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- Alyona Shulima
Alyona is one of the country’s strongest and most reputable advisors on industry-focused regulatory and policy research, policy and legislation development, and regulatory impact assessment, who advises multinational companies and major local businesses on building and executing corporate government relations and public affairs strategies across a full range of policy areas, particularly in agriculture, mining, and natural resources, retail, FMCG and transport.
Alyona has worked for nearly 10 years in the field of government relations, and preciously more than 15 years in legal and management positions in the Presidential Administration of Ukraine, is currently Chairperson of GR Committee under the Ukrainian Bar Association (2022 until now). Having broad experience in work from both the government and business sides, she can transform effectively the client’s request into a message that can be delivered to the stakeholder and implemented into state policy.
- Olena Yaliieva
Olena Yaliieva is an experienced professional in the sphere of government relations. As a part of the Pragma team, she participates in the development and implementation of GR strategies and legislative drafting and ensures regulatory monitoring and communication with leading business associations.
Combining her previous work experience in the American Chamber of Commerce in Ukraine, followed by her experience of providing services as a part of an independent GR consultancy team, Olena understands the peculiarities of available GR instruments and how they may be combined to ensure the best possible results for the Client.
Holds a Master’s degree in law from the Academy of Advocacy of Ukraine, as well as a Master’s degree in Human Rights from Strasbourg University, a Master’s degree in Political Science from Toulouse I Capitol, and a Bachelor’s degree in Political Science from the National University of Kyiv-Mohyla Academy.
2022: Turbulence and Strategic Reforms of Mining and Natural Resources Regulation
The year 2022 became a life-changing experience and new reality for everyone in Ukraine, as well as the whole world, because of the full-scale russian aggression. War also influenced extractive industries significantly – so the regulatory framework had to be adapted to the new reality. In our review, we will touch upon the main stages, which Ukrainian environment and mining legislation went through in 2022: the pre-war stage, firefighting of the first months of a full-scale invasion, and gradual return to strategic reforms and priorities.
Pre-War Priorities: Subsoil Use Regulation Reform, Environmental and Other Relevant Issues
Before February 2022, one of the main trends in terms of strategic reforming of Ukrainian legislation in this sphere was the harmonization of Ukrainian environmental legislation with EU legislation, particularly attached with mining, another one – the finalization of the reform of the subsoil use regulation, including some relevant land issues. While the trend started in previous years and relevant draft legislative acts were already developed and submitted to Parliament, several relevant initiatives were at the top of the agenda at the beginning of 2022.
- Draft Law On Amendments to Some Legislative Acts of Ukraine on Improving the Legislation in the Field of Subsoil Use (draft law No. 4187), which passed in the first reading on 1 June 2021, and has been in its last stages of finalization for the second reading. This draft law aims mainly at deregulation and digitalization in the sphere of subsoil use, the introduction of a legal base for the circulation of special permits for subsoil use, and simplifying access to land plots.
- Draft Law of Ukraine On State Ecological Control (No. 3091), which passed in the first reading on 15 July 2021, and had been preparing for the second reading. This draft law aims at the full relaunch of state ecology control regulation, including the inspection, which is often seen as inefficient – and harmonization of legislation related to its functioning, with relevant European legislation.
- Draft Law of Ukraine On the Territories of Emerald Network (No. 4461), which did not pass the first reading and was returned to the Committee on 15 July 2022 for further work. The draft law in question aims at implementation of Directive 2009/147/EC of the European Parliament and of the Council of 30 November 2009 on the conservation of wild birds (Bird Directive), Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora (Habitat Directive) and Convention on the Conservation of European Wildlife and Natural Habitats (Bern Convention), aimed at creation of a pan-European ecological network for the preservation of biodiversity of the region, and at the same time had to be involved in the line of the state and local plans and projects of overriding public interest, including those in the extractive sphere.
- Some draft laws on production sharing agreements were considered in Parliament, aimed to amend some issues in current regulation, however, still more focused on the oil and gas sphere and not solving the problem in a comprehensive way.
In addition, the Government was trying to cope with current issues, such as a large share of special permits, which were sold through an auction but not purchased by the winner (unsuccessful auctions), and a significant increase in prices for energy commodities, especially gas.
To deal with the first issue, the government suggested significantly increasing the guarantee payment for participation in the auction (which is not reimbursed to the winner in case they do not purchase the permit) by introducing a minimum amount of such payment, as well as amend some other procedures of the auction (a draft CMU Resolution, finally adopted by Resolution dated 26 July 2022, No.836, was a subject to public consideration on January).
To deal with the second issue, the government has decided to provide producers of socially significant products with cheaper natural gas, extracted by national producers. To ensure enough supply, the Cabinet of Ministers of Ukraine has adopted a Resolution dated 12 January 2022, No. 19, introducing the obligation for national gas-extracting companies to sell a share of their produced gas (defined individually, depending on their share in the national overall production) with limitation of price (not more than 24% of trade markup).
