Publication

Cross-Border Guide to Mining Rights 2021: Ukraine

12/04/2021

Tetiana Revutska

Senior Associate, Attorney-at-Law

Energy and Natural Resources,
PPP and Procurement,
Real Estate and Construction,
Construction and Development,
Renewables

Published: TerraLex, April 2021

Regulatory framework

Provide a brief summary of the regulatory framework surrounding the mining industry in this jurisdiction.

The key rules and principles applicable to the mining industry are defined in the laws of Ukraine adopted by the Ukrainian Parliament. The main laws in the industry are:

  • Subsoil Code of Ukraine (the "Subsoil Code");
  • Mining Law of Ukraine (the "Mining Law");
  • Law of Ukraine "On Mining and Processing of Uranium Ores";
  • Law of Ukraine "On Production Sharing Agreements";
  • Law of Ukraine "On State Regulation of Extraction, Production and Use of Precious Metals and Precious Stones and Control over Operations with Them";
  • Law of Ukraine "On Ensuring Transparency in Extractive Industries" (the "EITI Law");
  • Law of Ukraine "On Environmental Protection";
  • Law of Ukraine "On Environmental Impact Assessment"; and
  • Law of Ukraine "On State Support of Investment Projects with Significant Investments".

The rates of rent for the subsoil use, which is a special tax imposed on mining activities, are set by the Tax Code of Ukraine (the "Tax Code").

Certain procedures relevant to mining planning, execution and reporting are set by resolutions approved by the state executive authorities.

What are the main authorities involved in regulating the mining industry in this jurisdiction?

The Cabinet of Ministers approves procedures for certain aspects of mining activities, for example the rules for obtaining the special permit for subsoil use, the rules for storing and delivering the geological information, the rules for holding the electronic auctions.

The Ministry of Energy of Ukraine sets and exercises state policies in the energy sector, including mining of coal and peat. 

The Ministry of Environmental Protection and Natural Resources of Ukraine sets and exercises state policies in environmental protection and sets state policies in geological exploration and rational use of subsoil. It also executes state control of environmental protection and rational use, renewal, and protection of natural resources.

The State Service of Geology and Mineral Resources of Ukraine (the "Geology Service") is responsible for matters directly connected with the subsoil use. The Geology Service maintains records of the subsoil areas in use and chooses the subsoil areas to be presented at the electronic auctions. It issues the special permits for subsoil use and controls whether the special permit holders comply with the subsoil laws. It is also authorized to suspend or terminate subsoil use rights in cases defined by the Subsoil Code.

The State Commission of Ukraine on Mineral Resources (the "Resources Commission") inspects and evaluates the reserves of natural resources discovered after geological exploration of subsoil areas and inspects the programmes for further development of subsoil areas.

The State Environmental Inspectorate of Ukraine monitors and controls compliance with the environmental laws and requirements of the special permits.

The State Agency for Water Resources and the State Agency for Forest Resources control the use of the water and forestry resources, respectively.

The State Labour Service grants mining allotments that are required for commercial development of most subsoil areas where the resources have been already explored.

Exploration, exploitation, and production rights

What is the process for authorizing or obtaining a concession for mining activities?

To obtain mining rights one shall obtain a special permit. The special permit defines the area of subsoil granted for use, the natural resource it applies to, the type of subsoil use and its duration. The special permit is accompanied by a subsoil use agreement signed between the subsoil user and the Geology Service, which defines the programme for works, duties of the subsoil user to utilize modern technologies and protect environment, rights of the Geology Service to control and request information on subsoil use, etc.

One may obtain a special permit for one of the following subsoil uses, and the maximum duration of the special permit differs depending on the subsoil use:

  • geological exploration of subsoil areas bearing natural resources of local significance – for up to three years;
  • geological exploration and pilot commercial development of subsoil areas bearing natural resources of nationwide significance or amber – for up to five years;
  • commercial development of natural resources – for up to 20 years; and
  • any works under production sharing agreements – for up to 50 years, etc.

