Reconstruction Digest, vol.2

28.08.2024

І. LAND MARKET

ІІ. LEASE OF STATE-OWNED PROPERTY

ІІІ. STATE INCENTIVES FOR ATTRACTING INVESTMENT

 

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І. LAND MARKET

SPFU introduced the "Land Bank" project

In May 2024, the State Property Fund of Ukraine (the SPFU) introduced the "Land Bank" project, which opens the state land lease market for farmers and agrarians. The project will be implemented within the framework of Law № 3272-IX dated 27 July 2023, which aims to ensure the efficient use of state-owned agricultural land. The formation of the Land Bank is anticipated to be implemented in several stages:

  • The Cabinet of Ministers of Ukraine (the CMU) will issue a resolution transferring agricultural lands to state operators of the Land Bank — several state enterprises under the SPFU that are free of debt and corruption cases. These enterprises will subsequently be transformed into Limited Liability Companies (LLCs) or Joint Stock Companies (JSCs), with 100% of their shares owned by the state.
  • The state operators will lease the land for 50 years and organise open competitive sublease auctions through the Prozorro.Sale platform.

The initial rental rate will be no less than 12% of the land's normative monetary valuation, with sublease agreements being concluded for 14 years for annual crops and 25 years for perennial crops.

In accordance with Order of the CMU № 541-r dated 13 June 2024, 104,000 hectares of agricultural land have already been transferred to the State Enterprise "Agrarian Investment Fund" which, after corporatisation, will serve as a land auction operator. The first land auctions on the Prozorro.Sale online platform are anticipated to take place in 2024.

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State Registration of Property Rights for Land Improvement and their Components

The possibility of state registration of property rights to land improvement networks and their components (for irrigation, drainage, collector-drainage and other related purposes) was introduced via amendments to the final and transitional provisions of the Law of Ukraine "On Water User Organisations and Stimulation of Hydrotechnical Land Improvement". From now on, to register an irrigation and drainage network or its components (including changes to information about them), the applicant (any interested person, government, or local authority) may submit the following to the State Cadastral Registrar:

  • An application for the state registration of a land improvement network or its components (including changes to information about them), in the form prescribed by the Procedure for Administration of the State Land Cadastre;
  • Documents establishing the details of a land improvement network or its components;
  • An electronic document containing information about a land improvement network or its components.

State registration or a reasoned refusal to register is granted within 14 days from the date of registration of the application.

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Compensation for the Restoration and Construction of Land Improvement Systems

According to amendments to Resolution of the CMU No. 1070 dated 11 October 2021, agricultural producers who use improved land may receive up to 50% compensation for the costs incurred for the reconstruction and modernisation of existing or the construction of new land improvement systems. Water user organisations may also receive up to 50% compensation for the restoration of pumping stations. These subsidies will be provided for land improvement systems that have been commissioned between 1 November 2023 and 31 October 2024.

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Compensation for Humanitarian Demining Costs

The CMU has updated the Procedure for using the state budget funds allocated to compensate agricultural producers for the costs of humanitarian demining of agricultural land. According to the amendments, the updated Procedure now also applies to demining activities carried out between 24 February 2022 and 15 April 2024, provided that such activities are conducted by certified demining operators. Compensation will cover up to 80% of the costs.

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ІІ. LEASE OF STATE-OWNED PROPERTY

The CMU has amended the legislation governing the preparation of documents required for the lease of state-owned real estate by social service providers

The CMU has amended the legislation governing the preparation of documents required for the lease of state-owned real estate by social service providers included in the Register of Social Service Providers and Recipients. As a reminder, since August 2023 social service providers have been included in the list of entities eligible to lease state and municipal property without the need for an auction.

By Resolution № 381 dated 2 April 2024, the Government of Ukraine approved the list of documents that must be submitted by such applicants, specifically a document confirming the inclusion of the social service provider in the Register of Social Service Providers and Recipients, as well as a lease application. Additionally, a uniform preferential rental rate of 1% per year of the market value of the leased property has been established for all social service providers.

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ІІІ. STATE INCENTIVES FOR ATTRACTING INVESTMENT

New Regulations on State Support for Projects with Significant Investment (so-called "Investment Nannies")

The Government has approved a series of resolutions that regulate the conditions for providing state support to projects with significant investment.

