Public-private partnerships vs. “investment agreement” schemes

To build on state or municipally owned land, a developer first has to obtain that land—either as ownership or a right of use. This can be done only through competitive auctions on Prozorro.Sale.

In housing construction, however, there has been an alternative route: an investment agreement. Land legislation allows state and municipal enterprises, institutions, and organizations to build housing on land that they hold under permanent use rights, while bringing in private investors. Under such agreements, the investor does not pay for the land but commits to transferring a share of the housing built on the plot to the state or community.

This arrangement has a long list of corruption risks:

• the investor does not have to be selected through a competitive process;
• even if a selection process is held, there is no requirement to publish documents or even the agreement itself;
• the agreement may be concluded without approval from a higher authorized body;
• most importantly, the law does not define what share of the completed housing the state or municipality must receive, nor does it set out a clear method for calculating that share;
•  amendments, including reallocating shares, can be made during project implementation.

This loophole was used, for example, in the so-called “apartment case” of the ex-MP Maksym Mykytas. The case concerns an investment agreement under which the National Guard of Ukraine was to receive apartments in a building constructed on its land in Kyiv’s Pecherskyi district. Additional agreements were later signed, under which the National Guard would receive apartments on the outskirts of the city instead. According to investigators, the value of that housing was UAH 81 million lower than the original offer.

Draft Law No. 14038 is intended to counter this scheme. It proposes treating and implementing investment projects as public-private partnerships (PPPs). 

This approach could eliminate most of the risks associated with investment agreements. At a minimum, PPP rules require investors to be selected through competitions. Overall, the preparation process would be more transparent and subject to greater oversight, as it would involve more stages of project development and approvals. 

However, the current version of the draft law still leaves two long-standing issues unresolved: it preserves the ability to amend agreements under the old rules, and it does not regulate the share of housing that must pass to the state or municipality (the owner of the land). These points can—and should—be improved between the first and second readings.

Methodology, verification, and competition vs. “toilet schemes”

The “toilet scheme” exploits a loophole that allows an owner of real estate located on state or municipally owned land to buy or lease that land without competitive bidding. Current legislation does not limit the size of the plot that may be acquired in this way. In other words, the owner of a small structure, say, a public restroom, may claim a plot tens or even hundreds of times larger than the structure itself. At the same time, the legal grounds for acquiring ownership of such a structure are often not thoroughly verified. This creates fertile ground for abuse—from unauthorized construction to fictitious registration of a “property” for one purpose only: to anchor a land claim to it. 

Draft Law No. 14039 proposes a way to address this scheme:

1. The Cabinet of Ministers would approve a special methodology to determine the maximum size of a land plot necessary to maintain a particular real estate. If the plot size requested by the structure’s owner falls within that limit, the owner could buy or lease it directly.
2. If the land plot exceeds the established maximum, it would be divided: the owner would receive only the portion genuinely needed to maintain the facility. Any land above the threshold could be acquired only through a land auction. The structure’s owner would still have a preemptive right to purchase at auction, meaning that if someone bids a higher price, the owner may match that price and buy the plot, even if the owner’s own bid was lower.
3. A separate safeguard is verification of the applicant’s ownership rights to the structure. Land-managing authorities would be required not only to review documents, but also to physically inspect the facility. If there are signs of fictitious property registration or other violations, the authorities would be required to go to court to protect the interests of the state or the community. However, the draft law currently introduces this obligation only for cases where land is transferred without an auction. 

Again, passing this draft law would be a major step toward combating “toilet schemes.” Ideally, it should be refined between the first and second readings to eliminate inconsistencies and ensure transparency in the process of verifying ownership rights to the structure. It would also be advisable to require verification before an auction as well. Preemptive purchase rights should not be granted to those who built something illegally.

These changes should be passed as soon as possible

At this point, there are two strong legislative initiatives that could close loopholes through which the state and municipalities lose billions of hryvnias to land schemes. Neither is perfect. But both can be improved between the first and second readings. They also complement each other, so the best outcome would be to pass both draft laws. And the sooner they are adopted, the sooner we can stop losing money as well as state and municipal land, to these schemes.

