The use of PPP mechanisms in Ukraine is not common and has been only recently gaining momentum. Even though the Law on Concessions was adopted back in 1999 and the Law on Public-Private Partnership in 2010, these instruments have long been underestimated.
The main reasons were imperfect legislation and the public sector’s low institutional capacity, traditionally more oriented toward leases or privatization. The state was not ready to undertake long-term budgetary obligations and participate in lengthy feasibility study procedures. In all fairness, it should be noted that there were no legislative mechanisms for this.
Real infrastructure projects, structured with the technical support of the IFC, appeared only in 2019 when the preparation of two concession projects in the ports of Olvia and Kherson started. The financial closing of both projects took place at the end of 2021. In addition to the successful completion of these transactions, the team of consultants identified weak points in the legislation, which required the fastest possible response from the government and parliament.
During the implementation of the first concession projects in ports, changes were made to the Law on Concessions aimed at implementing Directive 2014/23/EU on concessions. The changes considered the existing international experience and significantly improved the rules for granting concessions and procedures for developing feasibility studies and conducting tenders.
The improvement of the legal framework and the successful completion of the two port concessions became the impetus for the preparation of several new projects in the field of transport infrastructure. Not only the public sector but also private companies contributed to these activities.
Thanks to a private initiative, the preparation of feasibility studies of several more projects in the port sector was started. The implementation of the projects was planned for 2020-2023. Examples include the concession of the Odesa port passenger terminal and the concession of the Berdyansk and Izmail ports.
Between 2019 and 2021, the Ministry of Infrastructure launched a few infrastructure projects with the support of the WBG. In particular, a pre-feasibility study was prepared for five airports, eight railway stations, and six highways. Advisers were involved in preparing a feasibility study of two concession projects in the port of Chornomorsk. Further implementation of these projects was stopped by the full-scale military invasion.
Significant damage or a complete destruction of critical infrastructure became the reason for an intensive search for financing the reconstruction of the country. In this context, PPP appears to be one of the most promising tools.
In this regard, during the two years of the war, the government worked out appropriate changes to the legislation on PPP. A massive draft law on amendments to the laws on PPP and concessions was adopted in October 2022 in the first reading. Currently, the draft law is being prepared for the second reading. Key legal advancements include: (i) the definition of a new type of project – restoration projects, for which a simplified preparation procedure is provided that allows reducing the time for implementation (critical in the current context of Ukraine); (ii) the regulation of a new type of project – restoration projects; (iii) the expansion of sources of funding for PPP projects and sources for state support, in particular, the possibility of financing PPP projects through grants; and (iv) the initiation of the opportunity to implement PPP projects in the field of housing construction.
Furthermore, this draft law introduces systemic changes in legislation in the fields of highways, railway transport, waste management, water supply, education, and healthcare. As previous experience has shown, the imperfection of industry legislation is a key factor restraining PPP development.
Despite the martial law, the prospects of PPP projects in Ukraine are also indicated by the fact that the WBG has renewed the preparation of projects in the port of Chornomorsk (concession of ferry crossing and container terminal) and launched the pre-feasibility study of PPP projects in the field of healthcare.
Consequently, in April, the World Bank updated its Benchmarking Infrastructure Development 2023 rating, which demonstrates the quality of legal regulation in the countries of the world in terms of the possibility of implementing large infrastructure projects with the involvement of the private sector. Ukraine demonstrated one of the best results in the world, increasing its indicators by 41 points. This shows the existence of a favorable legislative environment for attracting private investments to Ukraine under PPP conditions. Hopefully, it will become the basis for financing future infrastructure projects.
By Maryna Sharapa, Partner, Arzinger
This article was originally published in Issue 11.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
