Newsletter – 2024: year in review. Financing, Energy & Construction aspects of Ukraine Rebuild
In 2024, Ukraine made various legislative changes to improve its investment climate and attract both domestic and foreign investors.
1. Land Reform Continues
On the 1st of January 2024 Ukraine entered into the second phase of its land reform and allowed legal entities to purchase agricultural land plots. Previously individuals only were entitled to own agricultural land within the limits of up to 100 hectares per person. Under the new regulations Ukrainian-owned companies are now able acquire up to 10,000 hectares. However, it is important to note that this opportunity is only available for legal entities owned by Ukrainian citizens; foreign nationals and foreign legal entities are not permitted to purchase agricultural land in Ukraine.
On the 26th of February 2024, the President of Ukraine signed the "Law of Ukraine on Amending Certain Legislative Acts to Simplify the Procedure for Changing the Designated Purpose of Land Plots to Attract Investments for the Rapid Reconstruction of Ukraine." This law simplifies the process of changing the designated use of specific land plots, particularly in the areas lacking approved urban planning documentation. Its goal is to facilitate the development of industrial and agricultural facilities by streamlining bureaucratic procedures, and attracting essential investments for Ukraine's rapid reconstruction.
Additionally, the law establishes the Register of Territories Contaminated or Possibly Contaminated with Explosive Ordnance, which is maintained by the State Emergency Service of Ukraine. This register is intended to monitor land plots affected by explosive hazards.
These reforms reflect a part of Ukraine's broader efforts to align its legal framework with the European Union standards, being an essential step towards the EU membership, aiming to create a more transparent and efficient land market. These changes will not only align with the European standards, but also promote economic development.
Aequo experience:
Aequo advised Chemonics International Inc. (USAID AGRO Project) on the harmonization of Ukrainian land legislation with the best international practices in light of the requirements for Ukraine's EU membership within the AGRO project (USAID's Agriculture Growing Rural Opportunities Activity in Ukraine). Aequo conducted a thorough analysis of the EU acquis and the legislation of selected EU member states. The services included developing a comprehensive land reform concept for the Ministry of Agrarian Policy and drafting laws aimed at improving legislation concerning the alienation of lands for public use.
2. Reform of PPP Legislation
Ukraine has made significant changes to its public-private partnership (PPP) regulations to improve investment attractiveness and align with the European Union standards. These reforms were mainly implemented through amendments to the PPP legislation, particularly Draft Law No. 7508, which was adopted in its first reading in October 2022 and is now set for a second reading in the Parliament.
Draft Law No. 7508 has been developed with the goal of accelerating the restoration of destroyed infrastructure through a simplified PPP mechanism. One of the key changes is that the draft law excludes assets management and joint activity agreements as forms of PPP. Instead, it will be carried out based on a concession agreement or a public-private partnership agreement.
The scope of PPPs has been extended to include new objects of transport infrastructure, residential real estate (including renovation and reconstruction of residential properties destroyed by the military aggression) and social infrastructure. The list of public partners has also been extended.
Other noteworthy changes include simplification and shortening of the procedures for preparing PPP projects and introducing the European Single Procurement Document (ESPD) standard.
The draft law provides the opportunity to fund PPP projects through grants from donors such as the European Union, foreign states, or international financial institutions.
The draft law pays special attention to infrastructure and economic recovery projects in Ukraine. Private partners and concessionaires will be selected through the competitive procedures (open bidding, limited participation bidding, competitive dialogue), which will be conducted in the electronic trading system.
These changes are designed to attract private investment, expedite infrastructure restoration, and align Ukraine's PPP practices with European Union standards, thereby bolstering the nation's recovery and integration efforts.
Aequo experience:
Aequo has solid experience in advising clients on PPP matters. Namely, Aequo advised Dragon Capital on the modernization of street lighting in the city of Lviv through a concession agreement entered into with Lviv city council; P&O Ports (Dubai, UAE) – on available options of PPP in respect of the seaport “Yuzhnyi” and leasing, advised an international finance institution on a potential PPP project, aimed at concession of the Kharkiv and Kyiv Railway Stations.
3. Amendments of the State Support for Industrial Parks
The development of industrial parks in Ukraine is essential for economic growth, attracting investment, and fostering technological advancement. Ukrainian legislation offers various economic incentives for participants in these parks. In 2024 the Ukrainian government allocated UAH 1 billion to support establishment and development of industrial parks in Ukraine.
In June 2024, the government approved the procedure for provision of the state incentives for establishment and development of industrial parks. This initiative includes funding of the construction of essential engineering and transport infrastructure, as well as compensation for their connection to the networks. The program has safeguards in place to ensure the responsible utilisation of public funds, including requirements to construct at least 5,000 square meters within the industrial park and to attract a minimum of two participants within three years.
These measures aim to enhance Ukraine's economic recovery by promoting investments into industrial parks, which are viewed as vital hubs for innovation, production, and technological progress.