This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union. 

How the “toilet scheme” works

Land legislation requires that state- or municipally owned land plots be transferred into ownership or use on a competitive basis through land auctions. Only a limited number of cases are exempt; for example, allocation within a public-private partnership or free privatization. 

One such exemption applies when a land plot contains real estate owned by an individual or a legal entity. In that case, the owner may purchase or lease the land plot beneath the object directly, without an auction. 

This mechanism is intended to ensure proper access to and maintenance of the real estate facility and to preserve the inseparable legal link between the property and the land plot on which it is located. 

However, the absence of statutory limits on the size of the land plot transferred for maintaining the property creates significant room for abuse. Registered ownership of a small structure, such as a public restroom (which is where the scheme gets its name), effectively allows the “owner” to obtain ownership or use rights to a land plot that is dozens, and sometimes hundreds, of times larger than the structure itself. 

Gaps in the regulatory framework further create corruption risks. In particular, the lack of mandatory verification of how a person acquired ownership of the real estate has enabled the widespread practice of unlawfully constructing such objects and then fictitiously registering ownership. Another major corruption driver in the land-transfer process is the current approach to determining the sale price based on an expert monetary valuation, which can be artificially understated.

As a result, the “toilet scheme” leads to the transfer of state and municipal land plots that are far larger than necessary to service the structures located on them. In addition, public budgets lose revenues they could have received if the land had been sold through competitive auctions.

What changes are proposed?

Under the draft law, the size of vacant state- and municipally owned land plots that are sold or granted for use to owners of buildings located on them without an auction would be determined using a methodology approved by the Cabinet of Ministers.

If a plot exceeds the maximum size set by the methodology, the portion necessary to service the building, within the allowable limit, would be carved out. If the owner needs a larger plot, the owner would be able to purchase or lease it through a land auction. In the case of a sale, the auction would be held with a preemptive right for the building owner to purchase the land at the price established at auction.

If the owner loses the auction, the owner would still be entitled to obtain the portion of the plot needed to maintain the property:

– If a third party purchases the plot: a portion would be carved out to maintain the real estate object and transferred into the property owner’s ownership, and the value of that carved-out portion would be compensated to the third-party purchaser (the landowner) proportionally to the auction price paid for the land;

– If a third party leases the plot: the owner of the building located on the plot could obtain access to the land needed to maintain the property, with the scope and procedure for such access to be defined in an agreement with the lessee.

In addition, the draft law would require land-disposing authorities to verify the authenticity of documents confirming ownership of the building, including through an on-site inspection, when deciding whether to allocate land outside an auction. If the authority identifies indications that the documents are unreliable, it would be required to go to court to protect the rights and legitimate interests of the state or the territorial community.

Beyond eliminating the “toilet scheme,” some provisions of the draft law also seek to regulate certain aspects of implementing investment projects for housing construction on state-owned land.

In particular, the draft law introduces a requirement that investment projects involving housing construction on state land be implemented either as a public-private partnership or only after the developer has first acquired the relevant land-use rights to the land plots in question. This approach is intended to ensure that land is transferred for development only on a competitive basis. 

The draft law also sets a minimum state share in housing investment projects carried out on state-owned land: no less than the market value of the land plot on which housing will be constructed, determined under valuation legislation as of the date the agreement is signed. 

Risks

1. Corruption risks in verifying documents for property located on a land plot

The draft law requires an executive authority or local self-government body to verify the authenticity of documents confirming ownership of a building only when land is allocated outside an auction. In our view, verification is also necessary when the plot is sold through an auction that grants a preemptive purchase right. Without proper oversight, this mechanism will continue to encourage unauthorized construction and fictitious registration of ownership.

At the same time, the proposed approach preserves a corruption risk, because officials of executive authorities and local self-government bodies may not always act objectively and with integrity during inspections. This creates opportunities for abuse and unlawful decisions. It would therefore be advisable to also require publication of all documents related to such verification in order to ensure accountability and enable public oversight. 

