Investment into Ukrainian ports: back to the future
5 June, 2009
15
Eventually the Cabinet of Ministers of Ukraine adopted the Resolution No 530 dated April 17, 2009 that set out the procedure for making investment agreements in the public sector of Ukrainian economy. The new procedure specifies the auctions to be held in order to attract investors, this requirement being applied to all public companies, institutions, and organisations, including the sea ports that does not take absolutely into account the specific nature of maritime sector.
In fact, the Cabinet of Ministers (CoM) has kept on the trend initiated by its notorious Instruction No 703 dd May 7, 2008. One should remember that pursuant to it the public companies were to make contracts on joint (investment) business, commission, agency, property management solely on the basis of the CoM resolution. Thus, referring to the contracts on joint business, commission, agency, property management the procedure has remained the same, while the investment agreement regulation has been materially changed.
The new procedure sets out that a decision on implementing an investment project be taken by the CoM after approval made by a regulatory body (i.e. a sector ministry) and expertise provided by the State Property Fund, Ministry for Finance, Ministry for Economy. The Cabinet of Ministers having taken a positive decision, the auction is to be held. One might think that the rules of play the private investors have been insisting on for a long time had been set at last. Let’s consider the principal aspects of new order:
1. The list of mandatory documentation to be submitted for the project expertise is specified, though this list is not closed. So the ministries may request additional documents, and neither their number nor the contents are limited.
2. The timing for document expertise either is not fixed at all or is not precise
o 30-day’s period fixed for the expertise shall start since the moment of all documents submission. Given that the ministries may request additional documents this process may last for uncertain time.
o Referring to the Cabinet of Ministers the new procedure does not fix the time assigned for taking a decision on investment project implementation at all.
3. The auction principle itself provides for selling a lot on a competitive basis. In this case the right (!) to make an investment agreement is sold.
4. The auction may be held in presence of at least two participants. But if only one auction participant has registered, the auction commission (set up by the regulatory body) may recognise this single participant a successful buyer.
5. The investment draft agreement is included into the mandatory list of documents and is submitted to the regulatory body at the very early stage. One may suppose logically that the terms and conditions of investment agreement have resulted from the complicated negotiations between an investor and a public company. Then the document is amended and adjusted by the regulatory body (the sector ministry), followed by the State Property Fund, Ministry for Finance and Ministry for Economy reviewing the draft. The CoM might add or amend something itself at the phase of taking a decision on approving the investment project implementation. And only after all these steps the auction may be held. What makes everybody confused is that after the auction the sector ministry ‘shall draw out the agreement draft’ to be approved again by other ministries, and the State Property Fund, the Ministry for Finance and the Ministry for Economy may give their ‘recommendations on improving the agreements terms and conditions’.
In other words, the investor, having passed the whole approval procedure starting with the public company through four ministers to the Cabinet of Ministers and become an auction winner, can’t be sure that he would make an agreement on the terms and conditions acceptable for it, and, that is the most important, which have been once approved.
May I daresay that the new procedure is quite far from that called ‘rules of play’. Serious investors are unlikely to invest into the port economy development on such ‘transparent’ terms and conditions. This becomes particularly clear when one understands that IFI loans are attracted for significant investment. And these structures would hardly find this investment procedure to be in line with international traditions, rules, logics, and common sense.
