Security and support issues.
Ukrainian PPP legislation is extensive. However, practitioners believe it lacks consistency because some of its provisions contradict other legislative acts and, in some instances, the applicable rules may overlap. There is one set of documents regulating (non-concession) PPPs and another set for concession PPPs.
The regulatory framework in relation to (non-concession) PPPs comprises a law, three resolutions of the cabinet of ministers and one order/regulation, each of which covers different aspects of project development and evaluation as well as the contract award:
(1) Law of Ukraine “On Public Private Partnership“ No. 2404-VI dated 01 July 2010 (hereinafter - the “Law on PPP”);
(2) Resolution of the Cabinet of Ministers of Ukraine No. 384 “On Certain Issues of Organisation of Public Private Partnership“, 11 April 2011;
(3) Order of the Ministry of Economic Development and Trade of Ukraine No. 255 “On Certain Issues of Carrying out Analysis of Public Private Partnership Effectiveness“, 27 February 2002;
(4) Procedure for Granting State Assistance to the Public Private Partnership (adopted by the Resolution of the Cabinet of Ministers of Ukraine No. 279), 17 March 2011; and
(5) Methodology of Identification, Assessment and Management of Risks related to Public Private Partnership (adopted by the Resolution of the Cabinet of Ministers of Ukraine No. 232), 16 February 2011).
The Regulatory framework for concession PPPs includes four laws and one resolution of the cabinet of ministers but with a different – sector based – structure:
(1) Law of Ukraine “On Concessions“ No. 997-XIV dated 16 July 1999;
(2) Law of Ukraine “On Concessions Regarding Construction and Maintenance of Roads“ No. 286-XIV dated 14 December 1999;
(3) Law of Ukraine “On Peculiarities of Lease and Concession of Municipal Heating, Water Supply and Water Drain Facilities“ No. 2624-VI dated 21 October 2010;
(4) Law of Ukraine “On Peculiarities of Lease and Concession of State-owned Fuel and Energy Facilities“ No. 3687-VI dated 8 July 2011;
(5) Resolution of the Cabinet of Ministers of Ukraine No. 642 dated 12 April 2000 “Regulation on Concession Tenders, Conclusion of Concession Contracts in Relation to State and Municipal Property”.
The (non-concession) PPP regulations in Ukraine still need to be tested in practice. They have so far been applied to a very limited extent. In mid-2017 only two projects were pending: in Malyn – a biofuel PPP project, i.e. conversion of municipal boiler houses from imported natural gas to local biofuel, and in Oster – a PPP project aimed at the reconstruction of central heating systems, construction of a heating main and provision of services for heat energy supply.
Points for Improvement
The following key problems of the legislative framework were identified and seem to prevent the effective implementation of the (non-concession) PPP and concession PPP mechanisms in Ukraine:
- The legislative framework scores a “high compliance” for non-concession PPP as well as for concession PPPs in general terms, but this is mainly because it is very comprehensive.
- The non-concession PPP legislation is ranked as highly compliant in terms of project preparation and selection; the concession framework for this field could only be given a “low compliance” rate.
- in particular, there is no clear methodology for the calculation of reimbursements payable to a private party by a public party if the latter violates its obligations under a non-concession/concession PPP agreement;
- Absence of any tax or custom incentives for private partners in the course of non-concession/concession PPP implementation;
However, Ukraine also has to tackle several other obstacles which are more difficult to overcome:
- Many potential non-concession/concession PPP objects are economically unattractive to private investors; as such objects are in an unsatisfactory physical condition (i.e., require excessive material investments from a private partner) so that the original investment is very high compared with any possible return;
- the level of corruption remains high, particularly in the public sector;
- the officers responsible on the public party side, within the governmental authorities responsible for implementing the non-concession/concession PPP, etc., are insufficiently qualified or trained; and
- local businesses are largely unaware of the advantages and the potential of the non-concession/concession PPP mechanism.
One red flag was caused by the fact that no direct agreements with step-in-rights are allowed for concessions.
The legal framework is not sufficiently consistent and includes too many different sources. All applicable legal acts as listed above include conflicting and overlapping provisions leading to substantial difficulties in their application. The regulatory framework in the sphere of PPP (non-concession/concession PPP) is not harmonised and gives no clear understanding of which procedure should be followed at each stage of a PPP project.
Non-concession and concession PPP legislation would benefit if the following measures were undertaken:
- Development of a strategy/policy for PPP project implementation at the governmental level;
- Harmonisation and simplification of the existing Ukrainian legal framework on PPP;
- The PPP legal framework that is currently in force in Ukraine includes the Law “On PPP“ (i.e. non-concession PPP according to the terminology of this assessment), four laws regulating concessions (i.e. concession PPPs), as well as numerous pieces of subordinate legislation. The regulation for all kinds of PPPs should be harmonised and simplified in order to give a clear roadmap for the applicable procedures;
- PPP should be incentivised and promoted by the state. Support of PPP by the state should be further extended and developed. The introduction of new forms of state support could be suggested, e.g. provision of tax preferences to the private partners; reimbursement of interest accrued on the financing drawn for PPP projects implementation, etc.