For a long time, there has been a systemic loophole in Ukrainian legislation that allowed for the implementation of corrupt, non-transparent, and economically disadvantageous development projects on state- and municipally-owned land. Bill No. 14038 “On Amendments to Certain Laws of Ukraine Regarding the Construction of Facilities on State- and Municipally-Owned Land Under Public-Private Partnership Terms” is a targeted legislative initiative aimed at eliminating this shortcoming. Let’s examine the essence of the proposed changes, their potential effectiveness, and the risks they may pose.

The Problem of Non-Transparent Land Use

At the heart of the problem addressed by the draft law lies an archaic legal institution—the right of permanent use of a land plot. This relic of the Soviet legal system granted state-owned and municipal enterprises control over often highly liquid land assets, without establishing clear market mechanisms for their commercial use. This created a breeding ground for abuses, which were carried out through the conclusion of so-called “investment agreements” or “joint venture agreements.”

The mechanics of such a scheme were simple and effective. A state-owned or municipal enterprise, as the permanent user of the land, would enter into an agreement with a private developer, under which the latter would carry out construction at its own expense, and the completed space would be divided between the parties. The key advantage of this scheme for its participants lay in the ability to completely bypass competitive bidding procedures. The developer was selected not based on the best market offer, but on the basis of non-transparent agreements. This led to an extremely uneven distribution of assets; as the explanatory note to the bill states, the state’s share in the completed project could amount to only 5–8%, which was effectively a form of covert privatization of land at a bargain price. The end result was sometimes the state’s complete loss of control over the plot after its transfer to a newly established homeowners’ association.

Proposed Mechanism: Reclassification and Nullification

The central innovation is the establishment of a mandatory rule: any construction project on state-owned or municipal land that provides for the subsequent division of the built space between a state-owned enterprise and an investor is automatically considered a public-private partnership (PPP) project.

This approach completely changes the paradigm of the relationship, as the selection of a private partner (developer) must now take place exclusively on a competitive basis, as required by the Law “On Public-Private Partnerships.” Previously, the key advantage of the corrupt scheme lay precisely in the fact that such “investment agreements” were not legally classified as public-private partnerships, which allowed for the circumvention of any competitive procedures for selecting an investor. In addition, project implementation must be preceded by a thorough analysis of its economic viability, which serves as an additional safeguard against entering into agreements that are disadvantageous to the state.

The most effective provision of the bill is the introduction of strict penalties for violating the established procedure. An agreement concluded in circumvention of the requirements of PPP legislation is null and void—that is, invalid from the moment of its conclusion. The consequence of such nullity is that all real estate properties constructed under such a contract automatically become the property of the state or the community.

This provision acts as a “poison pill,” posing an existential risk to any investor who attempts to use the old scheme. The potential loss of 100% of the investment makes participation in such a transaction economically nonsensical, effectively shifting the burden of ensuring compliance with the law from regulatory authorities to the private sector.

A Critical Analysis of the Chosen Instrument

Despite the undeniable need to close the corruption loophole, the choice of the PPP mechanism as the only viable option requires critical evaluation. The PPP procedure is significantly more complex and time-consuming compared to market-based alternatives. It involves a comprehensive performance analysis, a complex competitive selection process, and lengthy negotiations that can take years. As a result, the state does not receive direct financial revenue but rather a stake in the future project or a fee for services, which creates a deferred benefit. At the same time, significant risks remain, including the potential for corruption during the negotiation phase and the complexity of subsequently administering a long-term contract.

In contrast, a simpler and more market-oriented alternative already exists and operates successfully in Ukraine—electronic land auctions on Prozorro.Sale. This mechanism offers a significantly simpler procedure, which boils down to preparing a lot and conducting an open auction, and allows the process to be completed in a few months. The main advantage for the state is receiving the maximum market price in the form of rent or the cost of development rights immediately, which ensures direct and rapid revenue for the budget. Although there is a theoretical risk of collusion in the bidding process, the architecture of the Prozorro.Sale system largely minimizes this likelihood.

Thus, the mandatory application of the PPP procedure to all development projects could create a risk of excessive bureaucracy and deter a significant portion of investors, which is particularly sensitive given the need for post-war reconstruction, which will require speed and simplicity in raising capital.

Potential Consequences and an “Amnesty” for Past Abuses Through Transitional Provisions

The transitional provisions of the draft law require a separate and in-depth analysis. Formally, they enshrine the fundamental legal principle of tempus regit actum (the law does not have retroactive effect), stipulating that contracts concluded before the bill takes effect shall be performed under the old terms. From a legal standpoint, this is a standard and expected approach aimed at ensuring the stability of civil transactions. However, in the context of combating systemic corruption, such a provision creates significant moral hazard and has far-reaching negative consequences.

In effect, this provision legitimizes and grants “amnesty” to all non-transparent agreements concluded in the past, shielding them from the application of new, stricter rules. This creates a paradoxical situation: the law recognizes the existing practice as harmful to the state, but at the same time enshrines its detrimental effects for contracts that have already been concluded. Moreover, the very process of public discussion and adoption of such a bill could have triggered a so-called “gold rush.” Realizing that the legislative loophole would inevitably be closed, interested parties might have rushed to conclude contracts under the old terms in order to “jump on the bandwagon” before it was too late.

To illustrate, let’s imagine a state research institute in the suburbs of Kyiv that holds the right of permanent use for 15 hectares of land. Upon learning of the registration of Bill No. 14038, the institute’s management rushes to conclude an “investment agreement” with a developer, under which the institute receives 6% of the future development area, while the remainder goes to the private investor. Even if, after the new law takes effect, law enforcement agencies prove that this deal is clearly detrimental to the state, there will be no grounds to declare it null and void specifically due to a violation of the PPP procedure, since such a requirement did not exist at the time the agreement was signed. Thus, by imposing harsh penalties for future violations, the law indirectly creates a safe haven for the beneficiaries of previous schemes, which undermines the public’s sense of justice and trust in the effectiveness of the justice system.

Current Status of the Bill

Bill No. 14038 was registered with the Verkhovna Rada of Ukraine on September 15, 2025. After registration, it was referred to the parliament’s leadership for review and subsequently, on September 17, 2025, sent to the main committee—the Verkhovna Rada Committee on Economic Development. According to the latest available information, as of September 18, 2025, the bill is under review by the committee. This means that the relevant committee is reviewing the document and preparing its conclusions and recommendations for further consideration at a plenary session of the Verkhovna Rada.

In summary

Bill No. 14038 is an important and necessary step that creates a powerful and effective safeguard against corrupt practices in the development of public lands. The provision declaring such agreements null and void makes it practically impossible to continue with old schemes, which is its undeniable advantage. For businesses, this means an inevitable transition to operating exclusively within a transparent and competitive legal framework.

At the same time, the unquestioning adoption of the complex PPP model as the sole instrument may prove unjustified and slow down project implementation, thereby increasing transaction costs. A more balanced approach could be the introduction of a flexible model that would give the government partner a choice: to use PPPs for complex infrastructure projects, and for standard development tasks, to apply simple and fast market mechanisms, such as auctions on Prozorro.Sale. Such an approach would not only effectively combat corruption but also preserve a favorable investment climate in the country.