2. Gaps in guaranteeing the state’s share in housing investment projects

The draft law sets a guaranteed minimum state share in investment projects implemented on state-owned land—not below the market value of the relevant land plot. However, this rule would not apply where the investor uses the plot under a lease or superficies right, or under the terms of a public-private partnership.

In our opinion, using land under a lease or superficies, or entering into an agreement under the Law of Ukraine on Public-Private Partnership, does not in itself guarantee that the state will receive a share in the completed development.

The PPP Law grants the tender commission the right, rather than an obligation, to include minimum requirements on the amount of residential floor area that must become the property of the public partner in the tender documentation and, as a result, in the PPP agreement. It therefore appears advisable to apply a single, consistent approach to determining the guaranteed minimum state share in housing investment projects implemented on state-owned land.

In addition, the draft law ties the minimum state share to the market value of the land plot, determined under valuation legislation as of the date the agreement is concluded. But valuation procedures are closely associated with corruption risks and can be used to artificially understate the value of the land plot.

For example, in the Ministry for Development of Communities and Territories Corruption Case, an understated valuation of the land plot made it possible to significantly reduce the amount of housing that should have been transferred to the state under investment agreements—the difference between market and contractual values exceeded UAH 1 billion. A similar situation occurred in the case involving MP Isaienko, where the real value of the land plot and the property on it was understated by more than UAH 200 million. 

Given this, it is worth considering alternative methods for determining the state’s share in housing investment projects that do not depend on valuation results. One possible approach would be for the government to set a minimum percentage of residential floor area that must be transferred to the state through the relevant authority or enterprise, in completed housing developments.

3. Shortcomings in regulating how state land is acquired for housing construction

Under the draft law, acquisition of land-use rights to state-owned land plots for the purpose of implementing housing investment projects on such land would take into account the specific features set out in the Law of Ukraine on Public-Private Partnership, except for investment projects carried out on land plots granted to the investor under a lease or superficies right.

This provision is intended to ensure that investors acquire rights to use state land for housing construction only through a competitive process, as required both for PPP projects and for leases or superficies. 

However, under the PPP Law, in a PPP project involving housing construction, the land plot may be provided to the private partner for use only under a lease or superficies right. Accordingly, carving out a separate category for acquiring land-use rights for investment projects implemented as public-private partnerships is incorrect, because in such projects the investor likewise obtains the right to use the land plot exclusively under a lease or superficies right.

4. Failure to account for territorial communities’ interests in housing investment projects

According to the explanatory note, the bill’s objectives include: “introducing a requirement that housing investment projects on state or municipal land be implemented as a PPP or only after prior acquisition of rights to the relevant land plots,” and “establishing a legally guaranteed minimum share for the state or a territorial community in investment projects implemented on state- or municipally owned land.”

However, the draft law establishes these requirements and guarantees only for investment projects on state-owned land. This indicates that the draft only partially aligns with its stated objectives and does not fully account for the interests of territorial communities.

5. Inconsistent limits on using certain land plots in investment activities

The draft law provides that state- and municipally owned land plots acquired by owners of real estate facilities located on them into ownership or use without land auctions may be used for investment activity only if their size does not exceed the maximum established by the Cabinet of Ministers’ methodology for maintaining the relevant real estate object. An exception applies to plots acquired through land auctions.

This rule appears logical given the need to limit development on state and municipal land obtained outside competitive procedures and, in particular, not at market value. However, under the general principles governing ownership rights in Ukraine’s civil legislation, an owner may possess, use, and dispose of their property at their own discretion. In that context, state interference with the owner’s right to use a land plot they own for investment activity appears questionable.

Conclusion

Draft Law No. 14039 proposes a combined approach to transferring vacant state- and municipally owned land plots to owners of buildings and structures located on them. As is the case now, individuals and legal entities would be able to acquire a land plot without an auction if its area does not exceed the maximum size necessary to service the real estate object; that maximum would be determined under a Cabinet of Ministers–approved methodology. 

If the plot exceeds the applicable cap, it would either be subdivided to carve out the portion needed to maintain the real estate facility, or it would be put up for auction at the initiative of the real estate owner, who would have the opportunity to purchase the plot at the price established at auction or to lease it through a competitive procedure.

