Although Ukraine adopted laws to protect free competition in the 1990s, the regulation of state aid had lagged behind until recently. Over the past two decades, in the course of regional integration, Ukraine has signed a number of international agreements containing certain state aid-related provisions (ie, the EU–Ukraine Partnership and Cooperation Agreement (1994), the World Trade Organization Agreements (2008) and the Energy Community Treaty (2011)). However, this, in principle, did not improve national state aid regulation, which continued to lack genuine monitoring and a system of enforcement for many years.
The EU–Ukraine Association Agreement (the Association Agreement) gave Ukraine an opportunity to fill this gap and finally develop a comprehensive and transparent legal framework for state aid. In particular, in line with the Association Agreement Ukraine has rolled out state aid regulation in convergence with the EU acquis. The new legislation took effect from 2 August 2017 and is expected to break a lasting Ukrainian bias towards state support measures.
What may contribute to the successful implementation of state aid reform are constrained budget resources, which have naturally made Ukraine focus more on effective management of public funds and lean away from uncontrolled and chaotic state support measures.
Although only around four years have passed since the Ukrainian framework state aid rules became effective, its major secondary part has already been developed and adopted, while the first enforcement steps have already been made. This gives a good perspective on the future state aid regime outlined in our answers below.
The Ukrainian state aid legislation allocates monitoring of compliance with state aid rules to the Anti-monopoly Committee of Ukraine (AMC). The AMC is entrusted with various duties, including:
The AMC has established a dedicated State Aid Unit with more than 30 employees. On numerous occasions, AMC officers have pointed to the fact that its current capacity is insufficient to enforce state aid rules effectively, and more people will be hired and trained for this purpose.
To demonstrate the workload of the State Aid Unit, the AMC received 407 state aid notifications only in 2020.
Ukraine has no specific bodies primarily in charge of granting state aid. These may be different institutions (eg, ministries, state or local authorities, or legal entities authorised to manage state resources), depending on the state support measure. As to the receipt of aid applications, this is within the AMC’s domain.
Overall, the Ukrainian state aid legislation is aligned with the EU acquis. More specifically, under Ukrainian laws.
State aid is generally considered incompatible with competition. For this reason, there is a standstill obligation not to implement a new state aid measure before it is notified and cleared by the AMC (the notification requirement does not apply to de minimis aid not exceeding €200,000 per undertaking over a period of three fiscal years).
Before clearing an aid measure, the AMC makes sure that the notified aid meets certain criteria and is economically justified. In general terms, state aid will be considered justified if, for example, it brings social and economic development to regions with poor living standards or a high unemployment rate, or supports and preserves national cultural heritage, etc. Notably, formally, the AMC can develop and adopt block exemptions from the obligation to notify a new state aid. However, this is not on the AMC’s short-term agenda.
State aid providers bear primary responsibility for ensuring that their policy measures and projects comply with the state aid rules, but beneficiaries of aid, as well as their competitors, are also involved in the notification and investigation process. As far as the beneficiaries are concerned, an undertaking planning to obtain an aid measure will have to provide extensive information to the aid provider. Additionally, state aid providers can seek participation of state aid beneficiaries in the pre-notification consultations with the AMC. Separately, the AMC can open a formal investigation procedure whenever it finds that authorised aid is being misused. In this case, the aid beneficiary will likely bear a status of the defendant (either alone or together with the aid provider) required to provide the AMC with all assistance or information needed. To ensure equal treatment of the parties in this case, such aid beneficiary will have various corresponding rights, including access to file and the right to be heard by the AMC.
Competitors of the beneficiaries may also be involved. If they believe that the aid is unlawful, they have the right to complain to the AMC. Upon review of the complaint, the AMC may open a state aid case where the competitor will have the status of the complainant with all corresponding rights, including access to file. Relatedly, an interested party can ask the AMC for interim measures. In particular, a competitor can submit a formal complaint to the AMC and, in parallel, ask the authority to suspend the state aid measure if it affects or may affect competition. If the AMC finds that certain state aid measures are in fact unlawful and incompatible with competition, it will issue a negative decision, which means that a beneficiary of this aid will be obliged to pay it back.