Most mineral resources are classified as those of nationwide significance; this includes metallic ores and non-metallic resources and waters. Some non-metallic resources, for instance sand, gypsum, limestone, chalk, etc. may be classified as those of local significance by the Resources Commission.

Usually, the special permit is obtained by winning an electronic action.

There are exemptions allowing to obtain a special permit outside an electronic auction, for example:

  • for geological exploration and commercial production of natural resources of local significance;
  • if the applicant has financed and performed the geological exploration on that subsoil area – within three years upon approval of the discovered resources by the Resources Commission; and
  • to expand the subsoil area for not more that 50% of the initial area, if the potential deposits partially go beyond the boundaries of that initial subsoil area, etc.

Briefly describe the details required and process for an application for mining.

The mining rights are received by obtaining a special permit. Usually, the special permit is obtained by winning an electronic action.

The electronic auctions for subsoil rights are initiated by the Geology Service or other entities on their behalf. The Geology Service decides on which subsoil areas shall be put up for the electronic auction. While deciding on the list, the Geology Service as well accounts for the proposals of potential electronic auctions participants.

The electronic auctions are announced and held online. Each auction item contains information about the subsoil area and the natural resources there, starting price and auction step, amount of security deposit which is 20% of the starting price, value of the geological information and the price of preparation of the auction file, which shall be reimbursed by the winner.

Both Ukrainian and foreign companies may participate in the auctions. To participate, a participant shall first register with the auctions system by submitting the application and information online.

The applicant shall submit the following:

  • company name and identification number;
  • name and ID details for the company's representative and the documents by which the representative shall act;
  • contact details: e-mail address and telephone number;
  • details of the bank account, to which the security deposit shall be returned after the auction is finished; and
  • a statement claiming that the company, its shareholders or participants, its director or deputy directors are not sanctioned per the Law of Ukraine "On Sanctions".

If the applicant is a foreign company, it additionally submits its address or address of its representative office in Ukraine, if any.

After registration, the applicant may apply for the auction and pay the security deposit. The application is submitted for each lot separately by using the online form available in the system.

The electronic auction is held in 50 days after the call for applications was published. During the auctions, the participants rise their prices and the highest price wins. If there is no winner in the first two auctions for a certain subsoil area, it will be sold at a Dutch auction where the price will decrease until a participant agrees to it or until the price reaches its lowest limit.

After the auction is finished, the auction minutes are formed and published online on the next business day after the auction. The winner shall sign the minutes, apply to the Geology Service for signing the sale-purchase agreement for the special permit and then apply for obtaining the special permit. On different stages of this process, the winner shall pay the winning price for the special permit reduced by the security deposit, pay for the geological information, the system's services, and the price of preparation of the auction file. The whole process of obtaining the special permit after the electronic auction is finished may take up to four months.

What are the requirements for mining exploration?

The subsoil user shall comply with the terms of the special permit and the subsoil use agreement, which usually contain a works programme to which the subsoil user shall adhere. The standard form subsoil use agreement also sets requirements for annual reporting to Geology Service, general terms as to complying with the Ukrainian laws, etc. Usually, the subsoil use agreement will require the subsoil to commit to using locally manufactured equipment or materials unless the foreign ones are better in terms of price, quality, economic or environmental effect.

Depending on the location of the subsoil area, the subsoil use agreement may contain requirements as to using certain technologies while mining, adhering to additional rules and standards, financially contributing to the development of the local communities on the regions where the subsoil area is located. These additional requirements are set by the executive authorities and local councils that grant their approval for putting the subsoil areas for the electronic auctions.

