On June 1, 2021, the draft Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine Regarding the Improvement of Legislation in the Field of Subsoil Use" (draft law No. 4187) aimed at comprehensive reform of the regulation of subsoil use was adopted in the first reading. On November 24, 2022, the Committee on Ecology and Natural Resources of the Verkhovna Rada of Ukraine approved the text of the draft law for the second reading - which takes into account both the shortcomings of the first reading and the changes that have occurred over time both in the legislation and in real working conditions enterprises, as well as martial law application. In this issue, we will try to analyze the main novelties proposed by draft law No. 4187.

Deregulation in the sphere of subsoil use 

A significant number of provisions of the draft law are aimed at simplifying the regulation of subsoil use, in particular, the introduction of the possibility of obtaining a so-called "end-to-end" permit at once for geological study and extraction, not only for hydrocarbons and amber, but for all minerals. At the same time, it is no longer possible to obtain a special permit for conducting a geological survey, however, holders of such valid special permits, who have approved reserves, will have the right to a special permit for mining without an auction within three years from the moment of approval of reserves.

It is important that such "end-to-end" special permits will not be subject to renewal - after their expiration, their owners will need to obtain a permit for the extraction of minerals. They will be able to obtain a special permit for extraction without an auction within 2 years after the expiration of the special permit, regardless of the date of approval of reserves. As for the current end-to-end permits (for amber and hydrocarbons), different approaches to their prolongation are prescribed: special permits for geological surveying and extraction of  amber, can be extended once and free of charge, but for a period that does not exceed 5 years; for "end-to-end" permits for geological survey and extraction of hydrocarbons, the possibility of extension is not provided – but the owners of such permits may get a special permit for extraction of minerals.

Other novelties related to the deregulation of subsoil use include the following:

• Cancellation of approvals of provision of the subsoil plots of minerals of local importance by local self-governance (at the same time, a transparent auction procedure for granting such special permits is introduced - except for cases when such a special permit is obtained by the owner of the corresponding land plot within which the subsoil plot is located, provided that the subsoil plot is not exceeded 25 hectares;
• Mandatory consent of the Ministry of Natural Resources is required only for the subsoil plots, "end-to-end permits for the use of which is put up for an auction;
• Simplification of the approval procedure of protocols of the State Commission of Ukraine on Mineral Reserves, as well as the introduction of the possibility of using international standards for approving reserves;
• Abolition of the need to obtain a mining right-of-way (except of underground mining);
• Cancellation of approval by the State Geology and Subsoil Service of Ukraine of mineral deposit development projects, the annual work plan of the State Labor Department;
• Abolition of restrictions on state-owned oil and gas companies that do not allow Ukraine to increase its own gas production.

Digitalization of subsoil use

Along with the significant simplification of regulation, the digitization of the sphere of subsoil use is also growing significantly. Thus, the Unified State Information System for Subsoil Use is being created, which will integrate, among other things, the State Subsoil Fund of Ukraine, the State Register of Special Permits for Subsoil Use, all registers with geological information (including information on mineral reserves and resources), information on land areas where subsoil use is restricted. In addition, the submission of documents and reporting will gradually become fully digital.

Introduction of legal base for the circulation of special permits for subsoil 

The draft law introduces the right and mechanism of alienation of the right to use the subsoil - by buying/selling it. It is also possible to transfer it as a contribution to joint activities. In addition to the possibility of completely alienating the right granted by a special permit, it is possible to partially alienate such a right, after the distribution of approved reserves and obtaining a second special permit for the allocated plot. In order to prevent the alienation of state property, state enterprises will be able to transfer relevant rights only to other enterprises, a significant part of shares belong to the state. If such an enterprise nevertheless wishes to alienate its rights to a business entity of a different form of ownership, such a decision must be approved by the Cabinet of Ministers of Ukraine.

Regulating all procedures in the Subsoil Code of Ukraine 

While today, the main issues of granting, extending, amending, and reissuing special permits for the use of subsoil are regulated at the sub-legal level, which leads to significant variability of the legislation. On the other hand, the draft law proposes to regulate all the mentioned issues at the level of the Code of Ukraine on Subsoil - to ensure the legislation's stability.

Also, the draft law proposes some new approaches to procedures:

• Regulation of the grounds for making changes to the program of works, the possibility of extending special permits for mining, excluding the one-time use of such an extension within the general time limits);
• Automatic extension of programs of works for the period of martial law and 3 months after (not included in the general time limits), and for special permits, the validity of which expires during martial law - for the period of application of martial law and following 5 months;
• Consolidation at the level of the Subsoil Code of Ukraine of procedures, which are necessary for unimpeded access to primary geological information.

New approaches to the extension of special permits are also established: if the subsoil user has extracted less than 1% of the volume of balance reserves recorded by the state mineral balance at the time of obtaining such a special permit, the permit cannot be prolonged (unless there are unproductive oil and gas wells drilled during the period of validity of the special permit within the subsoil section of the corresponding special permit for mining). If less than 5% of the balance reserves are extracted (except for oil and gas, as well as coal mining enterprises that receive subsidies from the state budget), the extension of the special permit takes place on a paid basis - a fee of 20 percent of the value of the granted permit is charged. 

The approaches to cancellation and suspension of special permits have also undergone changes - the list of grounds for such actions has been revised, including removing potentially corrupt grounds. In addition, a mainly judicial procedure for cancellation and suspension of special permits has been introduced.

At the level of the by-laws, it is proposed to regulate further the issue of the procedure for conducting auctions, as well as more technical issues, which are currently regulated by the annexes to Resolution No. 615.

Simplifying access to land plots

The draft law proposes to simplify access to land plots for the needs of subsoil use by expanding the possibilities of applying a land easement to cases of subsoil use for minerals of local importance, providing that the land easement can also be established outside the scope of a special permit for the use of subsoil - if it is necessary for the construction of objects directly related to subsoil use . In addition, the procedure for the purchase of communal and state-owned land plots for subsoil use has been simplified and regulated.

Ensuring the interests of national security

In order to eliminate the risks associated with obtaining the right to use the subsoil by persons associated with the aggressor state or those to whom sanctions have been applied, the draft law prohibits the acquisition of the right to use the subsoil for natural persons, entrepreneurs and legal entities, in respect of which sanctions have been applied in the form of cancellation or suspension of special permits for the use of subsoil, legal entities to whose ultimate beneficial owners such sanctions have been applied, as well as legal entities-residents of the aggressor state, or legal entities in which a significant share belongs to residents/citizens of the state - the aggressor or directly to the aggressor state.

In addition, it is additionally regulated the issue of cancellation or suspension of special permits for subsoil use in case of application of special economic and other restrictive measures (sanctions) to the subsoil user in the such form for the period of validity of such sanctions.