New rules for PPP

The Verkhovna Rada has adopted the Law of Ukraine “On Public-Private Partnership” (PPP Law), which introduces amendments to the regulation of public-private partnership (PPP) and concession projects. The PPP Law will enter into force three months after its official publication.

The primary goal of the PPP Law is to accelerate the restoration of destroyed infrastructure.

Below is a summary of key changes to be introduced by the PPP Law. In our upcoming T&L alerts, we will provide more detailed commentary on amendments to the Law of Ukraine “On Concession”.

Please note that as of the date of this alert, the PPP Law has not yet been signed by the President of Ukraine and has not been officially published. Therefore, some provisions may still be subject to change.

Three preparation procedures for PPP projects

1.      The general procedure. PPP projects are generally prepared in two stages: development of a concept note and a feasibility study.

2.      The procedure for sub-threshold PPP projects. A project qualifies as a sub-threshold if its estimated cost does not exceed the equivalent of EUR 5,538,000.

These projects follow a single-stage preparation process – development of a concept note. Based on the results of the concept note analysis, a decision is made on whether to proceed with the PPP. Where state funds are involved, PPP projects must be approved by the Ministry of Economy or the Ministry of Finance.

3.      The simplified procedure. This applies to PPP projects included in the List of state/local PPP infrastructure and economy recovery projects during martial law and seven years after its cancellation.

The procedure for initiating and preparing such projects must be approved by the Cabinet of Ministers of Ukraine (CMU). We expect the details to be further regulated by the relevant CMU’s resolution.

Movable property as a PPP object

Under the PPP Law, a PPP project may involve the creation or acquisition of movable property, including software, software products, supplies and equipment, vehicles, provided that these assets are used to deliver socially significant services.

The implementation of PPP projects in the IT sector may additionally drive forward the IT industry – one of Ukraine’s largest export-oriented sectors. In this area, PPPs could also serve as a tool for advancing the digitalization of public services.

State-owned enterprises (SOEs) as public partners

The PPP Law allows SOEs to act as public partners in PPP projects, provided that the project relates to assets they own. Previously, only state or local self-government bodies were permitted to act as public partners.

The concept note and feasibility study for such projects will be reviewed by the enterprise’s relevant body authorized to make a decision on a major transaction.

New competitive procedures for selecting a private partner

The PPP Law establishes three types of competitive procedures for selecting a private partner: restricted tender, open tender, and competitive dialogue.

We expect the application of each type of procedure specifically in case of PPP contracts (as opposed to concessions) to be clarified in the procedure on private partner selection, which is to be approved by the CMU. The CMU-approved procedure may also reflect the new provisions of the Law of Ukraine “On Concession”.

Procedural changes in competitive tenders for selecting private partners

1.      For projects where the PPP object is a state-owned asset, the tender committee must include representatives from the authorized organization, which is expected to be the public organization “PPP Agency”.

2.      The timeframe for PPP project preparation activities has been reduced from 180 to 90 days.

3.      The PPP Law expands the list of bidder rejection criteria.

Forms of PPP

The PPP Law establishes only two forms of PPPs: a concession contract and a PPP contract. Property management agreements and joint activity agreements are no longer recognized as separate forms of PPPs.

A PPP contract may be structured as a mixed contract, incorporating elements of different types of agreements.

Grant support for PPP projects

The PPP Law explicitly provides for a possibility to conclude a grant agreement for PPP project. The grant provision procedure (including through a separate grant agreement) is recognized as an essential term of any PPP contract.

The grant funds may be:

1.      transferred to the state/local budget or to the account of a SOE for further disbursement to the private partner (requires a separate decision of the public partner); or

2.      transferred directly to the private partner (no separate decision by the public partner or state body is required).

The procedure for raising, using, and monitoring grants for PPP projects shall be determined by the CMU.

The donor providing the grant for the PPP project may be involved in the analysis of the feasibility study. It should be noted that grant support was previously not adequately addressed in relevant laws.

The specifics of PPP in different areas

1. Road infrastructure

The PPP Law includes specific provisions for projects involving the construction and further operation of the road infrastructure.

For instance, it addresses the cases where infrastructure elements associated with the main road and required for the implementation of the project – such as bridges, overpasses, roadways – are municipally owned (e.g. road sections in cities and other settlements). In such cases, the public partner may initiate a free-of-charge transfer of these infrastructure-related assets from municipal to state ownership.

Toll rates for roads operated under PPP projects shall be set in the PPP contract, based on the maximum rate established by the CMU. An essential term for PPP contracts in such projects is the road maintenance requirements.

2. Housing construction

For housing construction projects, the Ministry of Economy is required to approve separate methodological guidelines for preparing concept notes and conducting feasibility studies, and develop sample tender documentation.

The term of a PPP project for housing construction may be less than five years.

For housing construction projects, an essential term of a PPP agreement is the warranty period for the quality of the facility's operation and the procedure for eliminating identified deficiencies (defects).

3. Natural monopoly markets

For such projects, the PPP contract must specify what constitutes an economically justified price for socially significant services and what consequences will be in the event that the state regulator sets an unjustified price.

Control and evaluation of PPP implementation

The PPP Law establishes a following framework for monitoring the implementation of PPP contracts:

i.        Private partners are required to provide public partners with information on the implementation of the PPP contract.

ii.       Public partners must submit annual reports to the Ministry of Economy, following the form and procedures approved by the Ministry.

iii.     The Ministry of Economy summarizes and publishes the overall results of PPP implementation.

Additionally, the PPP Law introduces a final assessment to be conducted upon completion of a PPP contract, including in cases of early termination. The assessment is primarily a “lessons learned” tool for public authorities and does not have legal consequences for the private partner.

Other important changes

1.      PPP projects may now be initiated only by public partners.

2.      The Antimonopoly Committee of Ukraine must establish a commission to review complaints regarding violations of legislation during the competitive selection of private partners.

3.      The return of the PPP object to the public partner may be carried out by acquiring 100% in the private partner’s share capital.

4.      The public partner may now apply to the CMU for a decision to coordinate the actions of executive authorities that are not party to the PPP contract but whose activities the PPP project depends on.

5.      For the construction of engineering and transport infrastructure in PPP projects it is now permitted to conclude an agreement delegating the construction customer’s functions to the private partner instead of transferring land plots for use.

6.      The PPP Law codifies the essential terms of PPP contracts (previously, the essential terms of SPP contracts were only outlined by the CMU’s resolution).

7.      The Law eliminates the previous 50-year limit on the duration of PPP projects. There is now no maximum term.

What happens to ongoing SPP projects?

To the state-private partnership (SPP) projects initiated before the effective date of the PPP Law, the following transitional provisions of the PPP Law will apply:

Stay tuned for our alerts – in the upcoming series, we will look into amendments to concession laws.

_{Comments provided by Deloitte experts herein are for information purpose only and should not be used by taxpayers without an in-depth expert analysis on a case-by-case basis.} 

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