The Verkhovna Rada has adopted draft law No. 7508, which amends legislation on public–private partnership (PPP)
Ukraine is taking a step towards large-scale reconstruction and recovery!
Parliament has adopted the much-anticipated Bill No. 7508, amending legislation on public-private partnership (PPP) and simplifying mechanisms for attracting private investment. This means that new opportunities are opening up for infrastructure reconstruction and economic recovery, funded not only by the budget, but also through collaboration with businesses and international donors.
It will become easier for private businesses to participate in reconstruction: how legislation on public-private partnerships will change
In the context of a full-scale invasion, Ukraine is facing new challenges that have resulted in a radical change to the scale and nature of its investment needs. The destruction of social and critical infrastructure, a sharp decline in economic activity and reduced investment inflows (including foreign investment) mean that Ukraine’s infrastructure and economy as a whole must be rebuilt.
Ukraine, home to tens of millions of people many of whom have unfortunately become refugees, plays an important role in the global economy as a leading producer of grain and mineral resources. It has also developed IT, chemical and machine-building industries, whose products are exported worldwide.
Therefore, recovery and growing Ukraine’s economy are important tasks today.
Public-private partenership (PPP) is an effective mechanism not only for implementing projects at the state level, but also for developing every region of our country. It allows for the preservation and modernization of existing facilities and the construction of new ones with private investment, as well as accelerating the reconstruction of infrastructure destroyed by the aggressor state. PPPs guarantee that the state retains ownership of assets.
Although the concept of PPP has existed in Ukraine for a long time, the Verkhovna Rada’s passing of the second reading of draft law No. 7508 will now enable this mechanism to function fully, as it simplifies the mechanisms for attracting private investment.
Key changes that will contribute to the development of PPPs
Expansion of the range of public partners
From now on, any public sector entity, including state-owned companies or enterprises, can act as a public partner.
New sources of funding and financing
Projects now have the opportunity to combine private and donor funding and financing at both the construction stage (covering part of the capital expenditure) and the operation and maintenance stage.
This significantly reduces the risks for private partners and makes projects more affordable for public partners.
New and improved guarantees for investors and lenders
The state guarantees that private partners’ rights will be protected, that they will be treated non-discriminatorily and that they will have stable conditions during the implementation of PPP projects. This also applies to the preservation of the contract terms despite changes in legislation.
There are also updated rules for compensating private partners in the event of termination of a PPP/concession contract at the public partner’s initiative.
Clear rules have been introduced for changes to the scope of contracts that are as close as possible to European legislation.
Simplification of the procedure for preparing “small” PPP projects (up to €5.5 million)
The preparation of such projects will be reduced from 19 to 12 months. These projects can be implemented without preparing a feasibility study. The main focus will be on preparing a concept note. The conclusion of the analysis of the PPP concept note will be the basis for starting work on the tender documentation.
This approach will help communities to develop faster by attracting private partners. They will be able to quickly build both local roads and the necessary social infrastructure.
Introduction of a temporary simplified mechanism for preparing PPP/concession projects for reconstruction and recovery
The simplified procedure applies to PPP projects aimed at infrastructure reconstruction and economic recovery. This takes into account the need to build new facilities or restore existing ones, particularly in the areas of healthcare, energy, social infrastructure and transport, in response to armed aggression or to integrate Ukraine’s transport and energy sectors into the European Union.
The simplified mechanism will remain in force during the martial law period and for seven years thereafter. It is now up to the Cabinet of Ministers to develop the mechanism.
Full implementation of the Availability-based PPPs: “British PPP model – Private Finance Initiatives (PFIs)” or “infrastructure in instalments”
How has this been successfully implemented in the UK for a long time? An investor builds, for example, a school or a road at their own expense, and the state or community starts paying for the completed work once the facility has been commissioned. Availability payments are made gradually over a period of 15–20 years. This approach is known as “infrastructure in instalments” or “availability payments”.
This approach will reduce the burden on budgets at various levels and enable the implementation of a greater number of socially important projects, even in conditions of limited affordability. If the state or community cannot pay immediately, they can use “installment payments” or “availability payments.”
In the UK, this mechanism has enabled over 1,200 projects worth more than £70 billion to be implemented between 1990 and 2022.
Harmonization with EU standards and digitization of processes
An electronic trading system (ETS) for concession projects is to be introduced in line with EU standards and procedures. Everything will be done online, from publishing information about the launch of the tender to publishing the signed agreement.
A set of procedures for selecting a private partner/concessionaire has been defined.
A unified procedure for appealing competitive procedures for the selection of a private partner/concessionaire has been introduced: all disputes will be considered in accordance with the procedure established by the Ukrainian Law on Public Procurement, taking into account the specific features provided for by the Laws on PPP and Concessions.
Special procedures for PPPs in housing construction
As much of the housing infrastructure has been destroyed, providing housing for the population is a pressing issue. The draft law therefore defines the specific features of PPP contracts for housing construction.
- PPP/concession objects may be new or unfinished constructions;
- Land may be transferred to a private partner for use on the basis of a lease or superficies. In cases provided for in the PPP contract, the private partner may develop the land by being delegated the employer’s (owner’s) functions in construction without the land being transferred to the private partner for use.;
- The tender documentation must specify the initial data for the PPP object, including the number of floors, building density, social infrastructure characteristics (e.g. the availability of schools and kindergartens), parking lot requirements (if necessary) and shelters (e.g. bomb shelters), etc.
- Ownership of real estate newly created during the implementation of PPPs in housing construction may be state-owned or privately owned by a private partner and/or certain categories of individuals in need of social and/or affordable housing.
Improvement of sectoral legislation for the implementation of PPPs
The draft law proposes amendments to over 30 legislative acts. These amendments will enable the wider implementation of public-private partnerships in various sectors.
In particular, the updated legislation removes obstacles to implementing such projects in education, culture, transport infrastructure, electronic communications, digital infrastructure, IT and cybersecurity.
Additionally, the draft law establishes the legal basis for implementing such projects in the areas of national security and defence, which are currently of particular importance to Ukraine.
Which projects could be the first PPPs?
Together with our international partners, we have identified several priority sectors:
- transport (seaports, tolling, airports, roads, tunnels),
- energy (renewable Battery Energy Storage System (BESS), renewable energy (wind, solar, biomass), energy distribution),
- municipal infrastructure (heat supply, water supply and sanitation, waste management),
- healthcare (multidisciplinary hospitals, rehabilitation centers, diagnostic services),
- social infrastructure (education, science, culture, affordable housing), and others.
Such projects are currently being prepared at both the national and local levels.
Public-private partnership projects will be one of the most important and effective mechanisms for the country’s reconstruction and recovery, especially with regard to public infrastructure.
According to IFC estimates (2023), if the Ukrainian government implements reforms aimed at improving the investment climate, the country could attract up to $300 billion in private capital. This would represent over 54% of the total reconstruction costs estimated by the World Bank at $524 billion in its RDNA4 report.
The state, investors and donors are joining forces for reconstruction. This is no longer just a hypothetical prospect, but a real opportunity.