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Ukrainian State Aid in War Times

Since 24 February 2022, everything has changed for Ukraine and Ukrainians. State aid rules haven`t become an exclusion. Russian full-scale military aggression became a critical point for the Antimonopoly Committee of Ukraine (AMCU or Committee). It forced the AMCU to take rapid actions to ensure its personnel`s safety and the legality of the competition-related processes in Ukraine. Almost immediately it became clear that Ukraine, as a state, would have to support various individuals, businesses, and authorities to soften the war`s impact on them both in short- and long-term perspectives. Thus, full compliance with state aid rules could have become very difficult or even impossible, especially considering the limited capabilities of the AMCU in times when personnel was often focused on personal safety issues. This could have led to the illegality of specific aid processes from the perspective of state aid regulations. Suspension of State Aid Regulations It was consequently decided to put state aid rules` enforcement on hold. On 7 March 2022, the relevant procedural document was published by the AMCU. Under the relevant document (dated 3 March 2022), the AMCU suspended (until the termination or cancellation of martial law) consideration of notifications on new state aid and changes to the conditions of the existing state aid, state aid cases, complaints on illegal state aid and other state aid-related filings, decisions on which had not been made as of February 25, 2022. AMCU also suspended consideration of letters with requests to clarify how to apply the state aid legislation (resumed from 19 July 2022).


Further on, to form a more solid legal background for the announced suspension, the Ukrainian parliament adopted legislative amendments that both de facto and de jure deactivated the Ukrainian state aid control system for the period of martial law. The relevant amendments were introduced on 15 March 2022 and, with some modifications, are still effective. The Committee clarified the practical aspects of enforcement of the mentioned amendments on 15 April 2022.


The legislative amendments provide that state aid granted during martial law is automatically considered compatible. Additionally, state aid providers are not obliged to file notifications on new or existing state aid or amendments to the existing state aid in case such aid is granted within the period of martial law and one year thereafter.


The Committee will also not perform any of its state aid control obligations during martial law. This also means the suspension of any pending state aid cases.


Generally, although the suspension of the state aid control regime in Ukraine could be considered as bad news, an effective state aid control system in times of war may create hurdles to immediate economic decisions, which may be needed for survival and further recovery of the Ukrainian economy.


EU-related Aspects of the Improvement of the Ukrainian State Aid Mechanism


At the same time, the EU's current approach to the state aid measures to support its economy following Russia's aggression against Ukraine could be seen by Ukraine as a very high future standard. European Commission took prompt steps to make it easier and quicker for EU member states to support sectors and companies affected by the consequences of the war in Ukraine in compliance with EU state aid rules. In particular, the Commission amended its Temporary Crisis Framework for State Aid measures to support the economy following Russia's aggression against Ukraine and made efforts to enable the independence of the EU member states of fossil fuels.


While the pause in the proper launching and functioning of the state aid system in Ukraine creates risks of future significant structural and behavioral problems for the various sectors of the Ukrainian economy, this situation should be used by the relevant AMCU departments and other governmental institutions to improve the state aid regulations by filling in the existing gaps. Indeed, we have witnessed some state aid-related actions by the AMCU and the Ukrainian government.


To illustrate, in June 2022 (on the eve of Ukraine becoming an EU candidate), the Cabinet of Ministers of Ukraine adopted the order On the approval of the Plan of measures to improve the mechanism of state aid. The Committee developed the order. It was designed to replace the former Plan of measures for carrying out institutional reform in the field of monitoring and control of state aid and implementation of the provisions of the Law of Ukraine On State Aid to Undertakings, approved by the Cabinet of Ministers back in 2013. According to the Committee, most of the measures from the 2013 plan have already been, to a certain extent, implemented.


Even before Ukraine obtained EU candidate status, the Association Agreement between Ukraine and the European Union established that the Ukrainian state aid regulations system must correspond to a similar system in the EU. In fact, the Committee updated the 2013 plan and considered the already achieved goals as well as those that Ukraine still has to implement. The adoption of the new Plan is expected to contribute to the adherence to the principle of legal certainty in the field of state aid.


New Plan for the Development of State Aid in Ukraine


The new Plan defines measures aimed at improving the regulatory framework:

  1. development of criteria for assessing the compatibility of state aid;

  2. bringing regulations on the provision of state aid to economic undertakings, recognized as incompatible according to the Committee's decision, into compliance with the Law of Ukraine On State Aid to Undertakings;

  3. carrying out measures for monitoring and control of state aid granted to business undertakings;

  4. organizational and technical support for monitoring state aid granted to business undertakings;

  5. measures to stimulate providers of state aid to comply with the requirements of legislation in the field of state aid.

