure, if the main concessionaire who won the

bidding fails to ensure the required funding of the Project within the time specified in the concession

agreement.

STAGE V. Seizure of Land Plots for the Project

7.5. Dispute on Justification of Selection of Land Plots and Grounds for Forced Seizure

General Description of the Risk Situation

The resolution on forced seizure of a land plot on the grounds of social necessity is made by the

court. However, this procedure is not automatic. The court reviews the case materials and establishes

whether there are grounds for buy-out (seizure) of the land plot. According to article 4, part 4, of the

Law of Ukraine “On Alienation of Land Plots and Other Real Property Located Thereon for Social

Needs or on the Grounds of Social Necessity” of November 17, 2009, No. 1559, the buy-out of land

plots for social needs or forced seizure of land plots on the grounds of social necessity shall be

performed as an exception while complying with the environmental safety requirements and ensuring

further rational use of the land plots in case the facilities may only be placed on the land plots being

alienated, or if the placement of such facilities on other land plots will directly result in significant

material losses or negative environmental impact for the respective local community, society, or the

state as a whole. The court has to establish whether there are grounds and to assess them for

conformity with the specified criteria.

Potential Consequences of the Risk Situation

Different assessment of the specified seizure criteria may result in delays in the review of certain

cases. It may become necessary to review cases for a second time in case of improper review and

assessment of the case materials by the court of initial jurisdiction.

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Assessment of Risks from the Standpoint of the Public and Private Partners

Seizure of land plots for the Project must be performed comprehensively for the purposes of

implementation of the Project. Therefore, the identification of all circumstances and assessment

thereof in separate court sessions is inefficient. A possible side effect of this inefficiency is the delay

of certain judgments or even refusal due to improper review of the case.

Risk Management Mechanisms

Effective resolution of disputes may be ensured if a methodology is developed to be followed by the

plaintiff in order to provide the court with all necessary evidence at the first stages of review of the

case. However, this does not eliminate the need for comprehensive assessment of evidence by the

court, which may result in delays in certain cases causing a general delay in the project.

Recommendation

We recommend to make the provisions of the Law of Ukraine “On Alienation of Privately Owned

Land Plots and Other Real Property Located Thereon for Social Needs or on the Grounds of Social

Necessity” more specific. For specific cases, such as implementation of a construction project, the

Law should contain specific criteria for assessment of justification of buy-out (seizure) on the

grounds of social necessity. In particular, it would be reasonable to supplement the law with a

reference to establishment of such circumstances in the feasibility study for the construction of

facilities specified in section 8 and 9 of the Law, as well as in the environmental impact assessment

for such construction. In such case, the court will be able to make decisions based on such

documents, which will help resolve the disputes faster.

7.6. Dispute Regarding the Price of Buy-Out of a Land Plot, Real Estate, and the

Reimbursement Amount

General Description of the Risk Situation

The procedure used to determine the buyout price is specified in section 5 of the Law of Ukraine

“On Alienation of Privately Owned Land Plots and Other Real Property Located Thereon for Social

Needs or on the Grounds of Social Necessity”. However, this article only defines the general

provisions, without a mechanism to make them more specific. The buyout price includes the prices

of the land plot (or a part thereof), residential house, other building and structures, and perennial

plantings located thereon, taking into account the damage inflicted on the owner due to the buy-out

of the land plot, including the full amount of losses inflicted on the owner due to early termination of

its obligations to the third parties, including lost profit.

Potential Consequences of the Risk Situation

The general nature of the legislative provisions regulating the establishment of the buyout price may

result in numerous court disputes regarding the amount of the established buyout price or amount of

lost profit.

Assessment of Risks from the Standpoint of the Public and Private Partners

The payment of the buyout price is the responsibility of the public partner. The funding sources are

determined according to the terms of concession. In the absence of a technique to determine the

buyout price and a technique to determine the lost profit, there is a risk of disputes regarding the

amount of reimbursement.

Risk Management Mechanisms

When determining separate components of the buyout price, the already developed techniques

should be adhered to.

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Recommendation

A technique to determine the buyout price of the land plot will have to be developed and approved. It

would be reasonable to develop a technique to determine the lost profit separately. Such techniques

are developed and approved by Resolutions of the Cabinet of Ministers of Ukraine. In case the use of

a technique infringes the citizens’ rights, it may be amended.

