Ukraine important changes to subsoil use legislation

On 27 December 2019, the President of Ukraine signed Draft Law No. 2240 “On Amending of Certain Legislative Acts of Ukraine regarding Regulation of Extraction of Amber” (the “Amber Law”) which was adopted by Ukrainian Parliament on 19 December 2019. Despite its name and main focus, the Amber Law also contains provisions that will have an impact on the production of other mineral resources in Ukraine, including oil and gas.

The Amber Law introduces, among others, the following changes related to mineral resources other than amber:

Limiting the authority of regional councils

The Amber Law has lifted a requirement for a regional council’s approval as a necessary step in the process of granting the right for subsoil for geological survey and extraction of mineral resources of state importance (including hydrocarbons). Therefore, approval of the regional council is no longer required for the issuance of the respective special permits for subsoil usage (the “Licences”) or for the execution of PSAs between investors and the Cabinet of Ministers of Ukraine (the “CMU”).

Introducing important changes to the legal regime governing PSAs (as defined below)

• The Amber Law clarified that the tender for the execution of a product-sharing agreement (the “PSAs”) shall be considered as the one that failed, if the CMU does not establish a winner.
• The Amber Law clarified that the fee for participating in a PSA tender shall not be returned to the bidder unless the PSA tender is considered as one that failed. In the latter case, the fee shall be refunded in full.
• The Amber Law also clarified that an expert review of the draft PSA is performed by the relevant ministries and other central state authorities. In addition, it was established that the Inter-Agency Commission (IAC) for PSAs identifies other issues concerning which the drafts of the PSAs are also subject to expert review.
• The Amber Law has moved the requirement for an environmental impact assessment (the “EIA”) further in time and it will now be conducted only after the PSA has been executed and before the start of activities that are subject to EIA. Previously, the draft PSA was subject to an EIA even before execution, which was impractical.

Electronic auctions for Licences to be conducted via the online electronic platform Prozorro.Sales

From 1 December 2018, as a pilot project in 2019 auctions for subsoil Licences were carried out through the public online auction platform Prozorro.Sales. The Amber Law shall now make this practice permanent. As a result, there is no doubt now that in 2020, all auctions for granting Licences will be carried out only via the public online auction platform Prozorro.Sales.

Furthermore, the Amber Law allows bidders to submit application documents for granting or renewing a Licence not only as hard copies, but also through an electronic ‘cabinet’ managed by the State Geology Service of Ukraine (the “SGSU”).

Changes in relation to land used for subsoil

• The Amber Law brings in several changes aimed at simplification of obtaining land use rights by the Special Permit holders.
• Firstly, the Amber Law ensures that the winners of auctions will be able to obtain use rights to land plots of state and communal property the title to which had been created (through registration in the State Land Cadastre and the State Registry of Property Rights to Real Estate) and the provision of which after the performance of the auction is necessary for extraction of mineral resources by the respective Special Permit holder (the “Reserved Land Plots”). According to the Amber Law, the list of the Reserved Land Plots is approved by the state or local authorities, which have the authority to dispose of such land plots, at the request of the SGSU before performance of the respective auction.
• Secondly, the Amber Law provides the Special Permit holders with the right to perform a pilot commercial development or extraction of mineral resources of state importance by establishment of respective easements on the land plots of all types of ownership and of all categories without changing their designation, except for the land of a nature reserve fund, recreational designation, historical-cultural designation and of a water fund. However, the Amber Law also establishes that the damages by the owner to such land plots, as well as losses of agricultural and forest land from aforementioned subsoil usage, must be reimbursed by the respective Special Permit holder.
• A topsoil removal permit is no longer required for a pilot commercial development or extraction of mineral resources of state importance according to the Amber Law. However, the Special Permit holders still need to develop working land management projects for the recultivation of land affected by pilot commercial developments or the extraction of mineral resources of state importance.
• The Amber Law establishes criminal liability for improvident usage of land that results in a longstanding decrease or loss of fertility, removal from agricultural usage, ablation of the topsoil or damage to the structure of the land. Criminal liability in the form of fine up to UAH 4,250 (approximately USD 180) or custodial restraint up to two years with a restriction on performing certain activities for up to three years is established for this criminal offence.
• The Amber Law will enter into force on the day after its official publishing. The CMU must ensure the alignment of the regulatory framework in accordance with the Amber Law within three months after it enters into force.

Authors:

Vitaliy Radchenko, Partner, Vitaliy.Radchenko@cms-cmno.com

Anatolii Doludenko, Associate, Anatolii.Doludenko@cms-cmno.com​