If the owner loses the auction or cannot match the auction price, then:
-if a third party purchases the land plot, a portion necessary to maintain the real estate would be carved out and transferred into ownership of the real estate owner; the value of that carved-out portion would be reimbursed to the new landowner proportionally to the price paid at auction;
– if the land plot is leased to a third party, the owner of the building located on the plot would be entitled to access the land as needed to service the property, with the scope and procedure for such access to be set out in an agreement with the lessee.

TI Ukraine supports adopting Draft Law No. 14039, because it addresses two key problems that enable the “toilet scheme”: it limits the size of land plots that can be obtained without an auction, and it requires competitive procedures where the requested plot exceeds the maximum size. 

However, the draft needs revision before the second reading, because the proposed approach still preserves certain risks. First, imposing a formal duty on executive authorities and local self-government bodies to verify the authenticity of documents confirming ownership of real estate objects, including through on-site inspections, does not, in itself, guarantee the impartiality or quality of such verification.

Second, tying the minimum state share in housing investment projects to the market value of the land plot is questionable. Valuation procedures are closely associated with corruption risks and can be used to artificially understate land values. 

As for a guaranteed share for territorial communities in such investment projects, the draft law does not provide for one at all.

To address these and other shortcomings, we recommend that, before the second reading, parliament:

• require executive authorities or local self-government bodies to publish the acquirer’s application, the supporting documents submitted, and the inspection report prepared following the examination of the real estate;

• delete, from Article 13(2)(2) of the Law on the Management of State-Owned Property, the words: “except where the person who ensures the organization and/or financing (investment) of construction projects uses such land plot under a lease or superficies right, or where an agreement is concluded in accordance with the Law of Ukraine on Public-Private Partnership”;
• establish, by law, a guaranteed minimum share for the state or a territorial community in investment projects implemented on state- or municipally owned land, by requiring the Cabinet of Ministers of Ukraine to set a minimum percentage of residential floor area that must be transferred to the state/community in completed housing developments;
• enshrine in law a guaranteed minimum share for territorial communities when entering into agreements that provide for the construction of residential real estate on municipally owned land and the allocation of future real estate objects between the construction customer and the party that ensures the organization and/or financing (investment) of construction;
• restate Article 9-1(8)(2) of the Law on the Management of State-Owned Property as follows: “State-owned land plots may be granted for use, on a leasehold or superficies basis, for the implementation of investment projects involving the construction of residential real estate and the allocation of future real estate between the construction customer and the person responsible for organizing and/or financing (investing) such construction.”
• enshrine in law a requirement that investment projects involving housing construction on municipally owned land may be implemented only if the investor has first acquired the relevant land-use rights to the land plots in question.

This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union. 

Summary

The draft law proposes to classify housing investment projects on state or municipal lands, where the constructed property is divided between the customer and the investor, as public-private partnership projects. This approach would close legislative loopholes that currently allow de facto seizure of state and municipal land through non-competitive investment agreements and ensure more transparent investor selection procedures.

However, in its current version, the draft law still poses risks of unfair allocation of housing between the customer and the investor in completed properties. Therefore, we recommend:

• Applying public-private partnership legislation not only when concluding but also when amending investment agreements for housing construction on state and municipal lands
• Requiring that tender documentation include mandatory provisions defining the minimum residential area to be owned by the customer upon completion.

How do investment agreement schemes work?

The practice of signing agreements with private developers for constructing residential properties on land plots held under the permanent use rights of state or municipal enterprises, institutions, and organizations involves multiple risks resulting from legislative shortcomings.

To obtain the right to build on state or municipal land, a developer must, under land legislation, acquire legal rights to the relevant plot. Such land is transferred into ownership or use for construction on a competitive basis through land auctions conducted via the Prozorro.Sale system. The only exception to this rule is leasing land for implementing public-private partnership projects, where a private partner is already competitively selected, making additional auctions redundant. 

However, in the case of residential construction agreements, developers may be selected non-competitively. The Land Code of Ukraine grants state or municipal enterprises, institutions, and organizations the right to independently construct residential, industrial, and other buildings and facilities on land under their management, including with the involvement of private investors. At the same time, there is no obligation to transfer land rights for such construction through competitive procedures. 