7.7. Absence of guarantees of seizure of land plots from private ownership

General Description of the Risk Situation

The procedure of seizure of a land plots from private ownership makes the State Agency for

Investment and National Projects the initiator of land plot seizure applying to Kyiv Oblast State

Administration for selection of the placement location. Kyiv Oblast State Administration, which is

not a party to the concession agreement, determines the possibility of allocating land plots based on

conclusions of other agencies. At the same time, in case land plots are located within populated

areas, the issue will be also reviewed by local self-governance bodies (village, settlement, or city

councils).

Potential Consequences of the Risk Situation

The local self-governance bodies may delay the procedures required to seize land plots from private

ownership.

Assessment of Risks from the Standpoint of the Public and Private Partners

Local self-governance bodies (village, settlement, or city councils) may delay the seizure of land

plots from private ownership in case of, and in view of, the unpopularity of such measures among the

citizens residing on the territory of the local community.

Risk Management Mechanisms

Risk management is possible by reaching an agreement among all interested parties and creating the

conditions for the local self-governance bodies to be interested in the project implementation.

However, such agreement is not documented in the course of concession. Resolving this issue may

require entering into additional agreements for implementation of the project (including investment

projects), which it would be reasonable to consider when entering into the concession agreement.

Recommendation

Provide for the possibility of entering into agreements involving the private and public partners and

the local self-governance bodies under the concession agreement and PPP which would establish

obligations for development of infrastructure before the stage of decision making for seizure of land

plots. This will make it possible to take into account the interests of the communities when

implementing the project and make the implementation faster.

It is also possible to develop a simplified procedure for seizure of land plots, which would not

involve the local self-governance bodies in the relations between the state (as represented by the

State Agency for Investment and National Projects), which seizes the land plots, and private owners.

7.8. Obligation of reimbursement of damage under the lease agreements of private owners of

land plots

General Description of the Risk Situation

The law does not specify which party is responsible for terminating a lease agreement: the previous

owner or the government agencies (local self-governance bodies) that bought out (seized) the land

plot.

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Potential Consequences of the Risk Situation

There is a possibility of situation in which the lessee would appeal against the termination of the

lease agreement in court.

Assessment of Risks from the Standpoint of the Public and Private Partners

There is no risk of justified objections from the lessee against the private partner. The lessee may

assert both property claims and appeals against the seizure of the land plot against the Kyiv Oblast

State Administration, State Agency for Investment and National Projects, and the previous owner.

Risk Management Mechanisms

Kyiv Oblast State Administration engages owners, lessees, and other persons that may have rights to

the land plots, in negotiations regarding the land plot buyout. However, this does not guarantee

agreement on all matters.

Recommendation

A provision should be made in the Law of Ukraine “On Alienation of Land Plots and Other Real

Property Located Thereon for Social Needs or on the Grounds of Social Necessity” of November 17,

2009, No. 1559 to the effect that the reimbursement to the lessee shall be made within the limits

specified in this Law without reimbursement for termination of a lease agreement or for lost profit. A

procedure for termination of lease registration based on seizure (buy out) of a land plots from private

ownership should be put in place.

7.9. Land shares (units) among the Project land plots

General Description of the Risk Situation

The law does not provide for the possibility or procedure of seizure of land plots without physical

boundaries established.

Potential Consequences of the Risk Situation

The owner of a land share (unit) may refuse to establish its physical boundaries, which would result

in inability to seize it.

Assessment of Risks from the Standpoint of the Public and Private Partners

The law does not have a procedure for seizure of land shares (units). Therefore, the public partner or

other government agencies cannot make decisions on such seizure within their authority.

Should it be necessary to allocate land plots without established physical boundaries (land units), the

private partner will have to look for ways to stimulate such persons.

Risk Management Mechanisms

The owner of the land share (unit) has to be persuaded to establish the physical boundaries of a land

plot, acquiring ownership of it and securing state registration of ownership. After that, the land plot

can be seized from them as the owner.

Recommendation

It is reasonable to make a provision at the legislative level for forced seizure (buyout) with

establishment of physical boundaries of the land plot based on a court resolution with the required

registration procedures. The public partner (or Kyiv Oblast State Administration, which is

responsible for seizing land plots from owners) should be authorized to initiate action in court for

establishment of physical boundaries of land plots from land units.

7.10. Lack of justification of change in the boundaries of wildlife reserve territories

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General Description of the Risk Situation

In order to implement the construction project, the status of nature reserve fund first has to be

cancelled on the territories of construction. According to article 54 of the Law of Ukraine “On the

Nature Reserve Fund”, the boundaries of a wildlife reserve may be changed according to the

procedure similar to the procedure of establishment of a wildlife reserve by modifying the

boundaries of the wildlife reserve subject to approval by the Ministry of Ecology and Natural

Resources of Ukraine based on the respective expert opinion. According to articles 54 and 53 of the

said Law, the decisions for change of the boundaries of Ostriv Zhukiv, a wildlife reserve of local

importance, have to be made by Kyiv City Council, whereas the decisions for change of the national

level wildlife reserves have to be made by the President of Ukraine. Articles 51-53 of the said Law

require justification of declaring a territory a part of the nature reserve fund. The Law does not

specify whether social necessity or need for the use of land plots for the purposes contradicting the

need for protection are taken into account in such justification.