Regulation in Response to Russian Aggression
Starting from 24 February and in the following first few months of the full-scale war the priorities of the Government had changed. The beginning of the occupation of territories (including those with functioning extractive enterprises) and overall shock required prompt reaction in order to ensure the possibility of functioning businesses to keep going. Therefore, in the first months of the war, the Government and the Parliament introduced a number of tax incentives, as well as simplified procedures for obtaining most of the permits.
On 13 March 2022, the Cabinet of Ministers of Ukraine issued Resolution No. 303 On Suspension of Measures of State Control and State Market Control under Martial Law, which suspended all scheduled and ad hoc inspections during the application of martial law – except inspections that are necessary for preserving life and health of the population, protection of the environment and national security, as well as inspections of prices on socially significant products. Furthermore, the Resolution was amended several times – in the current version no control over the prices of socially significant products is allowed, instead, inspections that are necessary for accomplishing international obligations of Ukraine are allowed.
Furthermore, as the permit system in Ukraine is generally rather complicated and often requires in-person visits to different institutions (in some cases – in several cities), it was decided to simplify it for the period of application of martial law. On 18 March, the Resolution of the Cabinet of Ministers of Ukraine No. 314 On Certain Issues of Ensuring Business Activity under Martial Law, allowed starting activities in most of the spheres without going through the entire permitting procedure – only submitting a declaration is required. At the same time, most of the permitting documents in the sphere of natural resources and mining (special permits for subsoil use, conclusion on environment impact assessment, permits for transporting hazardous or radioactive waste, etc.) are excluded from this procedure – in order to conduct these activities, the enterprise still needs to receive a permit through the usual procedure.
In terms of environmental impact assessment, such a decision incited broad discussion, as in the first months of the war it was problematic to get a conclusion. In August 2022, the Ministry of Environmental Protection and Natural Resources of Ukraine published the Draft Law on Amendments to Law of Ukraine On Environment Impact Assessment, aimed at improving the EIA procedure in the scope of terms and direction procedures, as well as resolving certain issues related to wartime (submitted to the parliament on 2 February 2023, as Draft law No. 8410).
Another issue that needed to be resolved was the prolongation of the special permits for subsoil use and timeframes for conducting works – as many enterprises were not able to perform any work during this period. To resolve this issue, on 26 July 2022, the Cabinet of Ministers of Ukraine adopted Resolution No. 836 On Amendments to certain Resolutions of the Cabinet of Ministers of Ukraine regarding Subsoil Use, prescribing that the special permits and timeframes for conducting works, expiring during the period of application of martial law – for the period of application of martial law, and subsequent 6 months after the end of application of martial law. Furthermore, for all other special permits automatic prolongation is prescribed for the period of application of martial law. In addition to this, Resolution No. 836 aims to resolve other important issues: rules for the calculation of the initial price of a special permit, access to the primary geological information, provision of special permits without conducting auctions, mandatory provision of information on ultimate beneficiary owners in order to receive special permits, grounds for prolonging timeframes of works, and economically grounded timeframes for conducting certain types of works.
Finally, regulations regarding rent payments for natural gas extraction were changed twice. First, the Law of Ukraine On Amendments to the Tax Code of Ukraine and Certain other Legislative Acts of Ukraine regarding Introduction of Differentiated Rent Payments for Gas, No. 2139-IX dated 15 March 2022, has introduced differentiated rates for the extraction of natural gas (depending on the median price of gas). Also, the abovementioned law has introduced a clause, ensuring the stability of rent payments rent starting from 1 March 2022, until 1 March 2032. Later, on 20 September 2022, the Parliament adopted the Law of Ukraine On Amendments to Sub-chapter 10 of Chapter XX “Transitional Provisions” of the Tax Code of Ukraine regarding Peculiarities of Calculation of Rent Payment for Subsoil Use for Extraction of Natural Gas, No. 2606-IX, which clarifies the rules for the calculation of the median price of gas for the purposes of taxation.
Return to Strategic Reforms and EU Association Agreement Obligations
In the summer, when the main fire-fighting work on the regulatory front had been done, the Parliament gradually returned to the more strategic issues. The framework of the Law of Ukraine On Waste Management, No. 2320-IX was adopted on 20 June 2022 (coming into force on 9 June 2023), starting a long-awaited reform in this sphere, particularly developing the regulation on management of extractive industries. The draft law aimed to implement Directive 2006/21/EC on the management of waste from extractive industries, has been developed on the platform of the Ministry of Ecology and Natural Resources of Ukraine and is planned to be submitted to the parliament in spring 2023. In the scope of this work, the issues of inventing the current extractive waste management facilities and the use of technogenic deposits have also been discussed.
