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State Aid 2017. Ukraine
1 Outline your jurisdiction's state aid policy and track record of compliance and enforcement.
Although Ukraine adopted laws to protect free competition in the 1990s, the regulation of state aid had lagged behind until very 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 Organisation Agreements (2008) and the Energy Community Treaty (2011)). However, this in principle did not improve national state aid regulation, which is still lacking genuine monitoring and a system of enforcement.
The EU-Ukraine Association Agreement (the Association Agreement) gives Ukraine an opportunity to fill this gap and finally develop a comprehensive and transparent legal framework for state aid. In particular, the Association Agreement requires Ukraine to roll out state aid regulation in convergence with the EU acquis. The new legislation will take effect from 2 August 2017 and is expected to break a lasting Ukrainian bias toward state support measures representing about 9 per cent of its GDP.
What may contribute to the successful implementation of state aid reform is the ongoing economic crisis and constrained budget resources, which naturally make Ukraine more focused on effective management of public funds and lean away from uncontrolled and chaotic state support measures.
Although the Ukrainian state aid legislation will become fully operational later this year, its major part has already been developed and gives a good perspective on the future state aid regime outlined in our answers below.
2 Which national authorities monitor compliance with state aid rules and have primary responsibility for dealing with the European Commission on state aid matters?
The new state aid legislation allocates monitoring of compliance with state aid rules to the Antimonopoly Committee of Ukraine (AMC). The AMC is entrusted with various duties, including:
- assessment and consideration of state aid notifications;
- monitoring of state support measures in Ukraine and recovery of unlawful state aid incompatible with competition;
- collection, processing and registration of data on existing state aid;
- maintenance of the state aid register;
- preparation of annual reports on state aid;
- fostering of international cooperation in relation to state aid policy; and
- preparation of draft proposals of the legislation concerning state aid, as well as the promotion of improvements to the state aid system.
The AMC has established a dedicated State Aid Unit with seven employees. On numerous occasions AMC officers have pointed to the fact that its current capacity is insufficient to enforce state aid rules effectively (it is expected that the AMC may undertake hundreds of state aid assessments per year) and more people (around 30 by August 2017) will be hired and trained for this purpose.
3 Which bodies are primarily in charge of granting aid and receiving aid applications?
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.
4 Describe the general procedural and substantive framework.
In general terms, state aid is normally a public law issue in Ukraine, but private law may also be involved when supporting measures are provided via civil law instruments (eg, guarantees, capital injections, loans) or by undertakings authorised to manage public resources.
Structurally, the Ukrainian state aid-related rules are fragmented and incomplete. They are scattered around various legal acts, from the Commercial, Budget and Tax Codes to sectoral laws tailored to a particular industry (eg, the Law on State Support of Agriculture of Ukraine; the Law on State Support of Research and Development Institutes and Organisations that Develop and Sell Ammunition, its Elements and Special Chemical Goods; Procedure for the liquidation of non-competitive coal and processing enterprises, approved by the Resolution of the Cabinet of Ministers of Ukraine on 27 August 1997 No. 939; Procedure for the use of funds provided by the state budget for restructuring of the coal and peat industry approved by the Resolution of the Cabinet of Ministers of Ukraine on 11 March 2011 No. 236; Procedure on approval of the use of funds of the state budget to support the construction of coal and peat mining enterprises, technical re-equipment of these enterprises approved by the Resolution of the Cabinet of Ministers of Ukraine on 8 October 2012 No. 988).
5 Identify and describe the main national legislation implementing European state aid rules.
The main national legislation, which will implement the European-style state aid rules, includes the Association Agreement and the Law of Ukraine on State Aid to Undertakings No. 1555-VII of 1 July 2014 (the State Aid Law).
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 becomes fully effective on 2 August 2017. The main upcoming deadlines established in the State Aid Law are as follows:
- 2 August 2017: from this date, state aid-granting bodies must notify new aid measures to the AMC.
- 2 August 2018: deadline to notify existing state aid measures.
- 2 August 2022: deadline to 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, which are to be developed over a three-year transitional period from the date the State Aid Law was published (2 August 2014) to the date the State Aid Law enters into force (2 August 2017). The secondary legislation developed so far includes:
- The Procedure on Conducting Monitoring of State Aid to Undertakings approved by the Regulation of the AMC No. 43-pII of 28 December 2015 (AMC Monitoring Procedure) sets out the rules on how the AMC will monitor state aid and deliver annual reports. It will become effective on 2 August 2017.
