Ukraine: Changes in Mechanism for Entering into Production Sharing Agreements

On 17 November 2011, the Parliament of Ukraine adopted amendments to the Law of Ukraine "On Production Sharing Agreements" (the "Law") aiming at improvement of the mechanism for entering into Production Sharing Agreements and establishment of additional grounds and opportunities for the development of exploration and production companies fully or partially owned by the state. The Law is awaiting the President's approval.

The legislative changes take into account international practice in subsoil use. For instance, when a country announces a tender for the right to enter into a Production Sharing Agreement, there is a condition that a tender winner will carry out the project in partnership with previously announced national company identified in advance, subject to even distribution of shares.

The Law gives an exhaustive list of persons who can be deemed investors under Production Sharing Agreements. Such list, inter alia, includes companies fully owned by the state (or companies established with its participation). It should be noted that such companies will not participate only in certain projects defined by the state. If tender documentation provides for that the project will be fulfilled in partnership with a state-owned company, such tender documentation should include a reference to the share of that participant to the production sharing agreement. The Law says that in projects to be realized with a state partner, in the majority of cases, the successful bidder (or one of the bidders) shall be appointed as a project operator.

For further information please contact
Yaroslav Petrov, Associate.