How to unlock the potential of deposits of lithium and other strategically important minerals?

On February 8, a round table “The New Industrial Policy of Ukraine – Opportunities for Investors. How to unlock the potential of deposits of lithium and other strategically important minerals?” was held

Kyiv, February 9, 2022. On February 8, a round table “The New Industrial Policy of Ukraine – Opportunities for Investors. How to unlock the potential of deposits of lithium and other strategically important minerals?” was held. Key experts and government officials in the field of economic and industrial policy, together with a potential investor from the United States, discussed the prospects and obstacles for the development of Ukrainian deposits of strategically important minerals and the steps the government has to take now to attract significant foreign direct investment in the industry.

The panelists included Eric Hontz, event moderator, Deputy Regional Director for Europe and Eurasia at the Center for International Private Enterprise (CIPE); Denys Kudin, First Deputy Minister of Economy of Ukraine; Yaroslav Rushchyshyn, Secretary of the Verkhovna Rada Committee on Economic Policy, member of the Parliament; Dr. Igor Burakovsky, Head of the Board of the Institute of Economic Research and Policy Consulting; Nathan Calvert, Vice-President of an investment company Privateer Capital Management; Armen Khachaturyan, senior partner at Asters law firm; Dr. Nataliia Bariatska, chief geologist at Geological Service Company GSK LLC. The organizers of the event were US-Ukraine Business Council (USUBC) and Center for International Private Enterprise (CIPE).

Sustainable economic development and national security of Ukraine, as well as other countries of the world, are now increasingly dependent on guaranteed access to such strategically important minerals as lithium, titanium and other rare, precious and radioactive metals widely used in high-tech industries, including for the transition to "green" energy and the military-industrial complex.

According to Natalia Bariatska, there are many minerals in Ukraine that are of strategic importance, in particular, elements used in the production of lithium-ion batteries, such as lithium.

However, despite rich deposits and favorable natural and geographical position, which give Ukraine every opportunity to become a European leader in the field of rare earth elements, no lithium deposits are being developed at the moment. Among the reasons for this, the panelists cited an outdated reserves classification, non-transparent mechanisms for issuing special permits, significant risks of losing investments due to frequent changes in the regulatory framework, and a general distrust of investors to Ukraine.

Moreover, Igor Burakovsky warned: “Ukraine is not the only country with lithium reserves in the world. Our government needs to do everything possible to shorten the period from making a decision to an actual investment. The activities of the state in this area should not be limited to the provision of licenses, but should include a wider range of services for a potential investor”.

Such a range of services includes the decision of the National Security and Defense Council of Ukraine (NSDC) on granting the right to develop deposits of lithium, copper, nickel and other strategically important minerals based on the results of open investment tenders on the terms of public-private partnership, namely, the conclusion of product sharing agreements (PSA).

According to Armen Khachaturyan, the PSA mechanism is the most effective method of attracting foreign investors to the mining industry of Ukraine, since it provides guarantees against any negative changes in Ukrainian legislation for the duration of the PSA, the possibility of considering disputes in international commercial arbitration, and other advantages.

The positive steps taken by the state to unlock the potential of Ukrainian deposits include the fact that last week the Cabinet of Ministers made changes to the position and composition of the interagency commission for organizing the conclusion and implementation of the PSA to speed up and simplify the tender procedure for the Dobra site and other deposits of strategic minerals as part of the implementation of the NSDC decision.

However, these actions are not enough to allay the fears of potential investors, such as the American investment company Privateer Capital Management, whose management approached the Ukrainian government earlier this year in connection with its interest in a tender for the Dobra lithium site.

As Nathan Calvert, Vice President of Privateer Capital Management, notes: “There are too many risks associated with the licensing regime, as licenses can be taken away from investors. Therefore, we consider investments in lithium projects in Ukraine only on the terms of product sharing agreements. Another big problem is transparency, including who we communicate with in the government, whether these people are willing to cooperate with us. What is the roadmap of the PSA process? What are the deadlines? When will the tender be launched?

For example, we sent a letter to the Cabinet of Ministers almost three weeks ago. We got information from the press that our appeal was considered at a meeting of the PSA interagency commission a week ago. We were ready to take part in the meeting, but no one invited us. As of today, Privateer has not received any information from PSA IAC about the results of the consideration of our appeal.

We were also concerned about the information in the press that at the recent IAC meeting it was stated that the preparation and holding of the lithium PSA tender may take more than a year. We hope that the recently approved new Interagency Commission for rare metals PSAs will find an opportunity to reduce these deadlines.

Responding to the investor's concerns, First Deputy Minister of Economy of Ukraine Denys Kudin said that the Ministry of Economy considers the development of Ukraine’s natural resources as one of the main priorities for the country's development and recognizes that some changes need to be made in this area.

“Speaking about who is the contact person, this is the Ministry of Economy for all minerals, except for oil and gas. Our homework is to publish a clear roadmap for the PSA tender in English with deadlines in the near future. It should be understandable to our international partners”, - said Denys Kudin.

At the end of the discussion, the Secretary of the Verkhovna Rada Committee on Economic Policy Yaroslav Rushchyshyn, stressed that in order to restore the confidence of foreign investors in Ukraine, it is necessary to solve the problem of the systematic failure of the state to fulfill its obligations.

 “I consider it expedient to quickly hold committee hearings on the basis of our committee “Legislative support for the extraction, enrichment, processing of minerals that are of strategic importance for the sustainable development of the economy and the defense capability of the state” together with committees on environmental and national security issues and with the participation of officials, business representatives, experts in this sector. I want to note that today it is possible to hold an open tender for the search, extraction and processing of lithium ores at the Dobra site without changes to the current legislation. However, the Committee is open to proposals from business and experts on further improvement of the provisions of the Law “On Production Sharing Agreements” specifically in terms of search and extraction of lithium and other strategically important minerals”, - said Yaroslav Rushchyshyn.