Natural Resources and Mining in 2023: Implementation of Adopted Reforms and New Challenges

Despite all the challenges Ukraine has faced due to the full-scale invasion, the year of 2022 ended with adoption of several laws that have commenced breakthrough reforms in the sphere of natural resources, namely waste management, and mining. That is why in 2023 the sector witnessed both the first positive steps (along with challenges) in the implementation of such reforms, and new initiatives, forwarded to the further regulatory development of the sectors.

In this article the issues of implementation of subsoil use reform, basic law on waste management, amendments of EAI procedure and further trends of regulatory landscape are described.

I. First Results and Challenges of Implementation of Complex Subsoil Use Reform and Other Subsoil Issues 

On 1 December 2022, the Draft Law On Amendments to Certain Legislative Acts of Ukraine on Improving Legislation in the Field of Subsoil Use was adopted. On 28 March 2023, the respective Law No. 2805-IX came into force. For a detailed overview of the whole scope of the changes, you can read our article 2022: Turbulence and Strategic Reforms of Mining and Natural Resources Regulation.

In this article, we will point out a few of most visual positive results and challenges of this reform, which are the following:

• Digitalization of permit-issuing procedures for subsoil use and other digitalization issues

One of the main elements of the reform was the digitalization of the whole process of issuing special permits for subsoil use. According to the amendments made, all the procedures – application for the permit, auction procedures, issuing the permit and its further amending or prolongation (when it’s acceptable to) – are made through digital channels. Moreover, the permit itself is no longer issued in paper form and is presented in the State Register of the Subsoil Use Permits (except for situations, where the subsoil user asked for issuing such a permit and it is given as an extract from the State Register). To ensure communication between the state authorities and subsoil users, the system of electronic office of a subsoil user was launched.

Generally, the digital scope of the reform is significantly wider as it launched the Unified Electronic Geological Information System for Resource Use. However, a few of its elements will be open to the public only after martial law has been terminated.

• Improvement of procedures for sales of special permits

Another important amendment, which was brought in by the adoption of Law No. 2805-IX was the introduction on the level of the Subsoil Code of Ukraine of a direct procedure and time limits for announcing the electronic auction for certain mineral deposits after receipt of a request from a potential buyer. Although, as of now, the timeframes are sometimes still a bit longer than is prescribed, in general announcements of auctions have significantly speeded up compared to the situation that existed before this law came into force.

However, it should be noted that the sale of special permits for the minerals of strategic importance for the state’s defense capabilities (with a wide scope of critical minerals) through auctions has been blocked due to the absence of a list of subsoil areas to be given by auction – the special list for these minerals must be adopted by the Cabinet of Ministries of Ukraine*.

*Taking into consideration that the procedure for selection of the operator under PSA is not, as of today, functioning properly, the absence of the list of deposits, special permits for which are to be distributed through electronic auction blocks investments in extraction of such minerals completely.

• Launch of Special Permit Market

The possibility to freely buy and sell existing special permits is another novelty introduced by Law No. 2805-IX. Before this, there was no possibility to sell directly a special permit to another person or entity, even in the event when the subsoil user did not have the capacity to use the subsoil allocated to them, which sometimes led to inefficient use of resources and the need to use other mechanisms to transfer the rights to use the plot to another entity or person. In such cases the market had in the past used the selling/buying of corporate rights. The permits market was launched from March 2028 and the permits market has been launched and has been functioning successfully in practice.

• Challenges of Sanctions Policy and Permit Cancellation Court Decisions

In the context of realization of national security sanction policy, Law No. 2805-IX has clarified the procedure for the application of sanctions on legal entities operating in the sphere of subsoil use, as well as the consequences of the application of sanctions to one of the beneficiary owners of such legal entities. Additionally, the Law provides the possibility for the beneficiary owner to grant his/her share to another person for 30 days following the day of application of sanctions to them so as to prevent cancellation of the special permit for the legal entity.

However, in practice, the sanction issues have their individual peculiarities of implementation, and they are mostly concerned with suspension of the permit’s action (not cancellation). As for cancellation of permits, several court decisions based on revising the grounds for obtaining permits should be noted.

Nevertheless, as both the above-mentioned state interventions into the market are mostly concerned with the oil and gas spheres, their impact on local production seems crucial for ensuring the energy security and stability of Ukraine. Therefore, the state is currently looking for certain ways to meet this challenge. In particular, certain legislative initiatives on these issues were registered in Parliament in April 2024.