In particular, to implement the provisions of Article 3 of the Law "On State Support for Investment Projects with Significant Investment in Ukraine" ("the Law"), the Government approved in March 2024 the Procedure for Compensation for Construction Costs of Engineering and Transport Infrastructure Objects by Applicant or Investor with Significant Investment ("Resolution № 292").

Resolution № 292 outlines the requirements for the submission of documents and the procedure for obtaining full or partial compensation from budgetary funds for:

  • The costs of engineering and transport infrastructure facilities constructed by the applicant or investor with significant investment, required for the implementation of the investment project;
  • The cost of connection to engineering and transport networks required for the implementation of an investment project with significant investment.

To recap, the Law introduces the aforementioned state incentives for investors planning to implement investment projects in Ukraine with a value of at least €12 million and a duration of up to five years in sectors such as manufacturing, extraction and processing of minerals, transportation, logistics, and other specified industrial areas. The total amount of state support can reach up to 30% of the investment project's value.

Additionally, on 26 April 2024, the Government approved the Procedure for Use of Funds to Support Projects with Significant Investment, including budgetary funds allocated as full or partial compensation to applicants or investors for the costs of constructing engineering and transport infrastructure facilities and/or the costs of connecting and joining engineering and transport networks.

The allocation of budgetary funds for these purposes will be carried out in accordance with the Procedure set forth in Resolution № 292, within the framework of the special fund of the state budget under the program "State support for the implementation of investment projects with significant investment."

Among other things, the Procedure mandates that the applicant must return the received compensation if it is determined that the amount of investment is less than the threshold of €12 million or if such funds were obtained unlawfully.

On 14 May 2024, the Strategic Investment Council was established and its composition approved. The Council will approve the medium-term plan of priority public investment and the unified portfolio of public investment projects, as well as oversee their high-level implementation.

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Certain Issues of State Incentives for Creation and Operation of Industrial Parks

On 11 June 2024, the Resolution of the CMU "On Certain Issues of State Incentives for Creation and Operation of Industrial Parks" came into force. Among the key changes:

  • Resolution No. 1208 dated 28 October 2022 "On Approval of Procedure for Providing Full or Partial Compensation of the Interest Rate on Loans (Credits) for the Development and/or Conduct of Business Activities within Industrial Parks" is suspended for the period of martial law,
  • сancellation of Resolutions No. 1207 "On Approval of the Procedure for Providing Funds on a Non-Refundable Basis for the Development of Industrial Parks and/or Ensuring the Construction of Related Infrastructure Facilities Necessary for the Creation and Operation of Industrial Parks" and No. 10 "On Approval of the Procedure for Providing Compensation for Expenses to Initiators of the Creation of Industrial Parks — Business Entities, Management Companies and Participants of Industrial Parks for Connection to Engineering and Technical Facilities".

Instead, state support for industrial parks will now be regulated by the updated Procedure for Providing Funds for the Development of Industrial Parks and/or the Construction of Engineering and Transport Infrastructure Required for the Creation and Operation of Industrial Parks, as well as Compensation for Costs of Connecting and Joining Engineering and Transport Networks (the "Procedure"). State incentives will be provided to initiators and managing companies for two main purposes:

(i) the development of infrastructure for industrial parks, and

(ii) compensation for the costs of connecting to engineering networks.

However, the amount of state support should not exceed UAH 150 million per applicant (one industrial park) and will cover no more than 50% of the project’s cost (80% for de-occupied territories).

Furthermore, the Procedure outlines the required documentation for obtaining state funds and sets a number of requirements that applicants must meet, including the inclusion of the industrial park in the Register of Industrial Parks, timely submission of reports on the operation of the industrial park, absence of debt and open bankruptcy proceedings, absence of asset confiscation, and no records of the applicant in the Unified State Register of Persons who Committed Corruption or Related Offenses.

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Catalogue of Industrial Parks

The Ministry of Economy has published a Catalogue of Industrial Parks, which contains data on the specialisation, location, area, infrastructure, and available services of industrial parks. The catalogue is intended to help businesses find partners to develop their operations within industrial parks, attract new investment, or select locations with developed infrastructure to house their production facilities.

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Newly registered industrial parks

Since the beginning of 2024, 16 new industrial parks have been registered in Ukraine, primarily located in the western and central regions, with a diverse range of activities planned by future residents (production of building materials, woodworking, paper, and food industries). As of July, 84 parks have been included in the Register of Industrial Parks.

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Digest prepared by INTEGRITES Real Estate and Construction practice

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