#06 June 2014

In focus – Oil & Gas

In order to reduce the dependence of Ukraine on energy supplies, last year the former government focused on enlisting global energy heavyweights into exploring and producing natural resources. Shale gas was the subject of their concern in the country. Even more, an attractive and extremely favorable for foreign investors mechanism of production sharing agreement was developed…

With the support of Tax Regulation

In 2013, the vast majority of taxpayers with controlled transactions anticipated changes of the reporting deadlines virtually till the last day. They expected the deadline to be moved from May 1 to a later date. However, when everybody who was able to file a report did so, the On Changes to the Tax Code of Ukraine Act of Ukraine, No.4527 was approved on 13 May 2014.

The new legislation introduced the following changes:

  1. The reports on controlled transactions for the period from 1 September till 31 December 2013 should be filed before 1 October, 2014;

  2. The penalties under Article 120.3 of the Tax Code have been lowered, and namely:
    — the failure to file a report shall entail a fine of 100 minimum wages as set as of 1 January of the relevant tax year;
    — the failure to submit the documentation shall entail a fine of 10 minimum wages.

Expert Opinion

Ukraine in the Energy Community: International Obligations in the Natural Gas Sector

Ielyzaveta V. Badanova

Ukraine has been a member of the Energy Community since 1 February 2011. Naturally, this status entails certain benefits as well as responsibilities for the country. This article is centred on Ukraine’s obligations in the natural gas sector which arise out of its membership in the said international organisation.

Energy Community at glance

The Energy Community is a public international law organisation established under the auspices of the European Union in October 2005 for an initial period of 10 years. In October 2013, its mandate was extended for 10 more years to last until October 2026. The Energy Community currently consists of nine Parties (i.e. the EU and eight Contracting Parties, including Ukraine), several observer states (Armenia, Georgia, Turkey, and Norway), and a number of participant states (i.e. EU Member States that expressed their will to participate in the organisation’s deliberations)...

In Re

Permits to Use Oil and Gas Mineral Deposits in Ukraine

Alexey A. Kot, Ivan G. Zievakov

On 9 April 2014 the Verkhovna Rada of Ukraine adopted the On Entering Amendments to Several Legislative Acts of Ukraine as for Reducing the Number of Permit Documents Act of Ukraine. The Act cancelled for about 113 permit documents but such liberalization did not cover oil and gas recovery. According to the general rule, oil and gas recovery (as well as recovery of other mineral resources in Ukraine) are performed in case of obtaining a special permit on subsoil use.

According to the general rule, oil and gas recovery (as well as recovery of other mineral resources in Ukraine) are performed in case of obtaining a special permit on subsoil use…

The Draft Subsoil Code of Ukraine. New Possibilities

Anzhelika I. Shtukaturova

The effective Subsoil Code of Ukraine (the Code) was approved in 1994 and has long outlived its useful life.

Therefore, the Cabinet of Ministers of Ukraine proposed (approved) a new version of the Code (the Draft) prepared by the Ministry of Ecology and Natural Resources.

The purpose of the Draft, as mentioned in the explanatory note, is to modernize and harmonize all subsoil legislation, modify the right to use subsoil, reduce the number of approvals and other bureaucratic procedures, aiming to revolutionize the overall framework of subsoil use in Ukraine, in particular by means of its liberalization. But the most expected and key words for the market are “codification” and “transparency”…

Environmental Security in the Extraction and Refining of Petroleum

Vitaliy S. Bakhurinskiy

In recent years a lot of countries, including Ukraine, have come across the acute problem of ecological balance between man and his environment. One of the important aspects of the environment is that the geological environment is the main supplier of energy resources. All minerals are found in the ground. And to get to them a wide number of different machinery and mechanisms that do not have a positive impact on nature need to be used. Neither is the technology of production perfect, which leads to negative consequences. The same can be said about oil production…

Hot Issue

Shale Gas Production Sharing Agreements in Ukraine — Status Limbo

Volodymyr V. Yaremko, Maryna M. Ilchuk

Getting rid of gas dependence on Russia has been a hot topic in Ukraine in the last few years. In order to diversify energy sources Ukraine has, for a while now, been negotiating shale gas exploration with a number of international oil extractors such as Shell, Chevron, ExxonMobil, Eni and EDF.

On 24 January 2013, Shell, Nadra Yuzivska LLC and the government of Ukraine signed a production sharing agreement (PSA) concerning unconventional gas extraction in the Yuzivska area (Kharkov and Donetsk Regions) at the Economic Forum in Davos, and on 12 September 2013 an operating agreement was signed, which actually permits commencement of work in the Yuzivska area.  

Argument

Non-Governmental Pension Provision. What is non-governmental pension provision?

