“Ukraine is a very vibrant place to be in, both for life and business,” says Redcliffe Partners Managing Partner Olexiy Soshenko. “In particular, after the Revolution of Dignity in 2014, there have been many changes and reforms.” He cites Ukraine’s policies on energy self-sustainability, currency control, upcoming elections, and extension of the land sale moratorium as particularly deserving of attention.
“Ukraine is aiming at becoming energy self-sustainable,” Soshenko says. “Hence, Ukraine is reforming its energy system to focus on renewable energy development,” he says, calling it “currently among the highest priorities in the country.” Accordingly, he reports, in addition to the 2008 feed-in tariffs for renewable energy, which are higher than in other jurisdictions, in December 2018 the Ukrainian Parliament's Committee on Energy and Fuel Complex, Nuclear Policy, and Nuclear Safety approved key provisions of a draft law on renewable energy auctions. According to him, the new law, if adopted, is expected to lower tariffs for renewable energy and create an open market for electricity.
“There is a new global tendency to make tariffs lower, which puts a great deal of pressure on the state to reduce high payments,” Soshenko says. “With a so-called ‘green auction’ for the electricity produced by alternative energy projects, companies will be entitled to lower tariffs.” The auction system, which is expected to be launched in January 2020, will operate in parallel with feed-in tariffs for current projects, he says, and will last till end of 2029.
According to Soshenko, while renewable energy investments have been booming since 2018 in Ukraine, the new system will incentivize more foreign investments in the sector and lead to construction of more alternative energy power plants. Yet, he says, “it is just the beginning to attract investors, and once there is a critical mass of such projects, there is hope that the market will become self-sustaining.”
In the meantime, of course, the conventional oil and gas sector in Ukraine retains what Soshenko calls “strong potential,” and on December 18, 2018 the country’s government announced 12 tenders for oil and gas production-sharing agreements. Introduced as part of Ukraine’s strategy to become energy self-sufficient, the tenders also promote the EBRD’s objectives indicated in its Ukraine Country Strategy for 2018-2023. “We believe that this step will attract a number of foreign upstream oil and gas investors, given the value of attractive terms and conditions of the proposed production-sharing agreements. The time is running out, however, potential investors should hurry up in getting acquainted with the proposed tender information and the process,” Soshenko says.
Continuing with the subject of attracting foreign investments, Soshenko reports that a new legislative framework for Ukrainian currency control came into effect on February 7, 2019. “The previous law, which was adopted when Ukraine became independent, was very old and outdated, ” he explains. “The law had a notoriously strict currency control regime, which finally got canceled,” he adds, noting that it also required a license from the National Bank of Ukraine for many currency transactions. According to him, the new law reflects a new philosophy, allowing most currency transactions to be conducted without restrictions. “Some of the restrictions will remain in place,” he says, “but they will be gradually changed.”
“Previously, foreign investments or money lending in Ukraine were unnecessarily complicated,” Soshenko says. “Now, the expectation is that cross-border business in Ukraine will become easier and swifter, which will eventually attract foreign lenders and investors.” However, he underlines the National Bank of Ukaine's concern with the outflow of foreign currency and cash from Ukraine. “That is why the current restrictions will be changed gradually,” he says. Yet he believes the outflow will be insignificant, and he points to other possible solutions to the problems, such as tax control, tax measures, and legislation being prepared pursuant to the OECD/G20 Inclusive Framework on BEPS to prevent offshorization.
Soshenko then switches to the topic of Ukraine’s upcoming Presidential elections, scheduled for March 31, 2019, and Parliamentary elections, expected at the end of October, 2019. “All the politicians are getting excited and busy,” he says, adding that, “as in a true democratic country,” the results of both elections are still not clear. “It is interesting to observe the process,” he says, and he expresses an expectation that Ukraine will continue its current course of reforms. “I have no expectations for fundamental changes to the policies in Ukraine or the Ukrainian courts,” he says, claiming recent constitutional changes relating to the process of eventual EU and NATO accession confirm the irreversibility of the reforms. “No matter who comes to power among the most probable candidates, the course of rational policies will remain in place,” he concludes.
However, while the aspirations of Ukraine are clear, the country’s government does not always follow EU values, such as the February 2019 signing into law by President Petro Poroshenko and the Ukrainian parliament of an extension of the moratorium on the sale of agricultural land until 2020. The action was undertaken despite the Ukrainian Ministry of Economic Development and Trade’s request that the law be withdrawn on the grounds that it breached citizens’ property rights and the ECHR’s May 22, 2018 condemnation of the moratorium as a violation of human rights, obliging Ukraine to pass a more balanced law.
“If the law were canceled, it would be a great sign for investment into agricultural lands,” Soshenko believes, noting that he sees a direct connection between the moratorium’s extension and the upcoming election. “The parliament and the president were too cautious about it, fearing they would be accused of selling or diluting one of the richest resources of Ukraine,” he says. “Or maybe they just did not have enough courage or time and resources to deal with that, which is unfortunate.” In any event, he says, he hopes that upon the conclusion of the current extension, there will be enough movement and pressure, including from the IMF, to discourage any extension.
Finally, Soshenko says, Ukraine’s legal market itself is doing well. Although in the past year there were a few major consolidations, he does not think this represents a massive trend. Still, he refers to the rise of high-tech law firms, law firms separating from the legal departments of bigger companies, and major law firms becoming bigger and more specialized, as there has been none of the kind before. “The legal market has become more diverse,” he says. “On one hand, there is more competition, and on the other hand, with new technology and high-tech tools, the nature of clients is different, which triggers the creation of new law firms, which is positive for employees, clients, and the market itself.”