The First Investment Forum organized by the Ukrainian Bar Association on June 6-7, 2024, provided a platform for discussing promising investment opportunities and addressing legal challenges in sectors vital for the sustainable development of Ukraine.

Each session of the Forum served as a venue for fruitful discussions, where interesting and valuable ideas and insights were shared. Given the importance of the information received from the event’s speakers, the UBA has prepared conclusions and recommendations for the government and business based on the outcomes of the First Investment Forum. You can review these recommendations below.

Session 1. Ukraine’s Accession to the European Union: What Does It Mean for Business?

The government should clearly regulate the interaction process between business and the authorities during the negotiations for EU accession. Specifically, it is necessary to clearly stipulate:

• How businesses are involved in the negotiation process (for example, if working groups are formed for each negotiation chapter, this should be clearly stated);
• Who from the business community will be involved in the working groups — associations (which ones — nationwide, regional, those that unite a certain percentage of enterprises in a specific industry) or individual companies (again, clear criteria for such companies should be outlined); equal access should be ensured for all associations and companies;
• The role of businesses/associations — whether it is simply to participate in the working group/submit a position or whether businesses/associations will have at least an advisory voice (obviously, the latter is essential, at least on certain strategic issues);
• The government should inform businesses/associations of our negotiation positions and the positions of the EU and agree on them with businesses.

Session 2: Reforms During Wartime — What Working Conditions Should Businesses Expect?

1. Partnership Expectations: Businesses anticipate forming partnerships with authorities and seek effective interaction mechanisms to resolve issues arising during economic activities. This includes matters such as reserving employees and ensuring that rules do not change unexpectedly.
2. Presumption of Innocence: Government bodies should move away from assuming business guilt or malicious intent. Instead, they should focus on prior consultations with businesses to prevent inadvertent or unintentional violations, rather than immediately imposing penalties.
3. Effective Administrative Appeals: Implementing a robust administrative appeals process is crucial for fostering a partnership between business and government. Authorities should not hesitate to make decisions in favor of businesses if mistakes are found during inspections.
4. National Revenue Strategy 2030: This strategy could pose an investment barrier if fully implemented. Before doing so, it's vital to restore taxpayer trust in tax, customs, and law enforcement agencies. Only then should additional powers be considered for these entities.
5. Adapting European Tax Rules: Transferring European rules and concepts (like progressive taxation and limiting simplified tax systems) into the Ukrainian tax framework must account for national specifics. Failing to do so could lead to adverse effects.
6. Disproportionate Fines: Imposing excessive fines on officials of importing companies for errors in customs documentation, without the possibility of appeal in higher courts, significantly reduces the state's investment attractiveness.
7. Risk Insurance: Currently, the state does not provide accessible insurance for business risks related to war and political instability, despite ongoing efforts. Insurance costs are high and not always feasible. An effective state solution in this area would undeniably boost the country’s investment appeal.
8. Law Enforcement and Investment Protection: To enhance investment protection, the state must first ensure the enforcement of laws, rather than their distortion to impose sanctions on businesses.

Session 3.1. Challenges and Opportunities in the Agricultural Sector

The session's outcomes indicate that the industry’s issues are receiving sufficient attention overall. Notably, there are rather positive reviews regarding the start of a state program compensating farmers for 80% of the cost of demining contaminated lands. The number of mine action operators (including agro-holdings) has doubled to about 30 companies since the beginning of the year. It is recommended not to lose focus on this critical issue for many farmers. Emphasis should continue on developing and seeking new technological solutions. Support for such research from the government is expected.

Overall, there are positive reviews regarding the support of farmers in frontline zones (tax exemptions, discounts on rail transport, etc.). Experts encourage farmers to invest in bioenergy projects (bioethanol) and processing. There is significant potential for attracting both loan and strategic financing for such projects in Ukraine and abroad. This is one of the EBRD’s focus areas in Ukraine.

Understanding the need for mobilization, farmers are calling for the approval of the so-called "economic reservation," which is critical in certain segments. Currently, there are many different support programs for enterprises in the agricultural sector, and there is a substantial demand from institutional and private investors. At the same time, there is an insufficient level of preparation of investment projects and many enterprises are not ready to attract investments.

