Ukraine: Investment opportunities

1. Ukraine: Investment opportunities Telecommunications market: the level of mobile penetration in Ukraine reached 120.1% in 2008 vs 72% in the USA, and the rate of growth of the customers’ base in Ukraine was 117% in 2009 (State Commission of Statistics of Ukraine). In October 2010 Ukraine has launched a privatization tender for the state-owned telephone company "Ukrtelecom“, which controls about 80% of the landline market in Ukraine. The bidding will take place on 28 December. Excluded from the tender are: companies that are more than 25% government-owned (e.g."Deutsche Telekom" and "Norway’s Telenor" telecoms with more than a 25% share in Ukraine’s telecom market. Agriculture Black sea – “Sleeping Beauty” 1

2. Ukraine: New Tax Code The New Tax Code adopted by Verkhovna Rada (Parliament) of Ukraine on 7 October 2010 will fundamentally reform the tax system in Ukraine. Key features: Real estate tax is introduced for the first time in Ukraine; The current fixed individual income tax of 15% is replaced with progressive scale; Non-deductibility of payments to non-residents for works and services in the area of consulting, marketing, advertising, engineering; Regulation of the current simplified system of taxation (for small and medium size enterprises) will be changed substantially; Excise duties for fuel will be increased to compensate cancellation of transportation tax; Automatic attachment of tax lien from the first day of payment delay; Basic company profit tax rate will be gradually reduced to the level of 16% as of 2016 (currently it is 25%); Value added tax rate will be reduced from 20% to 17% as of 2014. 2

3. Ukrainian State/Governmental counterparties: Cons Archaic, contradictory and overregulated legal environment Little flexibility, multilevel approvals, unfriendly bureaucracy Weak judiciary Occasional aggressive behavior by the Government as a regulator and as a contract counterpart, especially in privatization deals Occasional direct and indirect support by Government of “corporate raidership” 3

4. Ukrainian State/Governmental counterparties: Pros Comprehensive legislation covering various types of transactions involving Government: Public Procurement Law, Privatization Laws, Public Private Partnership (PPP) Law, Concessions Law, Law on Production Sharing Agreements (PSA), etc. Acceptance of modern global mechanisms, such as PPP, Concessions, PSA Stabilization Clause stipulated for some of the mechanisms (e.g. for PPP) New Deregulation Campaign, licensing cancelled for 23 types of activity Strong international law protection remedies: ICSID Convention, Energy Charter, BITs Government yields to international pressure and publicity (recent examples: failed ArcelorMittal re-privatization attempt; settlement of Vanco Prikerchenskaya dispute) Business and legal community has increasingly strong voice (USUBC, AmCham, EBA, specific industry associations) Many Opportunities and Privileges for EURO 2012 4

5. How to succeed in Ukraine Understand and skillfully navigate legal and regulatory regime: Try to be as compliant as possible, cutting corners backfires! Assess and mitigate risks, but accept certain risks to achieve important business results Educate the Government about benefits of your project, insist on transparency Do not hesitate to seek support of your Government (Embassy), EU, international institutions (IMF, IFC, OECD, EBRD, OIPC, etc.) Focus on monitoring your investment and on preventing abuses - in case of any concern – react immediately 5