Ukraine eases permitting for underground defence plants built with private money

Ukraine's government has approved a simplified procedure for underground construction for defence-industry enterprises. The aim is to bring private investment into protected production sites, the Defence Ministry said on 22 October.

Under the changes, developers will be able to build underground production premises and other infrastructure with their own money. They will use a streamlined mechanism for construction and for obtaining permits. When a facility is finished, the developer can transfer it to a defence company through ownership, lease or use.

The ministry's announcement did not give the name or number of the government decision, or say when the new rules take effect.

Conditions for developers

The deadlines for construction, the terms of use and the transfer procedure will be set in contracts between investors and defence enterprises, the ministry said. At least 25% of the floor area must be made available to the defence sector.

To use the mechanism, a developer must first sign agreements with one of the following:

• residents of Defence City;
• executors of state contracts;
• enterprises the Defence Ministry has designated as critically important in the defence-industrial sector.

The ministry did not say how many companies fall into the last category, or how the 25% share will be checked.

Why the ministry is doing this

"Russia is trying to destroy our defence production. In response, we must make the Ukrainian defence industry more resilient. For this it is important to move production into protected conditions and preserve the unique capabilities of our manufacturers," Defence Minister Yevhen Khmara said. "That is why we are now proposing a more flexible mechanism for attracting additional resources into such projects."

The ministry says the changes will allow off-budget funds to be used for protected defence infrastructure. It also expects them to speed up the creation and scaling of production capacity and to make it easier to relocate defence enterprises.

Background

Defence City is a special legal regime for Ukrainian defence companies. RealUA reported on 19 October that, according to the Defence Ministry, 63 defence enterprises now hold Defence City resident status, up from 31 at the end of May. Their qualified weapons revenue totals almost UAH 111.3 billion. Because residency is one of the ways a developer can qualify, the number of residents affects how large the pool of potential tenants and partners is.

The move also fits a wider effort to put more of Ukraine's defence infrastructure under protection. RealUA reported on 16 October that the Cabinet had approved a Defence Ministry strategy for engineering and fortifying defence lines through 2028. That strategy deals with front-line and border fortifications rather than industrial sites.

The rules rely on private capital rather than the state budget. Ukraine's defence companies have also been getting state-backed financing through other channels. The Defence Ministry said earlier in October that they had secured more than UAH 12.5 billion in preferential loans under 211 contracts.

The announcement gave no estimate of the investment expected, the number of projects planned or the locations of any facilities. Those details were not disclosed.