The above is essential considering that under Article 267 of the Association Agreement between Ukraine and the EU, the transition period for the preparation of national legislation to the requirements of the legal system of the European Union was going to end in December 2022. It is expected that with the EU candidacy status, there could be new, broader, and more challenging tasks for Ukraine in the state aid sphere.


Thus, even considering that state aid is obviously not a top priority in times of war, it is high time for the AMCU and the Ukrainian government to put particular efforts into building a decent state aid control system that will at least resemble those in the EU countries. This is one of the many other vital legislative steps on our path to EU membership – irrespective of the ongoing war, it is rather unlikely that we will become an EU member state without bringing our internal legislation and processes into compliance with the EU rules. According to the abovementioned plan, the Committee will target to fill in the gaps in the state aid legislation to the maximum extent by the end of 2025.


In any case, plans are good only if they are followed with practical steps. Unfortunately, one may conclude that the state aid-related activities of the Committee haven`t been highly prolific this year. Nevertheless, some improvements were made by the Committee or with the latter`s involvement.


New and Updated Conditions for Providing State Aid in Different Business Sectors


In July 2022, the Committee requested the Ministry of Strategic Industries to update the conditions for providing state aid to companies that develop, manufacture, repair, and service aviation equipment and engines. This was done because, according to the Committee, the relevant existing state aid schemes do not comply with Ukrainian and EU rules on the provision of state aid.


Additionally, in September 2022, the Committee approved the draft resolution of the Cabinet of Ministers of Ukraine regarding the criteria for the compatibility of state aid for specific services in the media sector that are services of general economic interest. The Committee also approved the draft resolution on criteria for assessing the compatibility of state aid granted for the development of regions and entrepreneurship. The mentioned drafts are now still waiting for the approval of the Cabinet of Ministers of Ukraine.


It is also worth mentioning that on 7 September 2022, the Cabinet of Ministers of Ukraine amended the Procedure for Returning Illegal State Aid Inadmissible for Competition. The relevant amendments were introduced to increase the recovery rate of illegal state aid, which is a vital issue in the Ukrainian state aid control system.


Coming back to the state aid-related activities of the Committee, on 16 June 2022, AMCU clarified the conditions for the compatibility of state aid granted to heat-generating entities that receive financing for reimbursement of investment programs' costs. The relevant clarifications (guidelines) followed the adoption of related Criteria for assessing the compatibility of state aid granted for environmental protection back in 2021.


The Committee also, on 14 July 2022, issued guidelines whereby it clarified the application of state aid rules to notifications on new state aid related to the provision of support to entities from the water and sea transport sectors. These guidelines were followed on 31 August 2022 by the guidelines on the application of state aid rules to notifications on new state aid related to the provision of support to entities engaged in healthcare services.


The Committee was also involved in drafting new state aid compatibility criteria. Those were the criteria for assessing the compatibility of state aid in the field of culture. The relevant criteria will be used during the assessment of the compatibility of state aid for support of the activities of cultural institutions, cultural and artistic events, as well as the construction and reconstruction of infrastructure objects used for activities in the field of culture.


Still, much legislative work is to be done. The particularly important is adopting the long-awaited and anticipated amendments to the Law of Ukraine On State Aid to Undertakings. The relevant draft law has gone through numerous discussions and is aimed at filling in the gaps and erasing inconsistencies revealed in the practical application of the current state aid law. After the law is amended, it will be high time to update several connected subordinate regulations. Moreover, compatibility criteria for many important industries (banking, aviation, etc.) have to be not just discussed but finally adopted and implemented.


Conclusion


Altogether, there is a hope that the AMCU will further increase its regulatory pace, and by the time of the much-anticipated Ukrainian victory, we will be able to witness a redesigned and significantly more effective state aid control system which will become an essential factor of rapid Ukrainian economy recovery and a solid brick forming Ukraine’s road to the European community.


***


Also, you can read the full article here: ICLN NEWSLETTER: DECEMBER 2022 (click on the blue text)


This publication is for informational purposes only. If you would like to learn more or seek legal advice, please contact one of the following or your usual Nobles contact:


Oleksandr Aleksyeyenko (Partner), Sviatoslav Henyk (Senior Associate)

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