Ukraine to Improve Its Mining Laws

In order for the draft law to enter into force, it is required to be adopted by the Parliament at the second reading and signed by the President, and so the draft law may yet be further amended. This note outlines the principal highlights of the current draft law:

1. Abolishment of certain restrictions applicable to special permits for subsoil use. Pursuant to the draft law, it will be possible to sell, pledge or otherwise alienate special permits for subsoil use. This is a major and long-awaited development that will simplify investment in Ukraine's mining industries.
2. Changes to the initial price of special permits. Using the current formula provided by the draft law, the initial price of a special permit for geological exploration and pilot development with respect to subsoil fields with non-approved reserves will vary (a) from approximately USD 30 to USD 60 per year and per 1 km² for combustible gaseous and liquid minerals (for example, oil and gas), and (b) from approximately USD 30 to USD 85 per year and per 1 ha for other minerals of state or local importance. The ultimate price will depend both on the types of minerals and their location. The initial price for other types of special permits (for example, for commercial development) will, as previously, be calculated pursuant to the methodology approved by the Cabinet of Ministers of Ukraine. 
3. Limitation of payments for secondary geological information. Although access to secondary geological information (that is, geological reports and other processed data) is statutorily granted at no cost, winners of the auctions are required to reimburse the state for the value of this information. The draft law limits the amount to be reimbursed at 1-10% of the special permit price. The limit will depend on the special permit price – for instance, for a special permit valued at USD 400,000, the cost of secondary geological information will be 10%, i.e., USD 40,000.
4. Digitalisation of primary geological data. Under the draft law, if a company pays for the digitalisation of primary geological data, it will obtain the right to use the digitised data at no further cost (while the data itself will remain state property).
5. Adherence to international standards of assessment of mineral reserves. The draft law provides that, at the request of a licence holder, the state assessment of mineral reserves may be carried out using the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC-2009), the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), the Petroleum Resources Management System (PRMS) and other international standards. 
6. Transition to WGS-84. The draft law provides for the transition to the WGS-84 coordinate system; currently, USK-2000 and SK-42 are used in Ukraine. All the current licences should be amended to reflect the WGS-84 coordinates within two years with respect to mineral resources of state importance (for example, oil and gas), or three years with respect to those of local importance (for example, sand).

By Dmytro Fedoruk, Partner, and Vlad Zakon, Associate, Redcliffe Partners