The subsoil user shall also:

  • ensure that the environmental impact assessment is performed and adhere to the requirements of the environmental impact assessment decision;
  • formalize the title to the land plots where the actual exploration and mining will take place;
  • submit reports on progress of exploration and the resources discovered in the subsoil area to the relevant state authorities;
  • submit information about creation, obtaining or transfer of geological information on the subsoil area;
  • explore the subsoil to the fullest extent possible under the requirements of the special permit and the subsoil use agreement; and
  • in general, to comply with the environmental, water and forest, people health and safety laws and standards applicable in Ukraine.

What are the requirements for mining exploitation/production?

The subsoil user shall comply with the terms of the special permit and the subsoil use agreement. The subsoil user shall also:

  • adhere to the requirements of the environmental impact assessment decision;
  • obtain mining allotment, which is a permit to perform commercial development on a certain portion of a subsoil area;
  • formalize the title to the land plots where the actual mining will take place;
  • submit information about creation, obtaining or transfer of geological information on the subsoil area;
  • pay the rent for the subsoil use;
  • reclaim the land plots, which were altered in course of mining;
  • submit to the Ministry of Energy the reports on payments made to the state authorities as demanded by the EITI Law;
  • utilize the natural resources in the most efficient way and extent; and
  • in general, to comply with the environmental, water and forest, people health and safety laws and standards applicable in Ukraine.

Briefly describe the compensation for exploitation/production of mineral resources, if any.

Payment for the special permit, which is the price won at the electronic auction for that special permit. If the special permit is obtained outside auction or if the subsoil area is expanded, the fee for obtaining the special permit is calculated by the authorities.

Auction payments, which are the auction system's service fee and payment of the price of preparation of the auction file.

Payment for the geological information to reimburse the state's expenses for obtaining that geological information.

Rent for the subsoil use, which is a special tax imposed on mining activities as defined by the Tax Code. It is paid every three months, or each month in case oil, natural and some other gases. To calculate the taxable base, the subsoil user shall define the value of the natural resources mined in the reporting period, which is based on the larger of the following:

  • the price at which the natural resource was sold minus the costs for packing and delivery to the buyer; or
  • the calculated price of the natural resource, which is calculated as a sum of expenses for mining and processing the natural resource.

The rent payment is then defined by multiplying the volume of the mined resources, their value, the rent rate, and a special coefficient depending on the type of natural resource and manner of its mining.

In case of production sharing agreements, the subsoil user shall deliver a portion of the extracted materials to the state as well.

What is the process for the transfer of mining rights?

Transfer of mining rights is not allowed, except in the following circumstances:

  • if a subsoil user receives a state-owned coal mining facility in concession;
  • if the subsoil user which is a legal entity is reorganized by changing to a different type of legal entity; and
  • by assignment under the Production Sharing Agreement.

Environmental and safety concerns

How is mining in specially protected areas addressed?

Depending on the type of a protected area, the mining in either prohibited or restricted or must be done with additional care. The basic types of protected areas are described in the Law of Ukraine "On Nature Reserve Fund of Ukraine".

Each protected area is established by a separate regulation, which defines the rules of any activity in its territory, which shall be considered while planning the project and preparing the environmental impact assessment.

What are the general considerations regarding mining and environmental matters?

In general, the subsoil users shall act using the methods that do not have negative effect on subsoil, pollute the environment or have adverse effect on people. Otherwise, the special permit may be terminated.

The detailed rules as to environmental matters are defined in the technical regulations, rules, and standards applicable in Ukraine. They include:

  • regulations regarding labour safety protection;
  • rules for emissions, including emissions in residential areas;
  • rules for waste handling;
  • rules for construction;
  • standards for reclaiming the land; and
  • national standards of Ukraine regarding rational use of subsoil.

What, if any, environmental licensing is required for mining projects?

Before starting most of the actual mining works, the subsoil user shall ensure that the environmental impact assessment is performed. The special permit would usually contain a duty of the subsoil user to obtain the environmental impact assessment decision before starting the mining. After the environmental impact assessment decision is obtained, the necessary changes shall be introduced to the special permit.

