The following story is reported exclusively for Ukraine Rebuild Newswire by the law firm CMS Ukraine as part of a partnership created to better inform investors in Ukraine's reconstruction.
Two provisions in the US–Ukraine Minerals Agreement signed on April 30 could reshape how foreign capital enters Ukraine’s mining sector and how domestic producers negotiate offtake deals.
The provisions, covered in Article VII (Rights to Investment Opportunities) and VIII (Market Rights to Purchase Extraction) of the Minerals Agreement, introduce new obligations on the Ukrainian state authorities as well as on future users of the country's subsoil.
These articles aim to guarantee the Reconstruction Fund access to investment opportunities in mineral production projects and negotiation rights over the offtake of extracted resources in the future.
As reported, the overall agreement established a Reconstruction Investment Fund to be managed by both countries in an equal partnership. The deal covers 57 types of minerals and is expected to unlock significant resources for reconstruction and economic growth, as well as introduce cutting-edge technologies.
Article VII of the agreement grants the Reconstruction Fund priority access to investment information and negotiation rights over Ukrainian mineral production and infrastructure projects.
Whenever the owners of the mineral production licence (or production sharing agreement) or concession seeks to raise capital, they must share investment details with the Reconstruction Fund. If the Fund expresses interest, they must then negotiate in good faith while refraining from providing materially more favorable terms to third parties.
Importantly, this mechanism is expected to broaden opportunities for Ukrainian projects to access financing through the Reconstruction Fund’s involvement and should not interfere in projects that are not seeking external capital.
Article VIII allows the Reconstruction Fund to negotiate offtake rights over the minerals extracted in Ukraine by other project owners on market terms and grants protection to the Reconstruction Fund against more favorable offtake terms granted to third parties. This is something that the Ukrainian mineral producers will need to take into consideration when planning their offtake agreements.
The mechanisms meant to ensure these rights of the Reconstruction Fund are expected to be detailed in the Limited Partnership Agreement, which will constitute the principal operating guidance governing involvement of the Reconstruction Fund in Ukraine's minerals and infrastructure sectors.
To ensure consistency with the investment and offtake rights of the Reconstruction Fund, Ukraine will still need serious legal reform, including changes to core legislative acts such as the Budget Code, Subsoil Code, Law On Production Sharing Agreements, Law on Oil and Gas Law and various sub-legislative regulations.
For further details, contact CMS at: vitaliy.radchenko@cms-cmno.com