The Law of Ukraine on Investment Activity also lacks such a requirement. The obligation to select investment projects on a competitive basis applies only when state support is provided for their implementation. 

A significant additional risk arises from the one-sided and non-transparent decision-making process. Investment agreements for housing construction are usually initiated by the land user, require no approval from 

supervisory bodies, and do not mandate public disclosure — neither of any selection results (if held) nor of the agreements themselves.

Retaining the land plot under the management of a state or municipal enterprise, institution, or organization also entails extra financial costs. Although the developer effectively uses the land during construction, the legitimate user remains responsible for paying the land tax, which is not reimbursed. 

Furthermore, upon completion of a multi-apartment building, the permanent use right to the land is terminated. Under the Land Code of Ukraine, this right transfers to the management company of the building. If a homeowners’ association is later established, the land on which the building stands may be transferred free of charge into the ownership of its co-owners, effectively removing it from state or municipal ownership.

Perhaps the greatest risk in concluding investment agreements for residential construction on state or municipal land lies in the absence of a legislatively defined minimum share of the state or community in the completed property, or a mechanism for determining such a share. This regulatory gap opens the door to abuse and corruption, allowing developers to:

• Acquire land plots below market value,
• Amend agreements and redistribute shares during project implementation (including through redesign),
• Undervalue the land or existing property to artificially reduce the state’s or community’s share in the completed asset.

What changes are proposed?

Draft Law No. 14038 proposes to classify investment projects involving housing construction on state or municipal land, where the constructed property is to be divided between the customer and the investor, as public-private partnership projects. Consequently, their preparation and implementation would have to follow the procedures and requirements of the Law of Ukraine on Public-Private Partnership.

Agreements governing the implementation of such investment projects, as well as agreements on the organization and financing of housing construction on state or municipal land involving the distribution of completed assets between the customer and the investor, would be concluded in accordance with the PPP Law. Agreements concluded in violation of this rule would be deemed null and void, and the constructed assets would become state or municipal property. 

At the same time, this provision would not apply retroactively: existing agreements would continue to be executed under their current terms and the legislation in force at the time of their signing.

Importantly, the proposed changes would not affect investment projects or construction agreements implemented on land plots leased to developers or held under the right of superficies. Thus, the draft law specifically targets development on state and municipal lands obtained by developers through non-competitive means.

The proposal to treat investment projects involving residential construction on state or municipal land as PPP projects offers several clear benefits:

• Standardization of procedures for managing state and municipal property. Investment projects involving housing construction on state or municipal land already share most legal characteristics of PPPs. Moreover, the PPP Law already regulates the specifics of preparing and implementing PPP projects for housing construction. Therefore, aligning investment projects with PPPs would effectively close the loophole allowing developers to use “grey schemes” under investment agreements to seize public land.
• Greater transparency in project preparation. Unlike investment projects, where decisions are made directly by the state or municipal land user, PPP projects undergo multiple stages of review and approval, including a final decision by the competent public authority.
• Flexible use of land plots. During PPP implementation, the land may be transferred to the private partner for the project’s duration, removing the land tax burden from the public partner. Alternatively, the land may remain under the public partner’s management if a delegation agreement assigning the customer’s functions to the investor is signed.

Risks

Compared to standard investment agreements, preparing a public-private partnership project is more complex and resource-intensive. It requires conducting an efficiency analysis, adopting a decision to implement the project, organizing a competitive selection process, determining the winner, and signing an agreement. As a result, implementing housing projects through the PPP mechanism may become considerably more complicated, whereas investment agreements do not involve such demanding procedures.

One of the key risks of investment agreements lies in the possibility of redistributing the housing portion allocated to the customer during or even after the project implementation. For example, in the already mentioned “apartment case” of former MP Mykytas, National Guard officials and the developer company concluded new agreements under which the National Guard relinquished apartments and parking spaces in central Kyiv in exchange for housing on the city outskirts, whose market value was significantly lower. 

