The Ukrainian legal services market has been buzzing with work in the first half of 2021. CEE Legal Matters hosted a round table conversation in which Partners at Asters, Avellum, Integrites, Kinstellar, and Sayenko Kharenko discussed the driving forces behind the workload and their outlook for the months to come.
“Energy has been the thing pushing us forward, I must say,” begins Integrites Managing Partner Oleksiy Feliv. “There are two factors behind this: the energy market reform, that took place in 2019, and a strong uptick in the renewables market.” Feliv reports that Integrites has been rather active in the field of renewables since 2009 and that they “managed to capture the biggest projects on the market – this kept us really busy!” And the efforts of the firm reflect this – Feliv reports that six out of the firm’s 13 Partners at Integrites Ukraine focus on energy, alongside two full teams. “I’d say that this is about 50% of our work these days,” he adds.
“All of this work has allowed us to grow our experience, expertise, and knowledge – which will help shift our focus more to climate change projects,” Feliv explains. “Focusing on projects with a decarbonization effect would be a great path forward for us – renewables, storage capacities, green electricity trading, green hydrogen projects, and anything related to energy efficiency in big industries.”
Asters Senior Partner Armen Khachaturyan agrees with Feliv, and says that their firm has experienced an uptick in energy projects as well. “It extends to areas that include both electricity and oil and gas – but also hydrogen, which is very much on the rise,” he says, describing this as a future for this industry. “This also includes environmental and energy-saving aspects, both of which are getting more client attention when it comes to investing.” Khachaturyan adds that construction is also closely bound to this, with “new projects relating to land issues, allocation and designation of specific land, construction licenses, and the like. This broadens the scope of what an energy practice traditionally used to be – purely regulatory – and extends to other practices as well.”
Khachaturyan believes that the energy market will continue to have a lot of developments in the future. “The recent unbundling of Naftagas and the issues surrounding Northstream – both of which are geopolitical issues relating directly to energy draw a lot of attention to the energy market. That, and the fact that more and more ‘new’ countries are investing in Ukrainian energy, like Qatar for example, is what makes me believe that the future holds a lot of exciting developments.”
Echoing both Feliv and Khachaturyan, Avellum Partner Mykola Stetsenko underlines that there is a lot of market focus on energy, “in a broader sense. If perceived as an industry, rather than as a practice, there is a lot of room for investments in infrastructure, which will only lead to further growth.”
Focusing more on Avellum’s hot practices at the moment, Stetsenko says that they are all very busy. “Bar a short break in January, over the holidays, we really have been firing on all cylinders – M&A work, disputes, tax, energy, global infrastructure… it’s all been working like a well-oiled machine,” he smiles. “To focus more on M&A – after a slowdown when the pandemic started last year – there has been a ‘super-drive’ mode that kicked in around October 2020 that has not stopped to this day,” Stetsenko says. He points to increased access to liquidity in the global markets as one of the causes of this and adds that “Ukrainian clients are increasingly accessing this potential via Eurobond issuances. Also, with Ukraine building strong relationships with the United States – it stands to reason that our country has become a stronger target for investments.”
For Sayenko Kharenko Partner Vladimir Sayenko, the choice of the hottest practice was easy – competition. “The competition practice in our firm has seen a 20% growth – well above all others,” he says. “On our end, we’ve seen no effects of the slowdown of the M&A market – the competition follow-through of it, one related to mergers and clearances, has been relatively stable.”
Sayenko’s impression is that the increase in work has been primarily driven by the enforcement efforts of the competition agency, and not so much with transactions picking up speed. “Potential cartels, abuse of dominance, unfair competition practice, state aid… these segments all compound to spur this kind of unexpected growth – but then again, it could be just that we set low targets,” he laughs. “We were expecting a decrease in the activity, given the fact that the leadership of the competition agency changed, but it turned out to go the other way around.”
Furthermore, Sayenko reports that new pieces of legislation that were supposed to change the merger filing thresholds have not yet come to pass. “We believed that these changes would lead to a drop, but with them being pushed back to this year – it didn’t happen.” Sayenko does believe that, once these legislative changes pass, there could be a short slowdown period, but that it should not last long.
