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Procedures for conducting auctions for special permits for subsoil use came into force in Ukraine

On 27 October 2020, Resolution No. 993 of the Cabinet of Ministers of Ukraine, dated 23 September 2020 and approving the Procedures for conducting auctions for special permits for subsoil use (the "Resolution") entered into force. The Procedures determine the manner of selling, through electronic tenders at auctions, special permits for subsoil use within the territory of Ukraine, its continental shelf and exclusive (marine) economic zone.

The Resolution supersedes the Cabinet's Resolution No. 594, dated 30 May 2011 and approving the Procedures for conducting auctions for special permits for subsoil use, and Resolution No. 848, dated 17 October 2018 and implementing a pilot for introducing auctions for selling special permits for subsoil use through electronic tenders. Both of these resolutions became invalid.

Auction initiation

From now on, legal entities or private entrepreneurs, which would like to obtain a special permit, can initiate an auction by submitting an application and additional materials thereto to the State Service of Geology and Subsoil of Ukraine (in Ukrainian Derzhheonadra).

Subject to the applications, Derzhheonadra prepares a list of subsoil blocks to be set for an auction. As for setting for auction subsoil blocks containing minerals of local significance, Derzhheonadra submits them for approval to relevant district, city, town, or village councils or councils of amalgamated territorial communities.

Thereafter, the Ministry of Ecology of Ukraine (the "Ministry of Ecology") should provide Derzhheonadra with its proposals for compliance with environmental legislation within a period not exceeding 15 working days from the date of receipt of proposals from Derzhheonadra. The Ministry of Ecology publishes these proposals on its official website within three working days after a relevant decision is made.

Derzhheonadra includes the relevant subsoil block together with the corresponding programme of works in the order approving the list of subsoil blocks set for an auction and decides on conducting the auction within 30 calendar days. Derzhheonadra announces the auction in the electronic tender system intended for selling permits and on its official website within 10 working days from the date of the approval.

Lot price

The Resolution provides for the following aspects of calculation of a starting price of a lot:

  • Derzhheonadra calculates a starting price of a lot in accordance with the Methodology for determining a starting auction sale price of a special permit for subsoil use, as approved by Resolution No. 1374 of the Cabinet of Ministers of Ukraine, dated 15 October 2004 (as amended by Resolution No. 915 of the Cabinet of Ministers of Ukraine, dated 23 September 2020);
  • when selling, at an auction, a special permit for geological exploration of amber subsoil, including the exploratory and commercial development of deposits subject to further extraction of amber (commercial development of deposits), the initial price of the lot amounts to two thousand tax-free minimum incomes of individuals, which makes UAH 34,000 (approximately EUR 1,024) for 1 hectare of the corresponding amber subsoil block, with subsequent obligatory approval of the reserve estimate;
  • the starting price of a re-auctioned lot is 50% of the starting price of that lot. The starting price of the lot at an auction conducted using the method providing for step-by-step reduction of the initial price subject to further submission of bids amounts to 100% of the initial price of the lot;
  • the starting price of a lot at re-auctions for a special permit for geological exploration, including exploratory and commercial development and extraction of groundwater (including mineral water) for all purposes, and a permit constitute 100% of the starting price of this lot; and
  • the starting price of a lot at each auction is specified in the announcement of the relevant auction.

Agreements with conditions precedent

The Resolution approves the concept of a permit purchase agreement with conditions precedent, which is concluded between Derzhheonadra and the winner of the auction where the winner of the auction is a foreign legal entity that does not have any permanent establishment registered in Ukraine at the time of signing of the report on the auction results. According to the Resolution, the winner files with Derzhheonadra a proposal to enter into a permit purchase agreement or permit purchase agreement with conditions precedent based on the report on the auction results, following the auction. Such agreement is concluded between Derzhheonadra and the winner no later than 20 working days after the day following the day of the report on the electronic auction results and is published by Derzhheonadra in the system.

The Resolution requires that the payment for geological information be made by the winner of the auction within 30 working days from the date of execution of a permit purchase agreement or a permit purchase agreement with conditions precedent.

Environmental impact assessment

Special conditions of a permit include a ban on the carrying out of activities as defined by the Law of Ukraine on Environmental Impact Assessment without a proper report on the environmental impact assessment if a relevant permit is sold for the geological exploration of oil and gas subsoil, including the exploratory and commercial development of deposits, subject to further production of oil or gas (commercial development of deposits) and/or extraction of minerals. On completion of such assessment, Derzhheonadra is required to amend the special conditions of the permit subject to the findings of the environmental impact assessment.

For further information, please contact Asters' Senior Associate Marta Halabala and associate Olena Sichkovska.

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