In accordance with the Association Agreement, while interpreting the Ukrainian state aid legislation, the AMC is bound by the relevant jurisprudence of the Court of Justice of the European Union (CJEU), as well as relevant secondary legislation, frameworks, guidelines and other administrative acts in force in the European Union. In practice, all decisions of the AMC contain references to the EU acquis.
The Association Agreement sets out the fundamental principles underlying the approximation of the Ukrainian legislation and practice in convergence with the EU acquis.
The State Aid Law includes the general principle of incompatibility of state aid with competition, as well as framework rules on the assessment of various state support measures, de minimis threshold, powers and functions of the AMC, notification procedures for existing and new state aid, investigation of unlawful and misused aid, limitation periods, monitoring issues and judicial review. The State Aid Law became fully effective on 2 August 2017 (by 2 August 2022 Ukraine should align existing state aid measures with state aid rules).
Notably, the Association Agreement and the State Aid Law lay down only the basic rules and leave the details to secondary legislation. The secondary legislation developed so far includes the following:
Several other secondary legal acts are in the pipeline. They include (among others):
The fully fledged and operational state aid regulation is also supplemented by secondary legislation on sectoral aid, services of general economic interest (SGEI), a procedure on the revocation of decisions on clearance of new state aid by the AMC, etc.
It is also worth adding that the AMC has published a number of guidelines, including (but not limited to):
Essentially, in all guidelines listed above, the AMC quotes and explains the relevant jurisprudence of the CJEU, as well as certain secondary legislation, frameworks, guidelines and other administrative acts in force in the European Union. Again, this is because the Association Agreement requires Ukraine to interpret its state aid legislation in line with the EU acquis.
The European Commission has no power to approve state aid schemes or to grant block exemptions in Ukraine.
As to the AMC, its most significant schemes approved to date include:
The GBER is not implemented in Ukraine.
Notably, however, under the State Aid Law, the AMC can develop and adopt the respective block exemption from the obligation to notify new state aid. However, this does not appear to be mandatory for the AMC, nor is it on its short-term agenda.
The GBER is not implemented in Ukraine.
Notably, however, under the State Aid Law the AMC can develop and adopt the respective block exemption from the obligation to notify new state aid. However, this does not appear to be mandatory for the AMC, nor is it on its short-term agenda.
Public undertakings, public holdings in company capital and public-private partnerships
In Ukraine, a large proportion of state support measures (ie, tax benefits, direct subsidies, state guarantees and debt write-offs) have been provided to public undertakings active in certain priority sectors (ie, coal mining, steel and energy), including in the provision of SGEI. For example, under the study of the EU-funded project ‘Harmonisation of Public Procurement System in Ukraine with EU standards’ on state aid measures in Ukraine issued in March 2015, the largest share of public support (including subsidies, tax benefits, write-offs, state guarantees and compensation) was granted to state-owned enterprises in the energy sector (including coal), to shipbuilding, aircraft building, steel protection and IT development. Total budget revenue foregone from special tax benefits to undertakings accounted for approximately 3–5 per cent of GDP annually. The energy sector (including coal, oil and gas, and electricity) received on average some 30 per cent of the total amount of budget support to undertakings in Ukraine between 2011 and 2013.
As this public support results in a great share of budget revenue forgone or not collected at all, these measures will likely be scrutinised by the Anti-monopoly Committee of Ukraine (AMC) under the State Aid Law and associated secondary rules. In fact, the AMC has already been scrutinising them, as the vast majority of notifications made to the AMC to date relate to financial support provided by municipalities to their municipal companies.
Currently, there are no specific national rules on compensation to undertakings providing SGEI, other than the broadly worded derogation in the State Aid Law saying that any reasonable compensation to undertakings providing SGEI is not caught by the State Aid Law. It appears, however, that the EU criteria envisaged by the Altmark case have not been fully implemented in the State Aid Law. Nonetheless, in practical terms, the AMC generally tends to follow the EU approach to SGEI. It frequently makes references to the Altmark case in its decisions applying all relevant criteria, as well as requesting additional information from the notifying parties to ensure that the new measures do not lead to overcompensation. The AMC has prepared the draft law amending the State Aid Law and bringing it fully in line with Altmark criteria.
Legal right to state aid
This depends on the exact state support measure. In some cases, the measure is expressly envisaged by law and can be claimed by a beneficiary fulfilling eligibility criteria. But, on the whole, it is within the discretion of an awarding authority.