Potential Consequences of the Risk Situation

The competent bodies may delay the procedures required to change the boundaries of the nature

reserve fund, or refuse from such change due to lack of justification for deprivation of the required

land plots of the nature reserve status.

Assessment of Risks from the Standpoint of the Public and Private Partners

The agencies competent to resolve the issue of wildlife reserve boundaries may delay the resolution

of the issue due to its unpopularity among the citizens as well as owners and users of wildlife reserve

land plots. The grounds for refusal to change the wildlife reserve boundaries may be the lack of

justification to deprive the required land plots of the nature reserve status.

Risk Management Mechanisms

Risk management is possible by reaching an agreement among all interested parties and creating the

conditions for the local self-governance bodies to be interested in the project implementation.

However, such agreement is not documented in the course of concession.

We assume that a compromise is possible, where the land user (concessionaire) would be responsible

for preservation of the landscape and ecosystem (restriction of the use of land plots), which may

impact the possible options for project implementation in the construction aspect.

Recommendation

It is reasonable to expand article 54, part 1, of the Law of Ukraine “On the Nature Reserve Fund”, by

adding a possibility of justifying the change of boundaries (cancellation of status) of nature reserve

territories based on the respective justification of social necessity or social need in addition to the

expert opinion. Change in the boundaries of the national importance nature reserve fund may be

based on the presence of national interests, and those of local importance – on local community

interests. This will allow balancing, at the legislative level, the interests for protection of the nature

reserve fund and implementation of socially important projects by opening legal ways to resolve the

issue.

7.11. Delayed approvals of surveying documents

General Description of the Risk Situation

In order to allocate a land plots for lease for Project implementation, surveying documents have to be

developed and approved. According to article 7, part 2, paragraph 11 of the Law of Ukraine “On

Concessions”, the concessor (State Agency for Investment and National Projects) is responsible for

securing the approvals of the allocation project. This allows releasing the private partner from

participation in the legal relations regarding the respective administrative procedures in which legal

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equality of the participants cannot be ensured. At the same time, the private partner has limited

capabilities of influencing the course of the procedure.

Potential Consequences of the Risk Situation

In case the surveying documents are not successfully approved, they may require improvements and

re-approval. These procedures may take more time than they would in case of active participation of

the private partner. Moreover, amendments and approvals of the documents are possible without

consent of the private partner.

Assessment of Risks from the Standpoint of the Public and Private Partners

From the private partner’s standpoint, the public partner has the responsibility to secure the

approvals for the surveying documents, whereas there is no mechanism for the private partner to

supervise or assist in the performance of this responsibility.

From the standpoint of the public partner, it bears all responsibilities to secure the approvals, which

protects the private partner from participation in unequal relations. At the same time, the public

partner (State Agency for Investment and National Projects) does not have effective means of

influence on the government agencies making the decisions, which casts doubt on appropriateness of

such division of responsibilities.

Risk Management Mechanisms

Cooperation for approval of the surveying documents between the public and the private partners,

surveying organization, and agencies performing the approval, takes place through negotiations. The

law does not provide for a special multilateral procedure of development of the surveying project

which would allow engaging the private partner and the design organization in an effective manner

for quick amendment of the project and other actions to secure approval.

Recommendation

This risk is not relevant if the land plot is fully formed as of the time of the concession bidding. In

other case, it is reasonable to make amendments to the law, providing for:

- the public partner’s capability to delegate some functions of the contracting authority to a private

partner;

- capability of stipulating in the contractual relations mandatory approval of surveying documents by

the private partner; and

- simplified procedure for approval of surveying documents developed in the course of PPP

implementation.

7.12. No guarantee of receiving land plots for lease

General Description of the Risk Situation

After the PPP agreement is made, the concessionaire has to enter into lease agreements in order to

receive the land plots for use in order to implement the project. According to article 3, part 6, of the

Law of Ukraine “On Concessions” No. 997-XIV of July 16, 1999, the ownership right to the

respective land plot is exercised by the concessor according to the law. However, the law does not

provide for mandatory transfer of the land plot to the concessor by the agency acting as the owner as

of the time of the concession agreement.

