Ukraine’s economy suffers enormous losses from Russian aggression.  For the second year in a row, international partners are providing substantial finances to keep Ukraine’s economy afloat.  Meanwhile, Ukraine is trying to find its own resources as well. 

Among such could be the privatisation of numerous state-owned companies, including major ones (so-called “big privatisation”), as well as the management of the sanctioned assets seized in Ukraine.  For obvious reasons, big privatisation was ground to a halt last year when the full-scale unprovoked aggression of the Russian federation against Ukraine began. 

Recently Ukraine has improved the legislative framework related to privatisation, in particular, by enhancing the operational efficiency of the body responsible for its realisation – the State Property Fund of Ukraine (the “SPF“), which should also allow resuming the big privatisation. 

On 22 June 2023 a new Law No. 3137-IX (the “SPF Law“), introducing some amendments to several legislative acts, entered into force.  Initially, the SPF Law was aimed at streamlining the operations of the SPF only.  However, going through the Verkhovna Rada of Ukraine committees and parliamentary readings it expanded to the issues of (i) improving state property management and (ii) increasing the effectiveness of Ukrainian sanctions policy. 

First and foremost, the SPF Law envisages transforming the now existing 12 SPF separate regional branches into subdivisions of the SPF HQ and empowering its chairman to independently appoint the deputy chairmen.  It is expected that this centralisation may lead to a better distribution of responsibility between the SPF leadership and its subdivisions, setting clearer KPIs for departments and ensuring market salaries for the employees. 

Moreover, the SPF Law (i) prohibits sanctioned persons and citizens of aggressor countries from holding the management positions of heads of state-owned enterprises and becoming members of supervisory boards; (ii) eliminates restrictions on the time limits of state property lease agreements that were established for the period of martial law and could not exceed 12 months after the termination or cancellation of martial law.

Furthermore, the SPF Law introduces some changes to the handling of sanctioned assets seized in furtherance of war-related sanctions policies and regulations:

• upon the seizure by the High Anti-Corruption Court, the sanctioned assets will be transmitted to the custody of the SPF; 
• the SPF will independently make management decisions regarding the seized assets (such as on privatisation, sale, lease or property management); 
• enforcement, moratorium or any other encumbrances or pledges on sanctioned assets do not prevent the seizure of these assets by the State as a sanction under the Law of Ukraine “On Sanctions”; 
• all proceeds from the seized assets will be transferred to the Fund for the Elimination of the Consequences of Armed Aggression. 

The above provisions on management of sanctioned assets will become effective on 22 September 2023. 

Until now, Ukrainian legislation did not determine a body responsible for managing the seized assets.  The regular practice was to send the decisions of the High Anti-Corruption Court on seizure of the sanctioned assets to the Cabinet of Ministers of Ukraine to determine the body responsible for the execution.  Normally, the Cabinet of Ministers of Ukraine would choose the SPF to manage the sanctioned assets, so it was decided to vest these powers into that agency on permanent basis. 

As reported by the Chairman of the SPF, among the first businesses that are preparing for the big privatisation are United Mining and Chemical Company and the Odesa Port Plant.  Now, as the big privatisation is going to be resumed, more private investment in state-owned enterprises is expected.  One is hopeful that this may lead to the implementation of new technologies, modernisation, and development of previously state-owned enterprises which will help Ukraine sustain the Russian aggression and contribute to economic growth and rebuilding once the war is over. 

By Yaroslav Brych and Bohdan Prybora