Kinstellar Partner Olexander Martinenko reports that the firm’s busiest practice has been dispute resolution. “It is really an evergreen practice – good times, bad times, it’s always there,” he says, underlining that dispute resolution has, traditionally, been Kinstellar’s bread and butter. “Looking at market tendencies, there is a reformation drive on part of the Minister of Justice to liberalize the international investor arbitration market,” Martinenko continues, saying that this has opened the market up. “Should this legal reform pushed for by the Minister of Justice pass, international investor courts would take hold in Ukraine,” he adds. However, it is still not clear if it will become a reality – the merits of the legislation are still being debated and its fate is uncertain. “There are fears that these reforms would open up the path for ‘less than ethical’ actors to gain a foothold in the decision-making process in the course of an arbitration, which could endanger the business market.”
Infrastructure Is All the Rage
The one area that all of the round table participants mentioned was infrastructure. “The last time we had a boom on the infrastructure market was before 2012 – before the country was set to host the UEFA European Championships,” Feliv starts. “In those days, the market was busy building mainly stadiums and airports. Now, there are a number of project types that drive the market.” For these, Feliv underlines the privatization processes for seaports via concessions and mentions that there are 11 seaports currently in some stage of being privatized.
Furthermore, Feliv says that Integrites has, so far, supported “at least 30 bids for road infrastructure projects, in terms of major construction undertakings. Also, the Ukrainian railways and the power grid are being modernized, big hydro energy projects are under development, there are initiatives on road concessions… a lot is going on!”
Sayenko chimes in by saying that there is a lot of potential in concession projects. “We have had a recent experience of handling one and I must say that the entire tender process was very transparent,” he says. “There is a lot of talk from the government to restart the privatization processes so there is bound to be some vibrancy in the market here.”
The funding for all of these large infrastructural undertakings, Khachaturyan reports, stems from their very nature as PPP projects. “The Ukrainian PPP law has never been fully implemented in a way – concessions are but one of the forms of arranging business,” he says. “The idea is to rely on investors to arrange for the financing of these projects – for example, Chinese banks heavily support Chinese companies participating in these projects, which gives them an edge.”
He adds that, in addition to all the projects already mentioned, there are tendencies to reconstruct a number of airports in Ukraine. “The idea is to have a more active domestic air traffic so that all regional centers – with currently obsolete airports – could start servicing local flights.” In this tune, Khachaturyan mentions that one of the airports in Kyiv even is being considered for an additional runway that would be longer than the current ones and in a position to support more international flights.
Rising to the Challenge of the Workload
Overall, Khachaturyan reports that a lot of practices have been quite active, leading to never-ending personnel needs. “Based on our experience, a lot more practices have been rather active – family law, tax law, criminal law, IP, antimonopoly, M&A, corporate… client work is not lacking, by any measure!”
Taking a look at how law firms rose to meet the workload increase, Stetsenko says that Avellum has been putting in an effort to grow their departments for a while. “We do not rely that much on lateral hires – even though we have had some this past year,” he says. “Instead, we prefer to focus on an internal growth program – developing in-house talent from their early internship days, all the way to fully-fledged lawyers.” It is a merit-based selection, Stetsenko clarifies, that allows Avellum to focus on those young individuals that hold the most promise and potential.
Sayenko shares Stetsenko’s inward focus: “A rational response to growth would be hiring new people, however, at this stage, we rely more on internal reallocations and trying to encourage people to specialize in more than one practice area.” According to him, this allows lawyers to be more flexible and to broaden their background, preparing them better for the future.
Ultimately, Stetsenko points out that human resources are not the only available option: “Our internal, immediate response to an increase in workload has been an increase in pricing.” He says that this has been a trend in the entire legal market since “simply increasing the headcount in our team will not be enough to tackle the increased workload.”
Tackling the crucial question – if the market really is booming to such an extent that a price hike is feasible – Feliv says that it mostly depends on how proficient a firm is in given practice areas. “We talked a lot about the interplay of strictly legal work with the industry you’re trying to advise on – like energy. If a firm is well specialized in such an area, then it can apply hourly rates (which can seem like a luxury at times) if there is a lot of work,” he says. “If your advice goes beyond just legal work and adds value to the project – clients take it without any problem and agree with success fees.”