The government agencies and local self-governance bodies disposing of the land plots are not a party

in the PPP and make decisions independently according to their competence.

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Potential Consequences of the Risk Situation

The project implementation time may not be met for reasons beyond the control of any of the parties

to the concession agreement. It is also possible that the project will have to be changed in case of

unjustified resistance by the local self-governance bodies.

Assessment of Risks from the Standpoint of the Public and Private Partners

Under such circumstances, the transfer of land plots for lease may be delayed and the project

implementation time may not be met, which is neither in the interests of the private nor the public

partner.

Moreover, according to article 18, part 2, of the Law of Ukraine “On Concessions” No. 997-XIV of

July 16, 1999, execution of the lease agreement is the responsibility of the concessionaire to be

performed within one year. Based on a written request from the private partner, this time may be

extended, but not more than for one year.

Risk Management Mechanisms

At the moment, risk management is possible through appeals against the inaction of the government

agencies to the superior authorities. In relation to local councils, such appeals are not possible.

Recommendation

The responsibility of the concessionaire to enter into lease agreements within one year should be

cancelled. The lease agreements should be executed within the time provided for in the project and

specified in the concession agreement.

The agency acting as the owner of the land plots to be granted under the concession should have the

obligation to transfer such land plots to the concessor. The concessor should have the obligation to

demand such transfer.

It is also reasonable to provide for financial liability for disruption of the PPP project implementation

time for the government agencies or local self-governance bodies who own the land plots and fail to

make the resolutions for transfer of the land plots fit for implementation of the PPP project within the

specified time limits. Such liability should be established at least for the case of project

implementation under state guarantees, considering the fact that such agencies are not formally

involved in the project implementation, however, should be accounted for on the side of the public

partner. The agencies should retain the powers to refuse allocating land plots in case it would result

in violation of law.

STAGE VI. CRR Design

7.13. Disputes between the concessionaire and the concessor on design issues

General Description of the Risk Situation

The Law of Ukraine “On Concessions” does not directly provide for the concessionaire’s right to

take part in the development of the design documents. According to the Law of Ukraine “On

Concessions for Construction and Operation of Motor Roads” No. 1286-XIV of December 14, 1999,

the construction of a motor road involves a set of road construction works related to construction,

reconstruction, and capital repairs of the motor road, however, does not provide for the

concessionaire’s participation in the design and development of the construction project, i. e.

excludes the participation of the concessionaire at the stages immediately preceding the construction

of the motor road.

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Potential Consequences of the Risk Situation

Inconsistencies between the private and the public partners may arise in relation to the engagement

of a design organization or approval of specific design decisions. The law does not provide for a

procedure to resolve such inconsistencies and does not specify the priority of a certain party’s

decision.

Assessment of Risks from the Standpoint of the Public and Private Partners

The private partner exercises the powers of the contracting authority, which it acquires from the time

of receiving the lease of land plots. The powers of the contracting authority include ordering and

approving the construction project.

Risk Management Mechanisms

The law does not directly prohibit the concessionaire’s participation in the development and approval

of the motor roads construction project. The concessionaire orders the project and approves it. The

procedure for development of the project and selection of the design organization may be agreed

upon in the concession agreement. A separate dispute resolution mechanism may also be provided

for.

Recommendation

Article 17 of the Law of Ukraine “On Concessions” should provide for the concessionaire’s right for

participation in the development of design documents and right for development and/or engagement

of third parties for development of the design documents and design decisions related to the

construction of the concession property on initiative of the concessionaire.

The Law of Ukraine “On Concessions for Construction and Operation of Motor Roads” should be

amended by defining the construction of a motor road as a set of design, research, development, and

road construction operations related to the development of a construction project, construction,

reconstruction, and capital repairs of a motor road.

STAGE VII. CRR Construction

7.14. Risk of significant change of foreign exchange rate

General Description of the Risk Situation

A significant change of foreign exchange rate may result in the loss of value of the investments in the

Project.

Potential Consequences of the Risk Situation

In case of a significant devaluation of the investments made, the funding of works and goods

required for Project implementation will become impossible.

Assessment of Risks from the Standpoint of the Public and Private Partners

The impossibility of implementing the project without reconsidering the financial indicators is

primarily a risk of the party responsible for the funding of the project.

Risk Management Mechanisms

The devaluation of investments causing a reduction in the amount of project funding may be

resolved by engaging new investments (both on the part of the existing investor and with

engagement of new investors), which would require renegotiating the project funding obligations

stipulated in the concession agreement. The current concessions law does not provide for a procedure

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of such renegotiation. Probably, such changes would have to be made through a new concession

bidding and execution of a new concession agreement.