Lina K. Nemchenko, Nataliya V. Tyschenko

Unlike the state pension, non-governmental pension provision is based on voluntary, rather than mandatory, participation by individuals and companies in the formation of pension assets, which would then eventually be distributed to the participants of the non-governmental pension fund (the NPF). 

In Ukraine, non-governmental pension provision is mainly governed by the On Non-Governmental Pension Provision Act of Ukraine of 9 July 2003, No.1057-IV (the Act), and it offers a number of opportunities to both employees as well as employers. However, unlike in Western jurisdictions, its potential is yet to be fully discovered by the local market. The purpose of this article is to provide an introduction to the structure of the non-governmental pension provision in Ukraine and to review the main benefits it may offer…

Venue

Legal Victories 2014

Following the long-standing tradition, every May the Ukrainian legal establishment comes together for the Legal Awards ceremony, held by Yuridicheskaya Practika Publishing. The eighth ceremony was held on 23 May 2014 at the Premier Palace Hotel in Kiev.

According to the program, law firms and individuals competed across 29 nominations. For the first time, the best law firms in the energy sector as well as in media and telecommunications and agribusiness spheres were awarded. According to organizers, in future the list of industrial awards promises to become even wider. At the same time, such nominations as “The best legal departments” were excluded from the list as last year the Publishing launched the new project — “50 leading legal departments of Ukraine”…

Crux

Controversial Impact

The banking and finance sector in Ukraine has proved to be one of the most susceptible to the latest political events. The dramatic devaluation of the Ukrainian Hryvna has significantly influenced the discharge of borrowers of their obligations to financial institutions. The rapid measures of stabilization have appeared to have a rather controversial impact. And while a new portion of measures are on their way, we would like to ask experts to share their views on the current situation.

 

Tatyana  Kuzmenko

The NBU’s working group aimed at mitigating the negative impact of the Hryvna’s devaluation for borrowers will not need to reinvent the wheel.

Since mid-2008 Hungarian debtors have faced a similar problem: the forint has plunged 43% against the Swiss franc while Hungarians hold about USD 15 billion worth of foreign-currency loans, or roughly 12% of the country’s economic output. In early 2011 Hungary’s government and commercial banks agreed to burden-sharing on foreign currency mortgage loans…

 

Nazar  Chernyavsky

Despite certain political optimism inspired by the results of the recent presidential election, the economic situation in Ukraine remains difficult. Accordingly, we expect many businesses will not be able to meet their debt obligations, especially those nominated in foreign currency. We are already seeing some big restructurings starting, mainly in the sectors affected by the current crisis…

 

Anna Ogrenchuk

As per the results of analysis of court disputes for the last few years in the area of the credit legal relationship, it is worth noting the main tendency: the debt must be returned. In such disputes the claims of creditor are usually satisfied, unless there are gross violations upon conclusion of credit agreements, agreements concluded as security for returning of debt (suretyship, mortgage, pledge) or upon their performance.

Regarding debt recovery from a borrower — courts usually pay attention to: the timeliness of filing a lawsuit (consequences of running the statute of limitation are applied by the courts only upon a respective claim from a defendant), accuracy of accrual of interest and penalties, due performance by a bank of the undertaken obligations in a timely manner and due payment of a loan...

 

Ivan Grechkivsky

Depreciation of the national currency and the economic crisis caused by the unstable social and political situation in the country has resulted in a situation in which many borrowers have become unable to meet their obligations to banks. This is especially true of credit agreements in foreign currencies. It is well known that such agreements were widely used in Ukraine, even in instances where the purpose of the credit was not to make payments in foreign currencies (for example, mortgages and car loans)…

 

Andrii Zharikov

The Memorandum of Understanding (the Memorandum), which was signed by the parties on 13 May 2014 and ratified by the Ukrainian Parliament on 20 May 2014, specifically establishes only the following three obligations of the state of Ukraine in the banking area: the NBU must issue standards and rules regarding systemic banks for their further adoption by the end of 2014, currently, a systemic bank is a bank whose liabilities are not less than 10% of overall liabilities of all Ukrainian banks; implementation of legislation regarding disclosure of banks’ ultimate owners, including by publishing of the relevant information on the official site of the NBU by 1 September 2014; the government of Ukraine must prepare and submit a bill to Parliament amending the On Financial Services and State Regulation of Financial Service Markets Act of Ukraine regarding disclosure of information…

 

Igor Reutov

With respect to the measures which the NBU may undertake in order to stabilize the financial sector, it should be observed that Ukraine has undertaken to comply with its obligations to the International Monetary Fund, stipulated in the Memorandum of Economic and Financial Policies. Therefore, we can expect implementation of the commitments stated therein. Thus, the NBU will definitely abstain from using administrative regulations and restrictions as a substitute for conventional monetary policy tools…

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