• Stabilization of the Regulation and Issues with prolonging and amending special permits

One of the major amendments in stabilization of the subsoil use, brought by Law No. 2805-IX, are the provisions, according to which all the procedures, regarding giving permits without auction, acquisition, prolongation, introduction of amendments to, cancelation or suspension of special permits are defined in the Subsoil Code of Ukraine. Previously, these issues were regulated at the by-law level.

In addition, the Law has introduced the minimal threshold for prolongation of the permits – at least 1% of the balance reserves of the minerals that should be extracted during the period of validity of the special permit for extraction. In the event that the threshold is not met, the special permit cannot be prolonged. The only exception is in case the user of the extraction of the carbohydrates has unproductive drilling during the period of the special permit.

Though the above-mentioned provisions raise certain concerns among subsoil users, this solution was a strong compromise on the basis of more radical solutions from executive state bodies. One of the other compromises of the tough reasons to introduce amendments to the special permits and programs of works are still being discussed by business, which is raising issues to make it a bit wider.

However, the Law gives all subsoil users an automatic prolongation of the duration of the special permits and the agreements on subsoil use (including the terms of the program of works) for the period of the application of martial law and from three to six months after its termination. According to new Draft Law no. 11137-1, submitted to the Ukrainian Parliament in April, 2024, this period could be prolonged to 12 months after the termination of martial law.

II. New System of Waste Management

On 20 June 2022, Law No. 2320-IX On Waste Management was adopted, creating the framework for the new system of waste management in Ukraine, aimed at ensuring progress on the way to the circular economy. The Law came into force on July 9, 2023, and has already led to significant changes in the activities of the industries, generating and stocking significant amounts of waste, as well as discussions on issues about its implementation.

At the same time, Law No. 2320-IX is only the first in a sequence of laws aimed at creating a totally new system, based on the “polluter pays” principle and using extended producer responsibility schemes for those industries generating the biggest amounts of waste: production of goods in packaging, extraction of minerals, batteries, electronic equipment, used vehicles, machine oils and textile. As of now, the draft laws, aimed at the introduction of new approaches to waste management, are made public for three waste streams: packaging, extractive industries and electronic equipment.

The brief overview regarding the relevant initiatives is as follows:

• Development of draft legislation on packaging and packaging waste

Draft Law No. 10066 On Packaging and Packaging Waste was submitted on 18 September 2023 to the Verkhovna Rada of Ukraine by the Cabinet of Ministers of Ukraine. On those days MPs also submitted two alternative draft laws. All three draft laws are aimed at implementing the homonymous Directive 94/62/EC and setting both the requirements on the packaging, placed on the market, and the bases for managing waste, including systems for collection and extended producer responsibility. Currently, the activities on the Draft Law, taking into consideration different approaches to certain elements of regulation in three draft laws as well as different positions of stakeholders, representing business and civil society, are continued under the auspices of the Parliamentary Committee on Environmental Policy and Natural Use.

• Regulation for waste of electronic equipment

On December 26 2023, the Ministry of Environmental Policy and Natural Resources published for public consideration the Draft Law On Electric and Electronic Equipment and Waste of Electric and Electronic Equipment. The draft law in question is aimed at the implementation of the relevant European legislation, as well as ensuring the recovery of rare materials, contained in the waste of such equipment for the production of new goods. As of now, the draft law is being finalized by the Ministry of Environmental Policy and Natural Resources of Ukraine for submission by the Cabinet of Ministries to the Parliament.

• Draft Law on extractive industries’ waste

Another stream of waste, on which the Ministry of Environmental Policy and Natural Resources in cooperation with the European experts have worked closely throughout 2023, was that of extractive waste industries’ waste. On 20 February 2024, the Draft Law On Management of Waste from Extractive Industries was published on the Ministry’s official website for public consideration. The draft law in question transposes the norms of the Directive 2006/21/EC, but also contains some provisions that go further than provisions of the respective European legislation, such as setting some provisions regarding the use of man-made mineral deposits. As of now, the draft law is also being finalized at Ministry level for submission by the Cabinet of Ministries to the Parliament.

• Hazardous waste and other permission issues

Apart from the development of draft laws aimed at setting special regulations for certain streams of waste, in 2023 the Government worked closely on the adoption of by-laws necessary for the implementation of the framework of the Law On Waste Management. In particular, main activities were conducted to ensure the process for launching attribution of permits for the treatment of waste and hazardous waste management. However, as of now businesses draw stakeholders’ attention to the fact that the permit system, particularly for hazardous waste, had not worked more properly because of the great delay in the adoption of secondary regulation. From its side, to solve one of the problems raised by the business associations the Ministry proposed for public discussion the Draft Law resolution of the Cabinet of Ministers of Ukraine On the Implementation of an Experimental Project Regarding the Simplified Procedure for Obtaining a Permit for Waste Treatment Operations. 