- The Procedure on Submission of Information on Existing State Aid to Undertakings to the AMC approved by the Regulation of the AMC No. 43-pII of 28 December 2015 (AMC Procedure on Existing State Aid) sets out the rules and forms on how the AMC will collect information on existing state aid, review submissions and issue recommendations. It will become effective on 2 August 2017.
- The Procedure on Keeping of, and Access to, the State Aid Register approved by the Regulation of the AMC No. 43-pII of 28 December 2015 (AMC Procedure on State Aid Register) clarifies the way the AMC will maintain the state aid register and provide access to it. It will become effective on 2 August 2017.
- The Procedure of the AMC on Rules for Review of Cases on State Aid to Undertakings No. 8-pII of 12 April 2016 (AMC Procedure on State Aid Cases) sets the rules on how the AMC will issue information requests and investigate cases of unlawful or misused state aid, the rights of the parties, access to files, timeline, etc. It will become effective on 2 August 2017.
- The Procedure of the AMC on Rules for Preparation of Notifications on New Aid and Re-Examination of Existing State Aid 2-pII of 2 March 2016 (AMC Procedure on Notification of State Aid) sets detailed rules on how the new state aid measures should be notified and reviewed by the AMC. It will become effective on 2 August 2017.
- Several other secondary legal acts are in the pipeline and should be finalised in 2017. They include:
- The Draft Resolution of the Cabinet Ministers of Ukraine on General Criteria for Assessment of Compatibility of State Aid (CMU Draft Resolution on General Criteria), which establishes the requirements, terms, conditions (purpose, categories, thresholds of state aid, etc) and other necessary legal elements for the assessment of compatibility of state aid, which is not intended for horizontal and sectoral purposes.
- The Draft Resolutions of the Cabinet Ministers of Ukraine on Criteria for Approval of State Aid for Research and Development, Environmental Protection, Reorganisation and Restructuring, Professional Training, Regional Development and Support of SMEs.
- The Draft Law of Ukraine on Amendments to Some Laws of Ukraine to Bring them into Compliance with State Aid Laws, which aligns more than 15 laws of Ukraine with state aid legislation, including the aforesaid criteria.
- The Draft Resolution of the CMU on Approval of the Rules for Recovery of Unlawful Aid Incompatible with Competition (CMU Draft Resolution on Recovery of State Aid), which lays down the detailed procedure for the recovery of unlawful state aid found by the AMC to be incompatible with competition.
The fully fledged and operational state aid regulation will also be supplemented by secondary legislation on sectoral aid, the services of general economic interest (SGEI), a procedure on the revocation of decisions on clearance of new state aid by the AMC, etc.
6 What are the most significant national schemes in place that have been approved by the Commission or that qualify for block exemptions?
The European Commission has no power to approve state aid schemes or to grant block exemptions in Ukraine. As far as the AMC is concerned, no national schemes in place have been approved by the Ukrainian authority so far.
Importantly, on 30 December 2016, the AMC published a report on its inquiry into state support measures in the energy sector (Energy Sector Report). In the Energy Sector Report, the AMC concluded that many of the measures in Ukraine may qualify as state aid under EU rules (let alone contravene these rules). Unless these measures have expired or are repealed before August 2017, they will have to be notified to the AMC for closer assessment and approval.
7 Are there any specific rules in place on the implementation of the General Block Exemption Regulation (GBER)?
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 ownership and SGEI
8 Do state aid implications concerning public undertakings, public holdings in company capital and public-private partnerships play a significant role in your country?
So far, this has not played a significant role in Ukraine in the context of state aid, though a large proportion of state support measures (ie, tax benefits, direct subsidies, state guarantees and writing off debts) have been provided to public undertakings active in certain priority sectors (ie, coal mining, steel and energy), including in the provision of SGEI. 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 AMC once the State Aid Law and associated secondary rules become effective.
For example, one of the state support measures analysed by the AMC in the Energy Sector Report related to compensation for losses generated from supplies of electricity to preferential customers at a regulated tariff. In this respect, the AMC clarified in the Energy Sector Report that this measure may constitute state aid. However, reasonable compensation for losses generated from electricity supplies to preferential customers at a regulated tariff will not amount to state aid if such supplies qualify as SGEI.