The draft law does not eliminate these risks, as it does not require amendments to signed agreements to comply with PPP legislation. Under that law, any change to the economic balance of interests between the parties is considered a material modification and cannot be made by mutual consent without holding a new competition.

Applying PPP legislation to investment projects in the housing sector also introduces several inherent risks.

Even though the investor will be selected through competitive procedures, tender commissions will retain broad discretionary powers, including the ability to:

• Establish an open-ended list of qualification criteria,
• Determine the weighting of qualification and evaluation criteria,
• Deny participation in the competition or refuse to recognize a winner.

Concerns also arise regarding the composition of these commissions — when a commission is created for a specific project, the public partner may influence its decisions by including additional members of their choosing. 

The risk of unfair distribution of space in completed residential properties also remains. The Law of Ukraine on Public-Private Partnership does not specify any minimum residential area to be owned by the public partner. Instead, it allows the tender commission to set such requirements, which again introduces the problem of broad discretionary authority.

Conclusion

The Draft Law of Ukraine on Amendments to Certain Laws of Ukraine to Ensure Construction of Facilities on State and Municipal Lands under Public-Private Partnership Conditions is a step toward enhancing the transparency and efficiency of state and municipal land use.

The document aims to standardize the legal framework for implementing housing investment projects by aligning them with public-private partnership mechanisms. This would close existing legislative loopholes, prevent the use of bypass schemes to gain control of public land through investment agreements, and ensure more transparent investor selection procedures.

At the same time, the proposed changes would apply only to state and municipal land plots obtained by developers through non-competitive means.

Although PPPs involve more complex and time-consuming project preparation procedures than traditional investment agreements, these requirements are justified by the need to ensure competition, transparency, and the protection of state and community interests. The potential risks associated with the discretionary powers of tender commissions and the conditions for distributing residential space can be mitigated through subsequent secondary legislation and by introducing alternative mechanisms for appealing the decisions, actions, or inaction of these commissions.

In view of the identified risks, we also recommend:

• Establishing that amendments to agreements involving investment projects for housing construction on state or municipal land may be made only under the terms and procedures defined by the Law of Ukraine on Public-Private Partnership 
• Introducing a provision requiring that tender documentation must include a minimum threshold for the residential area to be owned by the construction customer in projects involving the construction of residential properties on state or municipal land and the division of completed real estate between the customer and the investor.

This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.

Summary

Draft Law No. 7508 is a step toward modernizing the field of public-private partnerships (PPPs) in Ukraine, especially in the context of post-war reconstruction. It opens new opportunities by expanding the areas of PPP application, the list of public partners, and sources of financing. At the same time, it provides for the reduction and simplification of project preparation. In addition, the adopted law partially fulfills Ukraine’s commitments under the Ukraine Facility program regarding harmonization with EU legislation.

However, it also carries a number of risks related to insufficient procedural transparency. Excessive discretion granted to tender commissions may result in non-transparent selection of private partners. Ensuring transparency and a fair balance of interests between the parties remains a challenge.

In any case, whether PPP will gain new life will depend on the practice of implementing the new Law.

What is new in the final version?

The first and most obvious innovation is the change in the name of the draft law. Previously, the emphasis was placed on improving the mechanism for attracting private investment through public–private partnerships to accelerate the restoration of facilities destroyed by the war. Instead, in the final version the draft received a concise title — On Public–Private Partnership. Along with the name, the rest of the terminology related to “public–private partnership” was updated in line with EU law, where the term public–private partnership (PPP) is used.

The legislators decided to do away not only with the old terminology but also with the Law on Public–Private Partnership itself — it will cease to be in force once the new law takes effect — on October 31 this year. Such a decision seems rational: even before the first reading, the draft law amended almost all articles of the current law.

In the final version, the list of potential public partners* was expanded and clarified. It now includes state-owned and municipal enterprises engaged in activities aimed at providing socially significant services (such as water, gas, and electricity supply, transportation, postal services, etc.) and serving as administrators or recipients of budget funds. This will make it easier for such enterprises to attract private investment for the development of their own infrastructure.

