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March 08, 2023

The War, Logistics Challenges, and Ukraine's Response

Andrii Pidhainyi, partner and co-head of Transport and Infrasructure practice 

 

The war has largely affected export and import logistics, and its consequences will affect Ukraine's economy in the post-war period. The key challenges faced by agricultural exporters were lengthy border - crossing procedures, low capacity of Ukrzaliznytsia (Ukrainian state – owned railway company) and EU railways, and few road and rail border crossings. Despite significant regulatory hurdles, energy crisis and regular missile attacks the Grain Initiative was successfully implemented. Even if a solution for grain exports from Ukraine was found, transshipment capacities, both in Ukraine and in the EU countries, require significant investments. The business has conditionally divided such projects into quick and strategic solutions.

Quick solutions are meant to rapidly create additional capacities to ensure the sunflower oil and grain exports. These projects are aimed at short-term development of railway transshipment capacities in Western Ukraine, modernization of existing marine terminals and development of new river terminals within the Danube cluster created this year. Two laws were enacted early June to simplify allocation of land plots and commencement design work. Strategic solutions, in its turn, are called to create universal transport complexes on the western border, which could also function as reserve capacities to promptly reorientate export chains from the southern (port) direction.

This said, we refer to the survey conducted by the EBA Logistics Committee in Ukraine in late 2022. Thus, 79% of the transport sector stakeholders supported development of a network of strategic universal transport hubs in the western regions of Ukraine during the post-war period. This falls within the post-war Ukraine Recovery Plan presented last July at Lugano Conference. International practice shows that the best investment tools to implement such large-scale projects are industrial parks and PPP - schemes.

A full-fledged legal framework for industrial parks was completed in fall 2022. The Government of Ukraine is about to establish a dedicated agency, respective Development Strategy is on the way. According to publicly available information, 50 + industrial parks have already appeared in Ukraine, initiated by public or private stakeholders.

Since Ukraine and its international partners voice a certain vision of post-war recovery, it would be feasible to adopt the draft Strategy to focus on several large-scale projects of national significance. Ukrzaliznytsia, as holder of railway infrastructure, could be the initiator of such projects.

The parliament is about to finalize a large-scale draft law amending the laws on public-private partnerships and concessions. The law outlines the mechanism to accelerate the post-war restoration of destroyed infrastructure and construction of new facilities. This involves the formation of a nationwide list of recovery projects, which should also include projects to build transport hubs. Along with streamlining the regulatory hurdles, the draft law provides for additional opportunities for using international aid to co -finance construction and developing mechanisms to insure private investments against the war-time risks.

According to government officials, in the post-war recovery period, Ukraine is primarily counting on private investments from developed economies rather than on grant aid. To this end, a legislative framework should be formed and adapted to EU directives against the background of the accelerated consideration process of Ukraine's EU membership.

 

Practice Area News

Breakthrough in availability payment-based PPP. Law No 2043-IX on Amendments to the Budget Code of Ukraine was signed by the President of Ukraine on February 15, 2022, and entered into force on August 19, 2022. It is critically essential to public-private partnership projects for infrastructure development, especially within the post-war period. The Law establishes a budget procedure for a public partner to make long-term financial commitment to compensate for private investment.

Developing inland waterways. Law No 1054-IX on Inland Water Transport entered into force on January 1, 2022 (adopted by the Verkhovna Rada of Ukraine on December 3, 2020). It establishes a premise for the full development of the inland waterways industry and makes this area attractive for investment. In particular, the Law consolidates norms from various legislative documents and defines organizational rules for transport on inland waterways.

PPP for restoration and economic development. Draft Law on Amendments to Certain Legislative Acts No 7508 dated July 1, 2022, is expecting the 2nd hearing in the Parliament. The Bill improves and shortens PPP procedures for restoring war-destroyed infrastructure facilities and constructing new ones in post-war times. According to the government, PPP is a crucial mechanism for attracting private investment. For this purpose, the government established the State Agency for Restoration and Infrastructure Development of Ukraine. 

New rules for freight road transportation. An intergovernmental agreement between Ukraine and the European Union on the carriage of freight by road No 984_001-22 was signed on June 29, 2022, for a period of 1 year (with the possibility of extension). It is aimed at avoiding stopping the export of Ukrainian products through automobile checkpoints. In particular, the Agreement cancels the need for Ukrainian carriers to obtain permits for bilateral and transit transportation to EU countries.

 

In the Firm

On February 1, 2022, AGRECA Law Firm team merged into ARZINGER. New partners Andrii Pidhainyi and Maryna Sharapa joined ARZINGER bringing in sectoral expertise in transport, infrastructure, and public property related transactions.

In February 2022, ARZINGER was nominated a legal partner of the EBA Logistics Committee in Ukraine to support development of the annual EBA Infrastructure Index. Read more: HERE. 

 

Special for Legal Industry Review.

 

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