9 Are there any specific national rules on services of general economic interest?
Currently, there are no specific national rules on 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 principles envisaged by the Altmark case have not been fully implemented in the State Aid Law and the exact criteria that the AMC will apply while measuring the compensation remain unclear.
Moreover, it remains unclear if the AMC will be involved at all in measuring the accounts of SGEI providers to ensure that state support measures do not result in overcompensation. Namely, in the Energy Sector Report the AMC expressly invited the Cabinet of Ministers of Ukraine to clarify the AMC's role in relation to the SGEI services. In particular, the AMC maintains in the Energy Sector Report that 'in order to exclude the fact that these entities receive [overcompensation], the [AMC] may . . . together with [national regulators in the energy sector] decide on the approach to the revision of prices and costs that were incurred to comply with "reasonable compensation" requirement'.
Considerations for aid recipients
10 Is there a legal right for businesses to obtain state aid or is the granting of aid completely within the authorities' discretion?
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.
11 What are the main criteria the national authorities will consider before making an award?
As far as aid providers are concerned, the main thing they will need to consider before making an award is whether the aid measure is duly notified to and approved by the AMC, which has broad discretion to assess substantive criteria.
In this context, before authorising an aid measure the AMC will need to make sure that it meets certain criteria and is beneficial to the economy. In general terms, state aid will be considered beneficial 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 that has a minor impact on competition.
12 What are the main strategic considerations and best practices for successful applications for aid?
Under the State Aid Law, all state support measures existing as of 2 August 2017 will have to be notified to the AMC, which can then investigate and declare them incompatible with competition. Therefore, it is in the interest of providers of state support to re-examine their measures timely to ensure that they can withstand further scrutiny by the AMC. Because of the complexity of substantive state aid rules, it makes sense to commence this re-examination in advance to identify potentially problematic state support and be able to adapt it accordingly at an early stage.
This policy consideration appears to be especially important in cases involving individual supporting measures, where the success of interaction with the AMC will generally depend on how closely a beneficiary works with an aid provider and how early the former is included in the notification process.
13 How may unsuccessful applicants challenge national authorities' refusal to grant aid?
Generally, refusal of an aid measure may be subject to judicial review.
14 To what extent is the aid recipient involved in the EU investigation and notification process?
State aid providers will bear primary responsibility for ensuring that their policy measures and projects comply with state aid rules. However, beneficiaries of aid will 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 shall 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 clarifications 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 a 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.
Strategic considerations for competitors
15 To which national bodies should competitors address complaints about state aid?
Competitors should address complaints about state aid to the AMC.
16 How can competitors find out about possible illegal or incompatible aid from official sources? What publicity is given to the granting of aid?
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. Under the State Aid Law, the AMC should publish the decision to open a state aid case 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 will also establish and maintain the state aid register, and will provide free access to all interested parties. Additionally, the AMC shall issue annual reports on granted state aid in Ukraine. Such reports will be published in the Uriadovy Kuryer Newsletter and on the CMU's web page.
17 Give details of any legislation that gives competitors access to documents on state aid granted to beneficiaries.
Under general rules envisaged by the State Aid Law and 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 get access to the relevant documents. In this case, the AMC will generally be obliged to address this request within a period of up to 25 business days following its receipt.
18 What other publicly available sources can help competitors obtain information about possible illegal or incompatible aid?
Other publicly available sources include, for example, the Budget Code and the websites of ministries, the State Fiscal Service, the State Treasury Service of Ukraine, etc.
19 Apart from complaints to the national authorities and petitions to national and EU courts, how else may complainants counter illegal or incompatible aid?
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.
Private enforcement in national courts
20 Which courts will hear private complaints against the award of state aid? Who has standing to bring an action?
Private complaints against the award of state aid can be heard by both administrative and commercial courts. Complaints can be filed by anyone whose rights or legitimate interests were breached or jeopardised by the award of unlawful state aid.
21 What are the available grounds for bringing a private enforcement action?
Private enforcement action can be brought under existing civil, commercial and administrative laws.
22 Who defends an action challenging the legality of state aid? How may defendants defeat a challenge?
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), aid beneficiary (eg, in case of misused aid) or even the AMC (eg, if it incorrectly assessed compatibility of the new state measure).
23 Have the national courts been petitioned to enforce compliance with EU state aid rules or the standstill obligation under article 108(3) TFEU? What is the national courts' track record for enforcement?