Eligibility criteria depends on the exact state support measure. Often, the main criterion is whether the potential beneficiary of the aid is active in the industry benefiting from state aid.
Again, this depends on the exact state support measure. In some cases, the measure is expressly envisaged by law and received ‘automatically’ without the need to make any applications (assuming a beneficiary fulfils eligibility criteria). The provider of the aid should also ensure that the aid complies with the Ukrainian state aid law, meaning that prior authorisation of the aid may be required.
Generally, refusal of an aid measure may be subject to judicial review.
State aid providers bear primary responsibility for ensuring that their policy measures and projects comply with state aid rules. However, beneficiaries of aid may also be notably involved in the notification and investigation process.
For instance, under the State Aid Law, an undertaking intending to obtain an aid measure must provide extensive information about itself to an aid provider. Additionally, under the AMC Procedure on Notification of State Aid, state aid providers may seek state aid beneficiaries’ participation in the pre-notification consultations with the AMC to provide clarification on technical or financial details that may be involved in a particular state measure.
Separately, in accordance with the State Aid Law, the AMC can open the formal investigation procedure whenever it finds that authorised aid is being misused. In this case, the aid beneficiary will likely bear the status of the defendant (either alone or with an aid provider) obliged to provide the AMC with all assistance or information needed. To ensure equality of treatment of the parties in this case, such an aid beneficiary will have various corresponding rights, including access to the file and being heard by the AMC.
Complaints about state aid
Competitors should address complaints about state aid to the Anti-monopoly Committee of Ukraine (AMC). The AMC has full investigatory, enforcement and supervisory powers, including the power to:
We are not aware of any cases where the AMC would exchange information with the authorities in other EU member states. However, under article 263 of the EU–Ukraine Association Agreement, each party must annually notify the other party of the total amount, types and sectoral distribution of state aid that may affect trade between the parties. Upon request by a party, the other party must provide further information on any state aid scheme and on individual cases of state aid affecting trade between the parties.
There are several ways in which competitors can discover illegal or incompatible aid from official sources.
The most straightforward way is to monitor the AMC website. The AMC publishes its decisions on opening of state aid cases on its website, along with the invitation of all interested parties to submit their comments within one month. Notably, if a competitor so requests, its identity shall be withheld from the provider of the state aid.
As part of state aid-monitoring functions, the AMC has established and maintains the state aid register with free access to all interested parties. Additionally, the AMC issues annual reports on state aid in Ukraine. Such reports are published in the Uriadovy Kuryer newsletter and on the Cabinet Ministers of Ukraine web page.
Under general rules envisaged by the State Aid Law competitors have access to state aid register maintained by the AMC. Additionally, under the AMC Procedure on State Aid Cases, a competitor may inform the AMC of any alleged unlawful aid and any alleged misuse of aid by submitting a complaint. Upon review of this complaint, the AMC may open a state aid case where the competitor will bear the status of the complainant with all corresponding rights, including access to the file.
In turn, non-complaining competitors may take advantage of the Law on Access to Public Information No. 2939-VI of 13 January 2011 by submitting a request to gain access to the relevant documents. In this case, the AMC will generally be obliged to address this request within 25 business days of its receipt.
Other publicly available sources include, for example, the Budget Code and the websites of ministries, the State Fiscal Service and the State Treasury Service of Ukraine.
Complainants active in the energy sector may take advantage of the Energy Community Treaty. In particular, the latter gives undertakings the right to approach the Secretariat of the Ministerial Council of the Energy Community (Council) with complaints.
Upon review of these complaints the Council may open an infringement case and impose sanctions. Under the Rules of Procedure for Dispute Settlement of the Ministerial Council of the Energy Community No. 2008/01/MG-EnC of 27 June 2008, interested parties may be granted access to the case file and may submit written observations to the Secretariat.
Relevant courts and standing
Private complaints against the award of state aid can be heard by administrative courts. Complaints can be filed by anyone whose rights or legitimate interests have been breached or jeopardised by the award of unlawful state aid.
Private enforcement action can be brought under existing civil, commercial and administrative laws.
This depends on the facts of the case. Potentially, the defendant can be either an aid provider (eg, if it failed to notify unlawful aid), an aid beneficiary (eg, in the case of misused aid) or even the Anti-monopoly Committee of Ukraine (AMC) (eg, if it incorrectly assessed the compatibility of the new state measure).