III. Other Developments and Future Challenges

In addition to the implementation of the above-mentioned strategic reforms that were started in 2022, in 2023 other reforms were launched as well. In particular, amendments to the EIA procedure were adopted by Parliament and launched by the end of the EIA, the Law concerning amendments to PSA legislation was adopted in the first reading. Moreover, in the scope of its control functions the Parliamentary Committee made a few recommendations on the implementation of legislation on subsoil use, and the Government adopted a roadmap for the euro integration track.

• Improvement in the EIA procedure

On 13 July 2023 Law No. 3227-IX On Amendments to Certain Laws of Ukraine regarding Improvement and Digitalization of the Procedure of Environmental Impact Assessment was adopted.

This Law introduced a few changes to the procedure of environmental impact assessment (EIA), including:

– introducing consultations with public authorities and local governance;

– changing procedure of public consideration of the EIA report;

– clarifying grounds for refusal to issue an environmental impact assessment opinion and declaring planned activity inadmissible;

– introducing special regulations for the period of application of martial law.

In addition, as Law No. 3227-IX has introduced a new form of state registry of EIA opinions, the Law provided those businesses that commenced the EIA according to the previous procedure to finalize it without re-application.

• PSA regulation reform

Improvements in the procedure for attribution of special permits that are provided by signing a product sharing agreement (PSA) was also on Parliament’s agenda in 2023. While Draft Law No. 4344 On Amendments to Certain Legislative Acts regarding Stimulating Development of Oil and Gas Sphere, aimed at improving the functioning of this mechanism was registered in the Verkhovna Rada of Ukraine in 2020, it was adopted in the first reading only on 13 July 2023. As of now, the Draft Law is in the process of being prepared for its second reading. The most crucial challenge of this Draft Law concerned the fact it was initially developed at the end of 2020 by representatives of the gas extractive industry. From that time some issues of the Draft Law had already been adopted as a part of other draft laws, while the PSA itself needs more complex and system transformation than the adopted basis of the Draft Law No. 4344, particularly in the scope of the state intention of developing PSA for a part of minerals of strategic importance and the actuality of the current PSA procedure itself. Therefore, the amendments for the second reading of this Draft Law have prompted additional discussion.

• Reviewing the implementation of legislation in subsoil use

In addition to its function of preparing new legislation, in December 2023, the Parliamentary Committee on Environmental Policy and Natural Use was actively involved in the realization of its controlling function. Within the framework of such activities, the Committee has collected information from the business associations on the issues that arise in the process of application of  Law No. 402-IX On Amending Certain Legislative Acts of Ukraine regarding Improvement of Legislation on Extraction of Amber and Other Minerals, as well as application of Law No. 2805-IX. Furthermore, in March 2024, the recommendations to the Cabinet of Ministers of Ukraine on improving the application of these laws were issued. The recommendations relate to the necessity to ensure the practical realization of the possibility of reservation of land plots for the needs of subsoil use, absence of the list of the subsoil plots and deposits of the minerals that have strategic importance, special permits for which are to be distributed through electronic auctions, as well as certain issues on extracting amber on  destroyed land plots.

• European integration stream

As Ukraine strengthens its relations with the European Union, grows the importance of the EU stream in reforms, including ones in the sphere of natural resources and mining. In particular, a number of important environmental reforms were included in the Governmental Plan of Measures for Fulfillment of Recommendations of the European Commission, Presented in the Report on Progress of Ukraine in the Framework of EU Enlargement in 2023.

Later, in March 2024 the Cabinet of Ministers of Ukraine approved the Ukrainian Plan for Ukraine Facility financing program, which contains, among others, a separate chapter on critical raw materials. In the context of the final adoption of the Critical Raw Materials Act in the EU and the realization of the Green Deal policy, the critical materials issues will be of great importance this year.

Overall, despite Russia’s full-scale invasion, Ukraine is actively going forward in implementing subsoil and waste management reforms, has been considering further legislative amendments and going through some challenges met on this path. As these reforms impact businesses deeply the interaction between government and parliamentary bodies and the business community is of great importance.

Moreover, to operate and plan their further activities and investment policies the mining and natural resources sectors, as well as other economic sectors in Ukraine, are faced with the prospect of paying greater attention to sustainability and ESG reporting and climate policy issues.