Recommendation

In order to be able to provide for the compensation mechanisms in the agreement, the admissibility

of such mechanisms has to be stipulated at the legislative level, so that the concessor, as a

government agency, is competent to make provisions for them and apply them.

The law should provide for the procedure for renegotiation of the terms of the concession agreement

in case of a significant change in the funding sources or financial model.

7.15. Concessionaire’s incapability to further perform its obligations

General Description of the Risk Situation

In case the concessionaire is incapable to further perform its obligations under the concession

agreement, the current law does not provide for any mechanisms to resolve the situation other than

termination of the agreement.

Potential Consequences of the Risk Situation

As a result of terminating the agreement, the Project is discontinued and does not achieve its goal.

Assessment of Risks from the Standpoint of the Public and Private Partners

The private partner cannot engage new (co-)concessionaires on its side for performance of

obligations under the concession agreement, or assign its obligations under the concession agreement

in order to resolve the issue in a different way.

The public partner would have to develop a new project (new feasibility study, etc.) in order to hold

the concession agreement bidding procedure in order to complete the construction of the CRR. In

such case, as in case with any project, the idle time causes significant financial losses throughout the

idle time; besides, the business connections established by the time of default would be lost.

Risk Management Mechanisms

A possibility of a new entity stepping in with the rights of the concessionaire should be provided for.

Recommendation

Provisions should be made in the law to allow a new entity stepping in with the rights of the

concessionaire without bidding or with a simplified bidding procedure. At the same time, given the

fact that the current law does not directly prohibit such procedure, it should be provided for in the

bidding documents and terms of the concession agreement.

7.16. CRR nationalization

General Description of the Risk Situation

Considering the project implementation deadlines, in case significant legislative changes and a

respective decision are made, there is a potential risk of nationalization of the CRR after it is

commissioned (early termination of the concession agreement).

Potential Consequences of the Risk Situation

As a result of such risk situation, the concessionaire may lose the possibility to recover the costs

sustained and receive income from the operation of the road on the terms of concession.

Assessment of Risks from the Standpoint of the Public and Private Partners

The risk may exist on the side of the private partner. The public partner, given certain circumstances,

may be interested in receiving additional revenue by receiving income from the operation of the

CRR.

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Risk Management Mechanisms

The existing investment protection mechanisms are implemented at the level of bilateral international

treaties between Ukraine and the country of the non-resident investor.

Recommendation

The mechanisms for resolution of the issues related to reimbursement in case of the state’s breach of

its obligations should be considered at the stage of agreement execution, and appropriate

mechanisms should be stipulated in the concession agreement (if provided for by the international

treaty). This would allow evaluating the risk specifically and stipulating the understanding of the

amount at risk by each of the parties.

It is also advisable to provide for effective mechanisms for protection from legislative changes which

deteriorate the conditions of foreign investment, in particular, in the Law of Ukraine “On Foreign

Investment Regime”. It would also be advisable to provide for a similar mechanism in the Law of

Ukraine “On Concessions” and the Law of Ukraine “On Public-Private Partnership|, especially in the

case of engagement non-foreign investments.

7.17. Disruption of Project implementation time due to disputes between the concessionaire

and the concessor

General Description of the Risk Situation

Joint implementation of the Project on the terms of the agreement may give rise to situations of

disagreements between the parties of the said agreement (the concessionaire and the concessor).

Potential Consequences of the Risk Situation

Based on the provisions of the current Ukrainian law, such disputes would have to be resolved

through court. However, the court procedure of disputes resolution is not the most effective way of

resolving disputes, given the possible court procedure costs, expert investigation costs, legal costs,

and representation costs, as well as the time of dispute resolution.

Assessment of Risks from the Standpoint of the Public and Private Partners

The interests of the private partner may turn out to be less protected in case of judicial resolution of

the dispute in Ukrainian courts. On the contrary, the interests of the public partner may turn out to be

less protected in case of resolution of the dispute by foreign arbitration institutions.

Risk Management Mechanisms

In order to resolve most of the issues (the category of the issues may be agreed upon at the stage of

negotiation of the final text of the agreement and signature thereof), provisions should be made for

the arbitration procedure by a tribunal formed by the representatives of each of the parties from

among experts on the respective category of issues. The binding and final nature of such arbitration

must be stipulated in the agreement.

Recommendation

The respective risk should be assessed and regulated at the level of the agreement by making

provisions for the formation and performance of arbitration.

The general investment conditions in Ukraine may be improved by a reform (of the legislation

regulating the court system, and a constitutional reform), which would allow a wider use of the

possibility for alternative ways to resolve disputes without a court procedure.