* Given the similarity of provisions in the updated Laws of Ukraine on Public–Private Partnership and on Concession, in this text the terms “public–private partnership,” “public partners,” and “private partners” also encompass, respectively, concessions, concession grantors, and concessionaires (except in cases where legislation establishes differences regarding their status or requirements).

Individuals will also be able to participate in competitions for the conclusion of contracts under public–private partnerships. At the same time, just like corporate bidders, if successful, they will be required to establish a special legal entity that will operate exclusively for the purpose of implementing the respective PPP project. In addition, the requirements for such legal entities have been clarified: once Ukraine acquires membership in the European Union, private partners may be only residents of Ukraine or of an EU Member State.

All references to private initiators were excluded from the draft law. Thus, the preparation of PPP projects will be carried out exclusively by public partners, which reduces the risk of granting an advantage to any particular participant in the competition.

The selection of private partners will take place under updated competitive procedures — open tenders, restricted tenders, or competitive dialogue — to be conducted using the electronic system. At the same time, in the final version of the draft law, the introduction of these changes has been postponed to early 2027, in view of the need to develop the relevant electronic system functionality and relevant bylaws.

The adopted version of the draft law also enshrines a number of provisions specifying the requirements for tender documentation. In particular, it must include technical criteria describing all the characteristics necessary for the implementation of the PPP project (including, but not limited to, service quality levels, design and safety requirements, operational features, and indicators of environmental and climate efficiency). However, explicit references to specific brands or manufacturers are strictly prohibited. Furthermore, the content of the tender announcement has been clarified: it must contain detailed information about the public partner, the substance and duration of the PPP project, the forms of state support provided, and the deadline for submission of bids.

In earlier versions, the draft law allowed for a PPP term to be set beyond the period actually necessary for the private partner to recover its investments and earn the expected level of profit. In the final version, the term of the PPP will be limited and must be determined taking into account the period required for:

•     creation and technical maintenance of the PPP facility
•     management (operation) of the PPP facility or the provision of socially significant services to achieve the goals and objectives of the project
•     effective transfer to the private partner of operational risk (the risk of technical maintenance of the PPP facility)
•     recovery of investments made in the PPP facility and receipt of a defined level of profit.

Among the significant innovations of the final version of the draft law is the possibility of appealing competitive procedures for selecting a private partner before a specially established commission under the Antimonopoly Committee of Ukraine. Previously, the draft law provided for a single way of resolving disputes arising in connection with the competition to determine a private partner — through court proceedings. However, judicial proceedings for disputes related to the competition procedure may be ineffective, as the court may terminate the case after the contract with the winner is concluded. At the same time, the provisions on appeals to the AMCU commission will only enter into force within one year from the date the law itself takes effect.

Other key changes:

–       The exclusion of localization provisions from contracts — in particular, the requirements for mandatory use of raw materials, resources, technologies, machinery, and equipment of Ukrainian origin or production, as well as the hiring and employment of Ukrainian citizens during the implementation of a PPP project

–       The addition of risk allocation between the public and private partners as a material term of a public–private partnership agreement

–       The removal of the possibility of making payments in favor of the concessionaire if it fails to fully recover the investments it has made through service users (consumers), as well as the removal of payments by the concessionaire to the concession grantor in cases where actual demand and/or supply indicators exceed estimated levels

–       Granting the public partner the right to terminate a public–private partnership agreement if it becomes known that, at the time of being selected as the competition winner, the private partner did not meet the qualification criteria or grounds existed to restrict its participation in the competition.

What about the risks?

Old ones that remain

Despite the introduction of a number of important and positive changes to the draft law following the second reading, some of the risks we previously identified in earlier versions of the document remain.

In the adopted draft law, commissions in concession competitions were deprived of the ability to establish qualification criteria “other” than those provided by law, relating to professional suitability, economic and financial standing, and the technical and professional capacity of applicants. However, for public–private partnership competitions, the open-ended list of qualification criteria has been retained. This approach is risky, as the tender commission may, at its own discretion, introduce any criteria under the defined categories, including those that could artificially restrict competition.