Towards that, Feliv reports Integrites has divvied up its work between different teams that focus more on specific industry work, more so than a legal practice as such. “Additionally, we have employed a lot of back-office personnel like client relationship managers and analytics staff – at this point, the ratio of legal to non-legal staff might be as high as 50-50,” he says. The managers, as Feliv describes, help the teams coordinate between various involved practices. “They help manage the processes, the timeline, the delivery – and to take care of the client.” This enables smooth navigation for Integrites, even in the stormy environment of complex projects. “All of this helps us not to simply come up with legal memos for our clients but to aid them in implementing that advice,” Feliv continues. “For example, we help our clients with attracting financing through and through, not just point them towards different potential sources like commercial banks or financial institutions.”
Avellum, on the other hand, opts for a leaner approach. “We tend to cut as much as possible when it comes to hiring non-fee-earning staff,” Stetsenko says. And, Martinenko agrees, saying that Kinstellar “sticks to a similar philosophy to that of Avellum – we have a very slim business support staff, but I must say that the ones we do have are more than apt for tackling all of the complex projects we work on.” Still, with the increase in workload and the complexity of matters Kinstellar works on right now, Martinenko says he is not ruling out expanding that “part of the office population, at some point, to ensure quality delivery.”
Lastly, Stetsenko also notes that law firms have been turning to automation as a helpful resort. “Even though I’m not sure if there are firms that use AI – or if there is a clear need in the Ukrainian market for AI at this point – firms do use sophisticated software to speed up the way we prepare and process documents, such as template preparation tech like AxDraft,” he says. “Comparing to what our colleagues in London and New York are doing – I think we are responding pretty much the same, even though we are not reinventing the wheel,” he smiles.
Gazing Into the Crystal Ball
Looking into the future, Sayenko feels that it will be difficult to predict how it will pan out, from one practice to another. “We expect a slowdown in the competition practice, as mentioned, after the legislation to lower the merger control thresholds passes,” he says. “For the corporate practice, it’s pretty obvious that the government is attempting to alter the corporate governance reform of a few years ago, which I believe was very successful and has kept us quite busy with working with major state players in recent times.” Finally, speaking of transactions, Sayenko feels that it will very much be hinged on geopolitical matters. “For example, if Russian troops approach the border once again, some investors may stop or withdraw their interest, as history has shown us.”
Khachaturyan expresses difficulty in predicting the future too. “Everybody is optimistic, given that 2020 was a very good year despite everything, but there are talks about a global recession, so caution is warranted,” he says. Still, he feels that, even with reality not always corresponding to the ever-present Ukrainian optimism, larger firms will be able to cushion whatever may come. “Being in a position to cross-balance easier and to adapt to new market conditions faster could prove crucial, going ahead,” he concludes.
“Kinstellar has had quite a strong start of this year,” Martinenko says. “We have merged with the local office of DLA Piper in Ukraine [see page 17] – they have a very proficient team and, from what I can tell, our teams will have a highly complementary set of skills and I think we’ll play well together.” He, for one, is optimistic in light of the strength in numbers and the pipeline the firm has lined up.
Stetsenko too is optimistic. “I believe that Ukraine has gone through so many crises that we are used to it by now,” he smiles. “The country is in growth mode, and the competition right now is not as much for work as it is for talent. I believe we have, at least, a year or two to prepare for whatever economic crisis may hit.” And, even if it hits, he feels they will be prepared for it. “There will be a lot of distressed M&A, debt restructuring, tax work… it will simply be a matter of recognizing which part of the economic cycle we find ourselves in and where to place our focus on,” he finishes.
Lastly, Feliv shares Stetsenko’s optimism. “Last year was a good year for us, and we plan to hire new partners this year,” he says. “Coming out of a solely online regime of work and planning more in-person business development activities, I think that we will be even more efficient.” Even if the recession comes, according to him it would be another opportunity to realize what part of the market to sharpen their gaze on and adapt. “We did good in difficult times, and I’m positive we could again if need be.”