New subsoil permit regulation opens doors for joint ventures
Author: Yaroslav Petrov
Source: International Law Office Newsletter. - 2011. - 1 August

On May 30 2011 the government adopted a new procedure for issuing special permits for subsoil use, which came into force on June 24 2011. Previously, the procedure for issuance of special permits was adopted on an annual basis. The new procedure is not subject to annual review, but it is likely to be superseded by the provisions of the new Subsoil Code, if the latter is adopted.

Compared to the previous rules, the new procedure includes a number of changes:

• The State Service for Geology and Subsoil replaces the Ministry of the Environment as the state authority with responsibility for issuing special permits. Nevertheless, the ministry's approval is still required.

• The previous rules allowed for special permits to be issued without an auction procedure in certain circumstances. This now applies where the state has at least a 25% share in the applicant and has carried out a geological survey, including pilot production and production of natural resources in the oil or gas field in question.

• The new procedure clarifies that special permits may be reissued where the holder changes its name or location.

• The resolution introduces a list of grounds for amending a special permit, including legal succession, changes in significant terms of the permit, a reduction in the acreage of the deposit and errors in the permit.

• A viable option has been introduced for legitimising joint ventures in Ukraine's subsoil sector. If a special permit holder establishes a new company, the latter may continue to operate on the basis of the previously granted special permit, provided that the special permit holder transfers to the new company all assets required for the performance of activities under the permit. The holder must own at least 50% of the new company. If the abovementioned conditions are met, the necessary amendments can be made to the permit.

• The resolution clearly states that special permits that are obtained for the implementation of a production sharing agreement are subject to specific terms of extension, suspension and annulment.

Generally, the resolution represents a positive step the regulation of subsoil use.

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