The national courts have not been petitioned to enforce compliance with EU state aid rules or the standstill obligation under article 108(3) TFEU, as Ukraine is not a member of the EU.
There is no track record of enforcement by the national courts, as the state aid regulation only becomes fully effective in August 2017.
24 Is there a mechanism under your jurisdiction's rules of procedure that allows national courts to refer a question on state aid to the Commission and to stay proceedings?
There is no mechanism that allows the Ukrainian courts to refer a question on state aid to the EU Commission. Interestingly, though, under the Association Agreement, while interpreting the state aid legislation, the Ukrainian courts will nonetheless be bound by the relevant jurisprudence of the Court of Justice of the European Union, as well as relevant secondary legislation, frameworks, guidelines and other administrative acts in force in the European Union.
25 Which party bears the burden of proof? How easy is it to discharge?
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 unlawfully granted the existing state aid or the AMC if the compatibility of the new state aid was wrongly assessed). In commercial courts, the procedure is based on the adversarial principle, which means it is the complainant that has to prove its case.
26 What is the role of economic evidence in the decision-making process?
Generally, economic evidence can be taken into account, but in practice the national courts are reluctant to accept it.
27 What is the usual time frame for court proceedings at first instance and on appeal?
The administrative court, as a general rule, has one month to consider a case at first instance and the same for appeal. Normally, the commercial court has up to two months for trial and the same time for consideration of appeal. However, the time frames can be adjusted.
28 What are the conditions and procedures for grant of interim relief against unlawfully granted aid?
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.
For commercial courts, a general test for interim measures is that the court can impose interim measures when failure to do so will hinder or make impossible the enforcement of a final decision. The administrative court applies almost the same test, namely when there is (or will be) a threat to the rights, freedoms and interests of the claimant or when it would be costly to restore such rights (if interim measures are not imposed), as well as when there is prima facie evidence of unlawful actions of the defendant. The court can grant interim relief upon the application of the interested party or by its own decision. A court order on interim measures can be subject to appeal. There are no specific sanctions if the court order on interim relief is later annulled.
29 What are the conditions for competitors to obtain damages for award of unlawful state aid or a breach of the standstill obligation in article 108(3) TFEU? How do national courts calculate damages?
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 the damages, which are relatively similar.
State actions to recover incompatible aid
30 What is the relevant legislation for the recovery of incompatible aid and who enforces it?
The basic rules regarding the recovery of state aid are laid down in the State Aid Law and the CMU Draft Resolution on Recovery of State Aid. The recovery of incompatible aid is enforced by the AMC.
31 What is the legal basis for recovery? Are there any grounds for recovery that are purely based on national law?
A negative AMC decision finding state aid unlawful and incompatible with competition constitutes a legal ground for ordering recovery.
32 How is recovery effected?
Under the CMU Draft Resolution on Recovery of State Aid, where a negative recovery decision is taken, the AMC sends its copies to aid providers and beneficiaries within three days and publishes it on its website. The recovery decision should contain the following elements:
- the legal basis for recovery;
- the amount of aid to be recovered;
- the identities of the aid providers;
- the identities of the entities that have to reimburse the aid;
- the deadline for reimbursement of the aid;
- steps to be taken by aid providers and beneficiaries to comply with the recovery decision; and
- the interest accrued on the amount of the aid to be recovered.
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 four months following publication of the decision.
Under the CMU Draft Resolution on Recovery of State Aid, the sums to be recovered shall bear interest throughout the period running from the date on which they were put at the disposal of the beneficiaries until their actual recovery. The amount of the interest rate should correspond to double the discount rate of the National Bank of Ukraine that was set for the respective period.
Where the aid provider or beneficiary do not comply with the recovery decision, the AMC may refer the matter directly to the Administrative Court of Kiev City.
The recovery decision is compulsory except for cases where:
- the 10-year limitation period has passed; or
- the aid provider proves to the AMC that recovery is impossible because the beneficiary of the aid is insolvent.
33 How may beneficiaries of aid challenge recovery actions by the state?
Not applicable, as the State Aid Law only becomes effective in August 2017.
34 Is there a possibility to obtain interim relief against a recovery order? How may aid recipients receive damages for recovery of incompatible aid?
Theoretically, aid beneficiaries can apply for interim relief against the recovery decision in both commercial and administrative courts. However, there have been no such cases so far.