In addition, the draft law leaves it to the discretion of the tender commission to determine the relative weighting of qualification criteria and the evaluation of bids. Under such circumstances, the commission may not only establish criteria other than those defined by law, but also assign disproportionate weight to them, thereby distorting the outcome of the bid evaluation.

The draft law also preserves the option of limiting the maximum number of applicants in certain competitive procedures (restricted tenders, competitive dialogue) at the discretion of the tender commission. It will also determine the rules for selecting the best applicants to advance to the next stage of the competition. In the absence of clear legal requirements, competition commissions may make unjustified decisions to limit the maximum number of applicants in the competition procedure — either due to lack of experience in the field or for the purpose of abuse. In both cases, this could lead to reduced competition.

Certain forms of state support for PPP projects also remain risky. One such form is the demand guarantee — payments made in favour of the private partner to compensate for the difference between the minimum guaranteed and the actual level of demand for the goods (works, services) to be produced (performed, provided) under the PPP project. The draft law retains the risk that the methodology for calculating such payments may be determined in an unsubstantiated way, creating an advantage for the private partner.

Another form of support is the purchase, full or partial payment by the public partner (or an entity acting on its behalf) for a certain volume of goods (works, services) produced (performed, provided) by the private partner under the PPP agreement. In practice, this amounts to procurement outside the procedures established by the Law of Ukraine on Public Procurement and contradicts it, as that Law does not provide exceptions for such procurement transactions. In addition, the draft law does not contain safeguards for situations where such support will be excessive and unjustified.

As for the overly simplified procedure for preparing PPP projects aimed at restoring infrastructure and the economy, Parliament left this matter open — under the draft law, the procedure for their preparation will be approved by the government.

New risks

In addition to the previously identified ones, the adopted draft law also introduces new risks.

The draft law envisages a new type of tender commission for the organization and conduct of a competition for a specific PPP project. In addition to members of the standing commission, it may include representatives of other state authorities and local self-government bodies, representatives of the asset holder, and other persons as decided by the public partner. The introduction of additional individuals to the one-time commission will directly impact the voting results, as decisions are made by a simple majority. Thus, this innovation carries the risk of direct influence over commission decisions.

The draft law also grants the tender commission broad powers to refuse participation in a competition or to disqualify a winner if there is evidence of collusion, the offering of undue advantage, the commission of a serious professional offense, or the identification of existing or potential threats to Ukraine’s national security. Concepts such as “serious professional offense” or “threat to national security” are evaluative in nature and lack a defined legal boundary, creating room for subjective or selective interpretation. This may be used to exclude unwanted participants from competitions under the guise of formal compliance with procedure.

In an earlier version, the draft law limited the possibility of designating information about the financial–commercial part of a bid as confidential. However, this reference disappeared from the final version. As a result, both the technical and financial–commercial parts of a bid will not be subject to disclosure if the applicant/participant designates this information as confidential. This approach poses significant risks to the transparency of the competition process and restricts participants’ access to information.

Conclusion

Public–private partnership is one of the mechanisms Ukraine can potentially use to overcome the consequences of the full-scale war. Amid a budget deficit, its advantage lies in reducing costs for rebuilding destroyed infrastructure and maintaining it thereafter.

The legislative framework in this area required improvement, and Draft Law No. 7508 is an attempt to give public–private partnership new life. This is primarily through the expansion of its scope, the list of public partners and funding sources, as well as the simplification and shortening of PPP project preparation procedures.

With the adoption of Draft Law No. 7508, Ukraine has also partially advanced toward fulfilling one of the indicators of the Ukraine Facility macro-financial assistance program, which requires aligning legislation in the field of public procurement, including concessions and public–private partnerships, with the EU acquis.

The adopted draft law contains a number of risks, mostly related to the excessive discretion of tender commissions in selecting private partners. However, the introduction of an alternative mechanism for appealing commission decisions, actions, and inaction may partially offset these risks. At the same time, ensuring transparency of competitive procedures and maintaining a balance of interests between the public and private partners in providing state support for PPP implementation remains a challenge. In any case, whether PPP will gain new life will depend on the practice of implementing the new Law.

This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.