Aequo experience:
Aequo advised Dragon Capital on the acquisition of the Industrial Park “Ryasne-2” (now “M10 Industrial Park Lviv”) from CTP – one of the biggest developers of industrial parks in Europe. The acquired construction site of 23.5 ha is located in the suburbs of Lviv City and provides unique proximity to the major international roads, heading to the western borders of Ukraine.
Aequo advises K-water (Korea Water Resources Corporation) on the contemplated investment into an industrial park in Ukraine, as well as advises on the water management and residential development projects in Ukraine.
4. Large-scale Privatization Renewed
In 2024 Ukraine revitalised its large-scale privatization efforts to attract strategic investors and stimulate economic growth. This initiative, known as "Big Privatization-2024," was facilitated by the signing of a law by President Volodymyr Zelensky on the 20th of June, 2023, which resumed large-scale privatization processes that had been paused during martial law.
Key assets privatized in 2024 included:
· “Hotel Ukraina”: A prominent 4-star hotel in Kyiv, sold for UAH 2.5 billion.
· “United Mining and Chemical Company (UMCC)”: The largest titanium ore mining and processing company in Ukraine, sold for UAH 3.94 billion.
· “Aeroc LLC”: A leading manufacturer of aerated concrete products, sold for UAH 1.9 billion. Notably, this was the first sanctioned asset sold, with proceeds directed to the Fund for the Liquidation of the Consequences of Armed Aggression.
The following state-owned assets are expected to be privatized in 2025:
· Demurinsky GOK LLC: A mining and processing company developing the Vovchanske titanium and zirconium deposit.
· Investment Union Lybid LLC (Ocean Plaza shopping mall): One of Kyiv’s largest shopping and entertainment centers.
These developments reflect Ukraine's commitment to reforming state property management, attracting investments, and aligning its legal framework with European Union standards.
Aequo experience:
Aequo assisted NEQSOL Holding in privatizing United Mining and Chemical Company, Ukraine's largest titanium feedstock producer on all Ukrainian law matters: pre-tender legal due diligence, tender process and negotiations.
Moreover, Aequo supports the winner of Aeroc LLC privatization in the negotiation procedures and in obtaining the merger clearance.
5. Construction Regulation
In 2024, Ukraine introduced important changes to its construction regulations, particularly regarding the involvement of foreign companies. On the 9th of August, 2024, the Cabinet of Ministers adopted the Resolution No. 925, which amended previous regulations to permit foreign firms and organizations, operating in Ukraine through permanent representative offices, to participate in construction activities. This applies to projects classified as medium (CC2) and significant (CC3) consequence classes, including residential buildings taller than five floors, large public buildings, industrial facilities, educational institutions, shopping centers, and hospitals.
Under this amendment, foreign companies can now conduct construction activities without obtaining a traditional license. Instead, they can simply submit a declaration to the State Inspectorate of Architecture and Urban Planning of Ukraine. This declarative approach simplifies the process and is applicable during the period of martial law. However, once martial law is lifted, these entities will be required to apply for a standard construction license within three months.
These regulatory changes aim to enhance the investment climate, attract international expertise, and accelerate reconstruction efforts in Ukraine. By facilitating the involvement of foreign construction firms, the Ukrainian government seeks to improve the quality and efficiency of construction projects nationwide.
AEQUO experience:
Aequo has one of the strongest real estate and infrastructure teams in the market. Our leading market position and involvement in all major Ukrainian real estate and land transactions gives us a deep understanding of the industry and the way it operates. We also have deep real estate regulatory expertise and extensive experience in advising on construction and development matters. Most recently, Aequo AEQUO advised Dragon Capital on the acquisition of Karavan Outlet shopping mall, one of the largest outlets in Kyiv from DCH Investment Management (DCH). As a result of this transaction Dragon Capital expanded its commercial real estate portfolio. The team conducted legal due diligence of the target, advised on the terms and conditions of the sale and purchase agreement, ensured that all conditions precedents were fulfilled prior to completion of the transaction and assisted with completion of the transaction, as well as supported the client with obtaining the merger clearance from the Antimonopoly Committee of Ukraine. Expansion of commercial real estate portfolio by Dragon capital during wartime demonstrates recovery of this industry.
6. New Framework for Corporatisation of Public Sector Companies
In early 2025, the Parliament of Ukraine passed a landmark law, laying out the framework for corporatisation of public sector companies. These public sector companies perform a number of vital functions in Ukrainian cities, including water and heat supply, drainage, public transportation, etc. Historically they have existed in Ukraine either in the form of state enterprises or municipal enterprises, with different regulatory requirements than those applicable to a typical private-sector limited liability company. Now, the new law contemplates that public sector companies, in line with Ukraine’s commitments under the Ukraine Facility Plan, will be undergoing a corporatisation process. The process will be aimed ultimately at transforming these companies into limited liability or joint stock companies.
These companies operate in the sector, which is notably underfunded. Over the recent years, additional pressures created by the Russian full-scale invasion have only exacerbated this situation (both in terms of physical state of infrastructure, as well as in terms of funding available from Ukraine’s state and municipal budgets). As a result, important infrastructure facilities across many cities require significant modernisation or capital investment, including in order to restore the facilities that were damaged or destroyed.