Moreover, during last summer-autumn 2022, the Draft Law On Amendments to Certain Legislative Acts of Ukraine on Improving Legislation in the Field of Subsoil Use (draft law No. 4187) was finalized and adopted on 1 December 2022, as Law No. 2805-IX. In comparison with the pre-war version the adopted Law saved the initial concept of deregulation and ensured clear legal rules for the extractive sphere and also included some new issues of war reality.
Law No. 2805-IX, which should come into force on 28 March 2023, ensures the complex reform of the sphere of subsoil use, including the following issues:
Ensuring national security interests
- Prohibiting the acquisition of the right to use the subsoil for individuals, entrepreneurs, and legal entities, in respect of which relevant sanctions have been applied, legal entities to whose ultimate beneficial owners such sanctions have been applied, as well as legal entities, registered in the aggressor state, or legal entities in which a significant share belongs to residents/citizens of the state – the aggressor or directly to the aggressor state;
Launching “end-to-end” permits and new rules for prolonging permits
- Introduction of so-called “end-to-end” permit (at once for geological study and extraction) for all minerals (not only for hydrocarbons and amber, as it was before amendments);
- The “end-to-end” special permits will not be subject to prolongation after their expiry, their owners will need to obtain a permit for the extraction of minerals; the right to obtain such a permit without an auction within 2 years after the expiry of the special permit, regardless of the date of approval of reserves;
- Extraction permits can be prolonged if at least 1% of the volume of balance reserves recorded at the time of obtaining such a special permit had been extracted or there are unproductive oil and gas wells drilled during the period of validity of the special permit;
- Automatic extension of special permits and programs of works for the period of martial law and 3 months after, and for special permits, the validity of which expires during martial law – for the period of application of martial law and the following 6 months;
Deregulation of extractive sphere
- Cancellation of approvals on provision of the subsoil plots of minerals of local importance by bodies of local self-governance as well as mandatory consent of the Ministry of Natural Resources for the extractive special permits (the consent of the Ministry to be needed only for the subsoil “end-to-end”);
- Simplification of the approval procedure on protocols of the State Commission of Ukraine on Mineral Reserves, as well as the introduction of the possibility of using international standards for approving reserves;
- Abolition of the need to obtain a mining right-of-way (except for underground mining);
- Cancellation of approval by the State Geology and Subsoil Service of Ukraine of mineral deposit development projects, the annual work plan of the State Labor Department;
- Abolition of restrictions on state-owned oil and gas companies that do not allow Ukraine to increase its own gas production
Introduction of a legal base for the circulation of special subsoil permits
- Introduction of the mechanism on alienation of the right to use subsoil – by buying/selling, as well as the right of its contribution, to joint activities;
- to prevent the alienation of state property, state enterprises will be able to transfer relevant rights only to other enterprises, a significant part of shares belong to the state, otherwise – a decision must be approved by the Cabinet of Ministers of Ukraine
Regulating all the main procedures in the Subsoil Code of Ukraine
- Establishing the main issues of granting, extending, amending, and prolongation of special permits, grounds, and conditions for making changes to the program of works, regulated before on the sub-legal level, on the Subsoil Code level; the level of the by-laws will further regulate the issues of the procedure for conducting auctions and some technical geological issues;
- Introduction of the mainly judicial procedure for cancellation and suspension of special permits; the list of grounds for such actions has also been revised, including removing potentially corrupt grounds and establishing all grounds only at the level of the Code;
- Extending the grounds, and conditions for making changes to the program of works (in comparison form the similar amendments made at the end of July 2022, on a by-law level) as well as excluding one-time use of such an extension within general time limits
Digitalization of subsoil use permit issues and access to the geological information
- The Unified State Information System for Subsoil Use to be created, and the submission of documents and reporting will gradually become fully digital
- Consolidation at the level of the Subsoil Code of Ukraine of procedures, which are necessary for unimpeded access to primary geological information.
Simplifying access to land plots
- Establishing the possibilities for applying a land easement to cases of subsoil use for minerals of local importance (earlier on this was only possible for the minerals of state importance) and the construction of objects related to subsoil use.
Law No. 2805-IX also provides an extended scope of transitional provisions aimed at ensuring stable transition to new changes both for subsoil users and relevant state authorities.
Overall, the year 2022 was probably one of the toughest years in Ukraine’s contemporary history. Despite the turbulence of the first months of the full-scale invasion, the year also became a year of important complex reforms in mining and natural resources. Further monitoring of the implementation of this complex reform as well as the need to solve other practical and regulatory issues in this sphere will need other additional technical and conceptual amendments.
In addition, in the upcoming year, the issue of damages caused by war to the state ecology and natural resources, business in general, and subsoil users, in particular, will be at the top of the national and international agenda.
We believe that in 2023 Ukraine will fully return to other long-awaited strategic reforms. In the field of mining the issues of strategic and critical minerals as well as ecological standards in the extractive industry are already on the agenda of the main stakeholders.