7.18. Failure to procure a construction permit

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General Description of the Risk Situation

According to the Law of Ukraine “On Regulation of Urban Development Activities”, the right to

perform preparatory operations (unless performed earlier according to a notice or registered

declaration about commencement of preparatory operations) and construction operations at the

construction facilities of IV and V difficulty class, the connection of the construction facility to the

utility networks and structures is allowed for the customer and the general contractor or contractor (if

the construction operations are performed without subcontractors) after a construction permit is

received.

Potential Consequences of the Risk Situation

In case of a justified refusal to issue the permit, the customer may amend the deficiencies found in

the documents and re-submit them.

Assessment of Risks from the Standpoint of the Public and Private Partners

Grounds for refusal to issue a construction permit are:

- failure to submit the documents required to make the decision on issue of such permit;

- inconformity of the documents submitted to the provisions of the law; and

- inaccurate information found in the documents submitted.

Risk Management Mechanisms

A refusal to issue a construction permit may be appealed against in court. In case the project is

developed without violations and properly passes the expert assessment, the issue of the permit may

be refused in case of improper preparation and submission of documents.

In case the state architectural and construction supervision authority does not issue the construction

permit within ten working days after the application registration date, or refuses to issue such permit,

the contracting authority shall apply to the Ministry of Regional Development, Construction,

Housing, and Utilities of Ukraine to take measures related to the issue of the said permit, or refusal to

issue it, within ten working days. In case a construction permit or a refusal to issue it are not

provided within the period indicated above, the right for construction operations emerges on the

tenth working day after the application to the Ministry of Regional Development, Construction,

Housing, and Utilities of Ukraine, and the permit is deemed received.

Recommendation

On condition of submission of the application and documents according to the list of documents

provided in the directive of the State Architecture and Construction Inspectorate of Ukraine of March

1, 2013, No. 39, the risk of effective refusal to issue the permit is unlikely.

7.19. Failure of commissioning

General Description of the Risk Situation

The commissioning of finished construction facilities of IV and V difficulty classes is performed

based on the facility completion certificate by issue of a certificate by the state architectural and

construction supervision authorities according to the procedure specified by the Cabinet of Ministers

of Ukraine.

Potential Consequences of the Risk Situation

In case the facility fails to pass the commissioning due to inconformity with the design document for

construction of such a facility and the provisions of the construction regulations, state standards, and

rules, appropriate construction works must be performed in order to bring it to conformity. In case of

construction of facilities not specified in the design documents, an obligation arises to tear them

down or modify the design documents.

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Assessment of Risks from the Standpoint of the Public and Private Partners

The resolution for issue (or refusal to issue) a certificate is made by the state architectural and

construction supervision authorities within ten working days after the date of submission of the

respective documents. The state architectural and construction supervision authority may refuse to

issue a certificate on the following grounds:

1) failure to submit the documents required to make the decision on issue of the certificate;

2) inaccurate information found in the documents submitted;

3) inconformity of the facility with the design document for construction of such facility and the

provisions of the construction regulations, state standards, and rules.

Risk Management Mechanisms

The Ukrainian law requires designer supervision and technical supervision of construction. The

conditions of designer supervision and technical supervision are established by the current Ukrainian

law as well as the respective agreements executed by the construction project owner.

Recommendation

During the execution of designer supervision and technical supervision agreements, effective

mechanisms for supervision of proper performance of the construction operations should be put in

place.

STAGE VIII. Road Operation. Distribution of Concession Income.

7.20. Insufficient traffic. Insufficient project funding.

General Description of the Risk Situation

The intensity of traffic on the motor road may turn out lower than anticipated during the calculation

of the Project financial model. Low traffic will result in a reduction of income from the road

operation.

Article 12 of the Law of Ukraine “On Concessions” provides for the possibility of compensations for

concessionaires of unprofitable and low-profit concession properties of high social importance. The

procedure for identification of such properties, as well as the terms of provision of compensations,

was approved by the Resolution of the Cabinet of Ministers of Ukraine of July 13, 2000, No. 1114

(hereinafter “Procedure 1114”).

However, the current law does not make a direct provision for the possibility of reimbursement of

the concessionaire’s lost income due to low traffic intensity or for the procedure of provision of such

reimbursement. Since Procedure 1114 provides for reimbursements in case of unprofitability of the

project and exclusively for socially important concession properties, the possibility of applying its

provisions for reimbursements related to low traffic is limited by the criteria of general

unprofitability and social importance. Besides, the current law does not define the criteria of social

importance of a concession property, and thus there is no guarantee that the competent authorities

would deem the motor road a socially important facility.