In Ukraine, IFIs such as the EBRD and EIB have already developed a successful track record of financing this sector. The anticipated corporatisation process for state and municipal enterprises will be a structuring point, worth considering both for new loans aimed at this sector, as well as for existing long-term exposures.
AEQUO experience:
Aequo has a track record of advising IFIs (including, among others, EBRD, IFC and KfW) on various investments in Ukraine. In 2021, Aequo has also advised Kyiv City Council on a EUR 50 million loan from EBRD to Kyiv Metro, the operator of the underground rail network in the capital of Ukraine, to finance the acquisition of new metro cars. The loan was guaranteed by the Kyiv City Council.
In addition, our lawyers have first-hand experience from working on high-profile public sector financings, including those made on the basis of intergovernmental treaties, through the Ministry of Finance of Ukraine or under state or municipal guarantees, including on deals such as:
• a USD 1billion Eurobond issued by Naftogaz (2020) and its further restructuring through consent solicitation in 2022 and 2023;
• a USD 700 million state-guaranteed Eurobond issued by Ukravtodor, the central government agency in charge of the national road network (2021);
• a USD 825 million Eurobond issued by Ukrenergo, the national power grid operator (2021).
• a EUR 140 million from EBRD to Kyivteploenergo, the heating and hot water utility servicing Kyiv (2021); and
• EUR200 million emergency loans from EBRD to each of Ukrhydroenergo, the state-owned hydropower company, to provide working capital and finance certain capital expenditures), and Naftogaz, the national oil and gas company, to provide funding for purchases of natural gas to help building Ukraine’s gas reserves (2023).
7. “Green” Auctions Scheduled for 2025
At the end of 2024, a schedule of "green auctions" for the year 2025 was approved by the Cabinet of Ministers of Ukraine. These auctions, to be executed by the State Enterprise “Guaranteed Buyer,” primarily aim to allocate quotas supporting new capacities derived from alternative energy sources. A solar energy auction with a capacity of 33 MW is scheduled for March 2025; a wind energy auction for 100 MW will take place in April 2025, followed by another wind energy auction for 150 MW in July 2025. Additionally, auctions for other renewable energy sources, such as small hydropower and bioenergy, with a total capacity of 47 MW are scheduled for May 2025.
The first solar energy auction in 2025 for a capacity of 33 MW was initiated by the State Enterprise “Guaranteed Buyer” on 14 January 2025. The deadline for the submission of tender offers is 12 March 2025, with the auction set to occur on 13 March 2025. This auction will be conducted via the Prozorro Sale Platform, using a price reduction mechanism. The maximum permissible price offer for participants is 8 euro cents per 1 kWh (excluding VAT), with a support period extending for 12 years. Pursuant to auction requirements, solar power plants must be situated on the left bank of the Dnipro River, excluding regions engaged in active hostilities or occupied by the Russian Federation.
AEQUO experience:
Aequo has a thorough understanding of Ukraine’s energy sector, its opportunities and risks. Based on our substantial track record with regional energy players such as Guris Holding, Atlas Global Energy, Mercuria Energy Trading, Riverwind Ukraine, we have developed and are successfully deploying our deep expertise of Ukraine’s energy sector particularly in conventional and alternative energy projects, including feed-in tariff and other regulatory rules and risks, land use/zoning, power purchase and grid connection agreements, financing and other commercial contracts, as well as domestic and cross-border disputes with key counterparties (including state-owned Ukrenergo and Guaranteed Buyer). Among others, Aequo advised Ovid Wind, the Ukrainian wind farm operator and its foreign parent company, on a contemplated USD 40 mln. loan facility from EBRD, drafted multiple collateral agreements, advised on legal due diligence and relevant regulatory matters, prepared a Ukrainian law legal opinion. Also, Aequo advised Guris Holding (Turkey), a strategic investor active in infrastructure development and renewable energy projects in Ukraine, on the wind energy project in Odesa region, including conducted extensive legal due diligence, drafted and reviewed the contractual documentation, including the project agreements, recommendations and provided legal support in developing the project in a JV with local parties.
In addition, our lawyers have considerable expertise in in renewable energy-related M&A transactions, having provided legal advise to clients on both solar and wind energy deals. Among others, we have advised (i) Volterra Energy Group, a renewable energy development and investment management group, on the divestiture of its minority stake to VR Capital in ten solar power plant projects in Ukraine with the total installed capacity of 147 MW; and (ii) a group of Ukrainian investors on the sale of Zophia Wind Farm which was poised to become one of Europe's largest onshore wind farms, with an estimated total capacity of approximately 800 MW, to NBT, a Norwegian renewable energy development company.
The above regulatory changes aim to enhance Ukraine's investment climate by providing more accessible and comprehensive support for a broader range of investment projects, while also align the legislation with the EU requirements and best practices.