Session 3.2. Challenges and Opportunities in the Extraction of Natural Resources

• Production Sharing Agreements (PSAs):
  • Adoption of regulatory legal acts regarding the implementation of PSAs;
  • Regulation of the functions of the state-authorized body regarding the oversight of PSA implementation; and
  • Appointment of an authorized entity for the sale of oil and condensate under PSAs.
• Implementation of the EU Regulation on Integrity and Transparency in the Wholesale Energy Market (REMIT):
  • Conducting training for businesses on REMIT; and
  • Establishing a transition period during which sanctions for violations will not apply and clarifying the legislation’s terminology.
• Improving the mechanism for reserving land for subsoil users.
• Extending the application of industrial parks and benefits for projects with significant investments to the extraction sector.
• Development of a long-term strategy for the extractive industry and corresponding state support programs.
• Providing grounds for amending the work program due to changes in production volumes due to the wartime state.
• Amending the Code of Ukraine on Subsoil to include definitions of basic concepts and removing outdated provisions from the Mining Law of Ukraine.
• Regulating waste management in the extractive industry by adopting the bill "On Management of Mining Waste" and amending the Law of Ukraine "On Waste Management".

Session 4.1. Challenges and Opportunities in the Defense Sector

Comments on Improving Legislation in the Defense Sector

1. Prohibition on Exporting Military Goods

   Currently, this de facto prohibition significantly restricts the development of the Ukrainian defense industry, particularly due to the inability to attract resources from foreign client orders that could be directed towards developing new weaponry and expanding production.

   The export ban forces Ukrainian manufacturers to move production abroad to fully operate in the international market. This situation is undesirable for both the Ukrainian defense industry and the economy as a whole.

   Lifting the export ban will be a crucial step for the development of the Ukrainian defense sector, creating conditions for the defense industry to remain one of the drivers of the Ukrainian economy even after the cessation of active hostilities.

2. Regulation of Employee Reservation in the Defense-Industrial Complex

   Recently, the list of criteria for designating enterprises in the defense-industrial complex as those of significant importance to the national economy has been expanded. However, the list does not fully meet current needs. Specifically, there is a need to amend it to include enterprises that are at the stage of developing new weapons and military equipment but do not yet have contracts with state customers.

   It is also necessary to regulate the reservation of individuals whose military registration data need clarification. As of today, the practical inability to reserve such individuals creates significant obstacles to the work of defense industry enterprises.

   Such changes will allow defense industry enterprises to properly reserve all critical personnel, which is essential for the stability of their operations in the face of a labor shortage.

3. Conclusion of Long-Term Defense Procurement Contracts

   The intensity of hostilities creates the need for a systematic and timely supply of the Ukrainian military with the relevant military goods. Defense industry enterprises need predictability from state customers regarding the volume and nomenclature of procurements to consistently meet this need.

   Stable operations of defense enterprises require the ability to plan long-term to properly expand production, purchase necessary consumables and components, and attract a sufficient number of qualified personnel. This can be achieved only if the volume and nomenclature of procurements are agreed upon for a long-term period.

   Additionally, the existence of long-term obligations from state customers creates conditions under which foreign manufacturers may start setting up production in Ukraine, as a guaranteed volume of orders from the state is critical for entering the Ukrainian market.

   Thus, the creation of mechanisms for guaranteed long-term (at least up to three years) procurements can provide a significant impetus for the development of the Ukrainian defense sector.

Session 4.2. Challenges and Opportunities in the Energy Sector

Issue: Lack of a PPA Market

The main obstacle to the development of new power generation capacities is the lack of any state support (which was previously provided by the green tariff), and the absence of a formed market of off-takers under long-term power purchase agreements, which could fill the gap left by the green tariff. This was noted by panel participants, including representatives from Goldbeck Solar and Notus Energy.

Proposal: Initiate the creation of a fund (following Argentina's example), which would act as a virtual off-taker. The fund should be guaranteed by international partners and financial institutions. It could be self-sustaining and profitable, as renewable energy producers would contribute a portion of their revenue to the fund. This proposal has received broad approval in preliminary discussions with international financial institutions.

Issue: Lack of State Support

Currently, the state supports industrial projects through the mechanism of industrial parks and also supports projects with significant investments (so-called investment nannies). Renewable energy projects do not fall under the scope of the laws on industrial parks or investment nannies (except for biogas and biomethane, which are considered waste processing).

With the abolition of the green tariff, energy generation projects from alternative sources do not receive any economic incentives from the state.

Proposal: Extend the scope of the law on state support for investment projects with significant investments to projects for the development of renewable energy and green hydrogen, as well as the construction of balancing capacities (storage and accumulation systems, flexible systems).

Issue: Hydrogen Strategy

Despite Ukraine's plans to become a green hub and exporter of green electricity and green gases to the EU (the EU in its Green Deal expects half of the imported green hydrogen to come from Ukraine), very little has been done to develop hydrogen energy to date.

Proposal: Establish a separate department within the Ministry of Energy of Ukraine to implement the hydrogen strategy and coordinate this work with key partners in Ukraine.