On 31 March 2020, the Ukranian Supreme Court delivered its ruling in the first state aid litigation in Ukraine. The judgment upheld the lower courts, which in turn had endorsed the first-ever decision of the Antimonopoly Committee of Ukraine (AMC) to recover around €13 million in incompatible aid. In this case, the courts relied on the EU substantive state aid rules while upholding the AMC.
A few other AMC decisions are being tested in the Ukrainian courts.
There is no mechanism that allows the Ukrainian courts to refer a question on state aid to the European Commission. However, while interpreting the state aid legislation, Ukraine is obliged to apply relevant jurisprudence of the CJEU, as well as relevant secondary legislation, frameworks, guidelines and other administrative acts in force in the European Union.
This depends on the court that reviews the case. In administrative courts the burden of proof rests with the defendant (ie, an aid provider that allegedly unlawfully granted the existing state aid or the AMC if the compatibility of the new state aid was allegedly wrongly assessed). In commercial courts the procedure is based on the adversarial principle, which means it is the complainant that must prove its case.
Under the EU–Ukraine Association Agreement (the Association Agreement), while interpreting the state aid legislation, the Ukrainian courts are bound by the relevant jurisprudence of the CJEU, as well as relevant secondary legislation, frameworks, guidelines and other administrative acts in force in the European Union. However, we are not aware of any similar cases in Ukraine. Therefore, it remains to be seen how compliant they will be with regard to the Deutsche Lufthansa case law.
There is no provision of the Ukrainian law preventing an individual from bringing state aid proceedings in the national courts concurrently with an investigation by the AMC.
Generally, economic evidence can be taken into account, but, in practice, the national courts are reluctant to accept it.
Under the general rule, the pretrial proceedings in the administrative and commercial courts should last no longer than two months, however, the time frames may be extended for another month. The court should then consider the case on the merits within one month. A case should be considered on appeal within two months. However, in practice, the statutory limits may be exceeded.
Under the State Aid Law, an interested party can ask the AMC for interim measures. In particular, a competitor can submit a formal complaint to the AMC and, in parallel, ask the authority to suspend the state aid measure if it affects or may affect competition.
In April 2020, the AMC suspended unlawful aid of one of the municipalities until a decision on its compatibility is adopted.
For commercial and administrative courts, a general test for granting interim measures is that failure to do so will significantly hinder or make impossible the enforcement of a final decision or the effective protection of the claimant’s rights and interests. An additional ground for administrative courts to grant an interim measure is prima facie evidence of an unlawful action or decision by the defendant and violation of the claimant’s rights and interests by the action or decision in question. The court can grant interim relief upon the application of the interested party or by its own motion. A court order on interim measures may be challenged on appeal.
If the national courts establish the presence of illegal aid, this aid should be repaid by the beneficiary.
As to the guarantees involving state aid, to our knowledge, such cases have not been reviewed by the courts yet. At the same time, under the Association Agreement, the Ukrainian courts should be bound by the relevant jurisprudence of the CJEU, as well as relevant secondary legislation, frameworks, guidelines and other administrative acts in force in the European Union.
There are no specific conditions for competitors to obtain damages for the award of unlawful state aid. Commercial and administrative courts have their own general mechanisms of calculating damages, which are relatively similar.
The basic rules regarding the recovery of state aid are laid down in the State Aid Law and the Cabinet Ministers of Ukraine Resolution on Recovery of State Aid. The recovery of incompatible aid is enforced by the Antimonopoly Committee of Ukraine (AMC).
The legal basis for the recovery of state aid is the AMC's decision to recover state aid envisaged by the State Aid Law.
The AMC has not yet opened infringement procedures before the national courts because of non-recovery of illegal aid.
Under the Cabinet Ministers of Ukraine Resolution on Recovery of State Aid, where a negative recovery decision is taken, the AMC sends copies to the aid provider and the beneficiary within three days and publishes it on its website.
The aid provider concerned shall take all necessary measures to recover the aid from the beneficiary and must inform the AMC about them within a set deadline, which should not exceed two months following publication of the negative decision. The overall deadline for recovery of the aid should not exceed six months of publication of the decision.
Where the aid provider or beneficiary does not comply with the recovery decision, the AMC may refer the matter directly to the Administrative Court of Kiev City.