Potential Consequences of the Risk Situation

Low intensity of vehicle traffic over the motor road may significantly reduce the estimated income of

the concessionaire, which would result in unprofitability of the Project and make it impossible to

ensure proper operational quality of the road.

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Risk Management Mechanisms

Required legislative amendments: the concession agreement should specify the procedure for

reimbursement of the concessionaire’s losses due to low intensity of traffic on the motor road.

Recommendation

The Laws “On Concessions” and ”On Concessions for Construction and Operation of Motor Roads”

should be amended to allow the parties to specify in the concession agreement the procedure of

settlement and reimbursement in connection with low traffic intensity on the motor road. It is also

necessary to develop the Procedure for reimbursement of the concessionaire’s losses due to low

intensity of traffic on the motor road.

The concession agreement should specify the conditions for, and procedure of, reimbursement by the

concessor of the concessionaire’s losses connected with low traffic intensity on the motor roads.

7.21. Road operation costs overrun

General Description of the Risk Situation

In the course of motor road operation, additional costs may be incurred in order to maintain its

proper functioning. The road operation costs may turn out higher than estimated.

Potential Consequences of the Risk Situation

The motor road operation costs overrun and lack of funds to cover it may make it impossible to

ensure proper operational quality of the road.

Risk Management Mechanisms

Establishing a special fund to guarantee the coverage of road operation costs in case of costs overrun.

Change of the road toll.

Recommendation

The concession agreement should provide for a special reserve fund to cover the costs related to

motor road operation costs overrun.

The concession agreement should provide for the possibility of a joint application of the parties to

the authorized agency (the Cabinet of Ministers of Ukraine) with a request to increase the maximum

road toll in the cases specified in the agreement.

7.22. Impossibility to credit the road toll to the concessionaire’s account

General Description of the Risk Situation

According to the law, the concessionaire is entitled to income from the operation of the motor road

granted under a concession. According to article 4 of the Law of Ukraine “On Concessions for

Construction and Operation of Motor Roads”, the road toll is one of the sources of the

concessionaire's income.

However, article 29 of the Law of Ukraine “On Motor Roads” states that the road toll is to be paid to

the State Budget of Ukraine.

Potential Consequences of the Risk Situation

Given the above provision of the Law of Ukraine “On Motor Roads”, until the law is amended, the

concessionaire will not be able to charge the road toll independently and include it in its income.

This creates obvious limitations for the concessionaire’s income from the Project.

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Risk Management Mechanisms

The Law of Ukraine “On Motor Roads” should be amended. Until changes are made, the road toll

should be indirectly included credited to the concessionaire’s income after being credited to the

budget.

Recommendation

Amendments to article 29 of the Law of Ukraine “On Motor Roads” should be initiated to provide

that the road toll on paid motor roads constructed using the funds acquired by the concessionaire

according to the concession agreement and/or another respective agreement shall be credited to the

concessionaire’s account and used both to maintain the proper technical condition of the motor roads

and comply with the terms of the respective agreements of the concessioner, as well as for other

purposes determined by the concessionaire according to the concession agreement.

The concession agreement should provide for a procedure which would allow transferring (returning)

to the concessionaire the road toll collected by it after previously crediting it to the state budget, with

participation of the organization authorized to manage the state budget costs (Ukravtodor), if

necessary.

7.23. Devaluation of the currency of road toll

General Description of the Risk Situation

The local currency in which the road toll is collected may decrease in value as compared to the

currency in which the Project is funded by the concessionaire’s creditors.

Potential Consequences of the Risk Situation

The devaluation of the currency in which the income from road operation is received as compared to

the currency in which the project is funded will make the Project less profitable for the

concessionaire. This may result in unprofitability of the Project and, as a result, bankruptcy of the

concessionaire.

Risk Management Mechanisms

Introduction of contractual mechanisms for coverage of the costs related to currency devaluation.

Recommendation

The concession agreement should provide for mechanisms allowing to reduce the losses due to the

devaluation of the local currency, in particular by allowing, and establishing the procedure of, an

increase of the road toll in order to offset such losses, or by requiring the concessor to reimburse the

concessionaire’s losses due to devaluation of the local currency.

7.24. Regulatory changes unfavorable for the Project. Deterioration of tax conditions

General Description of the Risk Situation

There is a risk that legislation will be passed with provisions unfavorable for the concessionaire, in

particular those that would increase the concessionaire’s costs or reduce its income related to the

operation of the motor road.

According to the Law of Ukraine “On Concessions”, legislative amendments must not deteriorate the

conditions for the concessionaires’ activity for implementation of projects on the terms of

concession.

However, according to article 20 of the Law of Ukraine “On Public-Private Partnership”, the

guarantees related to the prohibition of deterioration of conditions provided by the law do not apply

to the legislative provisions on defense, national security, maintenance of public order, environment

protection, standards of quality of goods (works, services), tax, currency, and customs law, licensing

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laws and other laws regulating legal relations where the principles of equality of parties (public and

private partners) do not apply.

Besides, the Association Agreement between Ukraine and the European Union, European Atomic

Energy Community, and their member states, fully signed on June 27, 2014, requires gradual

harmonization of the existing Ukrainian standards and policies in the sphere of transportation with

the European ones. The list of EU and EEC directives and regulations on transportation, as well as

the time for harmonization of the Ukrainian law with their provisions, are provided in Annex XXXII

to Chapter 7 of the Association Agreement. According to this Annex, Ukraine must harmonize its

legislation to several dozens of European directives and regulations within a period of 1 to 8 years.

The harmonization of the Ukrainian standards with the European ones may increase the

concessionaire’s costs required to ensure the conformity of the CRR with the European standards.

Potential Consequences of the Risk Situation

Legislative amendments causing a reduction of income or increase of costs of the concessionaire will

make the Project less profitable for the concessionaire. This may result in unprofitability of the

Project and, as a result, bankruptcy of the concessionaire.

Risk Management Mechanisms

Making provisions in the concession agreement for a mechanism for reimbursement of losses caused

by deterioration of legislative conditions.

Recommendation

The concession agreement should provide for the concessor’s obligation to reimburse the

concessionaire for the losses caused by application of laws deteriorating the conditions for the

concessionaire as compared to those established as of the time of the concession agreement.

The bidding documents of the Project should establish that the bidders must take into account the

requirement to ensure the conformity of the CRR with the EU standards to be introduced in Ukraine

in the course of Project development.

7.25. Unfavorable actions of authorized agencies (traffic police, Ukravtodor) in relation to road

traffic management

General Description of the Risk Situation

The law entrusts the government agencies and organizations (traffic police and Ukravtodor) to

supervise and control the traffic on motor roads. The exercise of such authority makes it possible for

such agencies and organizations to take actions and measures unfavorable for the Project (installing

traffic signs, establishing speed limits, traffic restrictions, etc.).

Potential Consequences of the Risk Situation

The actions and measures taken by the authorized agencies while performing supervisory functions

may cause losses for the concessionaire and deteriorate the road operation conditions.

Risk Management Mechanisms

Participation of the concessor in the resolution of issues with the authorized agencies and

organizations in the spheres of traffic and road system.

Recommendation

The agreement should provide for participation of the concessor on the side of the concessionaire in

the resolution of issues with the authorized agencies and organizations in the spheres of traffic and

road system.

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STAGE IX. Concessionaire’s transfer of the road to the concessor after the completion of the

Project

7.26. Undefined procedure for return of the motor road

General Description of the Risk Situation

According to the law, after the concession agreement expires, the concessionaire must transfer the

motor road to the concessor. At the same time, the law does not establish a clear procedure for return

and acceptance of the motor road or transfer of other facilities created in the course of the concession

project, and does not provide for the possibility of returning or transferring them to a third party.

Potential Consequences of the Risk Situation

The lack of a specified procedure for return of the motor road or transfer of other facilities created in

the course of the concession project, as well as the undefined time when the road and the respective

facilities are deemed transferred, create a possibility of avoiding the transfer or acceptance of the

same.

The absence of a provision allowing to transfer the motor road and other facilities to a third party

instead of the concessor makes it necessary to transfer them to the concessor even in the case when

the concessor is not interested or authorized to recognize such facilities on its balance sheet.

Risk Management Mechanisms

Detailed and clear contractual regulation of the procedure, conditions, and deadlines for return of a

motor road granted under a concession, and transfer of other facilities created in the course of

implementation of the concession project. Legislative amendments.

Recommendation

The Law of Ukraine “On Concessions for Construction and Operation of Motor Roads” should

include a provision that the procedure for return of the motor roads and other facilities created in the

course of the concession project shall be determined by the parties in the concession agreement;

additionally, a provision should be made allowing the possibility of transfer of the motor road and

the respective facilities to a third party in cases specified by the law or the agreement.

The concession agreement should specify the procedure of return of the motor road and other

facilities by concessionaire, with indication of the entity receiving the CRR on its balance sheet after

the completion of the Project (Ukravtodor structure).