To perform the environmental impact assessment, the subsoil user shall send a notice to the state administration in the relevant region of Ukraine. It shall contain a detailed information about the project, including:

  • type of activity;
  • its location, geographical positions of the facilities;
  • environmental rules and limitations of the project;
  • necessary ecological and engineering preparation of the territory;
  • sources and types of potential impact on the environment;
  • what shall be included in the environmental impact assessment report; and
  • the procedure for holding the environmental impact assessment and involving the public, etc.

The subsoil user shall receive the comments from the public and prepare the environmental impact assessment report, which is also subject to public discussion. The report shall include, among other things:

  • description of the project, including the works to be done, land plots to be involved, what processes, resources and technologies will be used;
  • description of waste, emissions, pollution of water, air or soil entailed by the project;
  • description of the current state of environment in the area and how it shall be altered in the course of the project;
  • sources and types of potential negative impact on the environment;
  • intended measures to preclude, limit or remedy the negative impact on the environment, including possible compensations;
  • programmes for controlling and monitoring the negative impact on the environment during and, if necessary, after the project is finished; and
  • a list of all comments from the public and whether they were included or rejected in the environmental impact assessment report, etc.

The environmental impact assessment decision is issued by the Ministry of Environmental Protection and Natural Resources of Ukraine based on the environmental impact assessment report. While mining, the subsoil user shall and adhere to the requirements of the environmental impact assessment decision.

What, if any, safety policies does your jurisdiction impose regarding dams?

Dams are pieces of hydraulic architecture.

There is a special construction standard of Ukraine for hydraulic architecture No. В.2.4-3:2010. Among other hydraulic architecture, it regulates construction of dams in general and mines. It sets the safety rules to be followed during construction of dams, including in the following categories:

  • strength and durability;
  • fire and technogenic safety;
  • environmental sustainability;
  • protection of people and their health; and
  • efficient utilization of water, etc.

Construction of dams also requires environmental impact assessment.

Mining developments

What do you consider to be the top recent mining development(s) in this jurisdiction?

Electronic auctions. In 2018, Ukraine started holding pilot electronic actions for the special permits. In 2020, the electronic actions for the special permits became the standard way of obtaining the special permit. It allows the applicants to win the special permit in an open and transparent procedure and opens the opportunities for the foreign investors since the auctions are held online.

Investment atlas. In 2019, the Geology Service has introduced an online investment atlas, which contains information on all subsoil areas listed for auctions. The Geology Service has also introduced several online services allowing for a single-window communication with the Geology Service, access to geological information, etc.

Significant investments law. In late 2020, the Law of Ukraine "On State Support of Investment Projects with Significant Investments" was adopted. It allows an investor in any mining activity, except coal mining, to conclude an agreement with the government. The investor's duty under the agreement would be to invest at least EUR 20 million in the project, and the government's duties would be to provide the land plots necessary for the project, ensure exemption from VAT and import duties for the imported goods, and in some cases exemption from corporate profit tax.

EITI. Starting from year 2017, Ukraine started preparing and publishing the Reports on Ensuring Transparency on Extractive Industries per the EITI Law. This has made Ukraine's mining industry more open for the investors, who are not yet present in the country.

What do you believe will be the top mining developments in the next few years in this jurisdiction?

A new Subsoil Code is being developed. Among other positive changes, it is expected to introduce a procedure for transfer of mining rights, to expand the list of natural resources of local significance (thus making obtaining special permits for them easier) and set clear reporting and control procedures applicable to mining.

Technological auctions. Currently, the electronic auctions for obtaining the special permits are based on the price criterion only. It is expected that some of the future auctions with have other criteria, for instance utilizing modern technologies or environmentally friendly methods, which shall attract new industry players.

Lithium deposits. Given the increasing interest in energy storage technologies, we may expect growing interest to Ukraine's lithium deposits, which are considerable but not actively developed now. This may apply to other rare metals deposits as well.

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