Under the State Aid Law, where the AMC establishes that unlawful state aid is provided on the basis of a legislative act adopted without compliance with the requirements of the State Aid Law, it shall notify the appropriate state aid provider and the Cabinet of Ministers of Ukraine, which, being a subject of the right of legislative initiative, makes proposals for bringing such a legislative act in accordance with the State Aid Law.
The recovery decision is compulsory except for cases where the 10-year limitation period has passed or the beneficiary of the aid is liquidated.
Theoretically, this provision can be taken into account by public bodies, as Ukraine is bound by the relevant jurisprudence of the CJEU, as well as relevant secondary legislation, frameworks, guidelines and other administrative acts in force in the European Union.
First, to avoid a recovery order, before receiving the aid from a public body, a beneficiary can check with such a body or through the state aid register if this aid was notified to the AMC. If this is not done and the beneficiary received the aid, it may defend itself with reference to provisions in the State Aid Law: the recovery decision is not compulsory if the 10-year limitation period has passed or the beneficiary of the aid is liquidated.
Aid beneficiaries can apply for interim relief against the recovery decision in both commercial and administrative courts. To our knowledge, there have been no cases where interim relief was granted. We are also not aware of cases where aid recipients received damages for recovery of incompatible aid.
Key developments of the past year
The most important recent development is the ruling of the Ukrainian Supreme Court (Supreme Court) delivered in the first state aid litigation in Ukraine. The judgment upheld the decisions of the lower courts, which in turn had endorsed the first ever decision of the AMC to recover incompatible aid. As the decisions of the AMC and the lower courts left some controversies in the case, the long-awaited ruling of the Supreme Court was expected to clarify them. Unfortunately, the highest court did not add much clarity to the case and left much scope for ambiguity.
In particular, one of the arguments applied by the provider of state aid in this case was that the decision of the AMC was manifestly wrong as the AMC did not analyse effect of the compensation on trade between the EU and Ukraine – one of the criteria of state aid. This criterion is not envisaged in the State Aid Law but is present in the EU–Ukraine Association Agreement. As Ukraine constitutionally prescribes the primacy of international law over the national law in the case of their conflict, the provider of aid maintained that the AMC should have proved that the compensation could have affected trade between the EU and Ukraine. Yet, the Supreme Court evaded the discussion on the ‘effect on trade’ concept, leaving unanswered one of the key questions in the Ukrainian state aid law – does the AMC need to assess the effects of the measure on trade between the EU and Ukraine to prove its state aid character or not?
The position of Supreme Court was quite confusing and disappointing, given that the AMC had prepared draft amendments introducing the ‘effect on trade’ concept in the Ukrainian state aid law to bring it in line with the EU–Ukraine Association Agreement. In other words, the AMC had itself acknowledged inconsistency between the international law and the local law, which means that whenever the AMC wants to qualify any state support measure as aid, ‘effect on trade’ analysis cannot be ignored.
Another notable development is the state aid case opened by the AMC in relation to the alleged aid granted to Philip Morris by virtue of the settlement reached with Ukraine in one tax dispute. The case was opened upon complaint of one of the Ukrainian tobacco manufacturers. The case is ongoing.
Relatedly, recently the NGO the Council for Protection of Competition and Consumers reported that they filed a complaint with the AMC on illegal state aid that the Ministry of Energy allegedly grants to producers of renewable energy. The complaint concerns green tariff and says, among others, that feed-in tariff rates are excessive and amount to illegal state aid. The AMC is deciding on whether to launch an investigation based on the complaint.
In early 2020, the Ukrainian parliament adopted the anti-covid-19 law providing social and economic guarantees. This law contains ample support measures to mitigate the economic downturn caused by the virus. Later in 2020, the Cabinet of Ministers of Ukraine also implemented a series of measures to tackle the effects of covid-19, including to save jobs, exempt medical products from import duties that are required to overcome the pandemic, introduce simplified rules to provide loans for SMEs, etc.
Somewhat mimicking the European Commission, the AMC simplified the procedure for notification and review of state aid related to covid-19. On 3 March 2021, the Cabinet Ministers of Ukraine adopted the Resolution on Criteria for Approval of Covid-19-related State Aid No. 200 of 3 March 2021. Based on the Criteria, the following aid can be considered compatible: