Oleh Mal­skyy: Help­ing for­eign­ers nav­i­gate Ukraine's en­ergy sec­tor

Kyiv Post Legal Quarterly - - Contents - By Ber­met Talant ber­met.talant@gmail.com

Oleh Mal­skyy, a part­ner at Kyiv-based Eterna Law firm, has worked on a good many deals. But his fa­vorite area is en­ergy, and specif­i­cally, oil and gas.

It's a rich and old-fash­ioned in­dus­try, more so­phis­ti­cated and less vo­lu­mi­nous in terms of pa­per­work than, for ex­am­ple, agri­cul­ture. But un­for­tu­nately, the last two years have been tur­bu­lent ones for the oil and gas in­dus­try in Ukraine.

There's a high tax bur­den on oil and gas ex­trac­tion and not enough in­cen­tives to drill new wells. Con­se­quently, for­eign in­vest­ment has ex­ited.

In 2016, Ukrainian en­ergy hold­ing Burisma bought 70 per­cent of KUB-GAS LLC from Cana­dian public com­pany Ser­i­nus En­ergy Inc.

And U.k.-listed oil and gas pro­ducer JKX, which owns Poltava Petroleum Com­pany, is in a le­gal dis­pute with the Ukrainian gov­ern­ment over al­legedly un­paid taxes and po­lice raids.

“The in­dus­try is now tran­si­tion­ing from for­eign to na­tional cap­i­tal. We see more na­tional ty­coons buy­ing for­eign-owned com­pa­nies,” Mal­skyy says. “I think it’s just a phase and, in a cou­ple of years, for­eign in­vestors will re­turn.”

While oil and gas may be suf­fer­ing, more for­eign in­vestors are look­ing into Ukraine’s al­ter­na­tive en­ergy po­ten­tial since higher green tar­iffs on elec­tric­ity gen­er­ated from re­new­able sources are still in place. So­lar ap­pears to have the edge in cost over hy­dropower and wind power.

Gen­er­ally, his ex­pe­ri­ence, for­eign in­vestors are in­ter­ested in semi-de­vel­oped en­ter­prises with a li­cense, sev­eral so­lar bat­ter­ies and con­nec­tion to net­works.

An­other big deal com­ing up for Ukraine’s en­ergy mar­ket, es­ti­mated to be worth $120 mil­lion, is the pri­va­ti­za­tion of Cen­treen­ergo, a ma­jor state-owned elec­tric and ther­mal en­ergy pro­ducer. Mal­skyy was le­gal coun­sel to a po­ten­tial buyer.

In­vest­ment pro­mo­tion

Mal­skyy says that the over­all qual­ity of

cor­po­rate law in Ukraine has im­proved, but the deals have be­come more com­pli­cated due to debt is­sues.

“Lit­tle by lit­tle Ukraine has in­tro­duced very com­mon in­ter­na­tional mech­a­nisms into Ukrainian law. A huge break­through was the adop­tion of share­hold­ers’ agree­ments,” Mal­skyy says.

Half of his clien­tele are for­eign in­vestors, most of whom come from Ger­many, Poland, and France.

Mal­skyy said at­tract­ing for­eign in­vestors in Ukraine re­mains dif­fi­cult.

“The main prob­lem isn’t even cor­rup­tion. It’s bu­reau­cracy and in­sta­bil­ity,” Mal­skyy says. “If there’s an in­vestor who wants to sign an agree­ment as soon as pos­si­ble, will they be able to do it? No. It’ll take them at least eight months of drift­ing from one min­istry to an­other. And it’s un­known who’s go­ing to be in power here in eight months.”

Rule of law

Given the lack of trust in the ju­di­cial sys­tem, Mal­skyy noted that Ukrainian peo­ple aren’t used to seek­ing jus­tice in courts.

“If rule of law means be­ing pro­tected by the le­gal sys­tem and have your rights se­cured by the law, then Ukraine isn’t in a bad place,” he says. “But to me, the real rule of law starts with peo­ple go­ing to courts and cre­at­ing prece­dents. Have you ever heard of any­one in Ukraine not be­ing happy with a prod­uct and su­ing a man­u­fac­turer? Or some­one su­ing a neigh­bor for a bark­ing dog? Not re­ally.”

Ju­di­cial re­form, which Ukraine em­barked on last year, may take two decades to bring re­sults, he says. In the mean­time, the pro­mo­tion of the cul­ture of seek­ing jus­tice in courts might be just as im­por­tant.

“The main prob­lem isn't even cor­rup­tion. It's bu­reau­cracy and in­sta­bil­ity.”

One prob­lem with the Ukrainian jus­tice sys­tem, says lawyer Oleh Mal­skyy, is that peo­ple don’t trust it, and so don’t use it. Pro­mot­ing a cul­ture of seek­ing jus­tice is thus vi­tal. (Cour­tesy)

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