These proposals were previously developed by business, but were not included in the document registered in the parliament
On December 4, the Verkhovna Rada Committee on Environmental Policy and Nature Management preliminarily approved Draft Law No. 12180 of November 5, 2024 “On the Management of Waste from the Extractive Industry.” This document should become an important addition to the framework law “On Waste Management”, which was adopted by the Parliament on June 20, 2022.
At the same time, the draft law was registered in parliament after passing through the Cabinet of Ministers in a version that did not contain the amendments previously developed by the working group of business and associations.
That is why Ukrainian specialized and business associations point to numerous controversial and ambiguous provisions in the text of the document. If such provisions are ignored, they could have a significant negative impact on the development of both the mining industry and the Ukrainian economy as a whole.
Discussion of the draft law
During the roundtable “Subsoil Use without Ties: Waste from the Extractive Industry” organized by the National Association of the Extractive Industries on December 11, the most discussed issues related to the iron and steel industry were the definition of terms that cause problems for steel companies, the need for clarity in the definition of “mixing” of waste, as well as high fines for violation of the reporting deadline.
The roundtable discussed the need to define the terms “substandard mineral raw materials” and “non-fractional materials” in the draft law. According to the representative of Marhanets Mining, what can still be processed using modern technologies should not be defined as waste, but should be considered raw materials for recycling, and currently the law does not even allow for the storage of waste together with raw materials.
For her part, Iryna Bannikova, chief specialist of the Department of Environmental and Chemical Safety at the Ministry of Environmental Protection and Natural Resources, believes that these two definitions should be included in the Subsoil Code, so that they will not fall under waste regulation, and these materials will be defined as by-products. She noted that the draft law proposes to study the already accumulated waste for further use and to grant benefits (a special permit for mining in this deposit is issued without an auction and without charging a fee for the use of subsoil) to companies that conduct such studies.
Yuriy Katser, Director, Head of Legal Services at KPMG Ukraine, reminded that subsoil users can conduct a geological and economic assessment of potential reserves in accumulated waste without obtaining a special permit for subsoil use through existing permits for waste-related activities.
The results of this assessment must be submitted to the State Reserves Commission. And if the latter decides that the amount of minerals in the accumulated waste is of industrial value, then from the moment it is included in the State Register of Deposits as technogenic, it loses the status of mining waste and becomes subject to regulation by the legislation on subsoil use.
“As for the definition of the aforementioned terms, the draft law stipulates the following: if the extraction product meets the definition of a by-product according to the criteria set out in the framework law on waste management, it should be qualified as a by-product, not waste,” said Yuriy Katser.
Although the above proposals may seem insignificant, these details determine the ability of mining companies to operate. For example, last year, the National Police accused the Poltava Mining management of selling waste (crushed stone) from iron ore mining, suggesting that this activity caused the state losses of UAH 157 billion. Law enforcers considered the waste to be minerals that should be stored in storage facilities, and the company did not have a license for them. Ferrexpo called such accusations groundless.
“It is necessary to define clearly such fundamental issue as the owner’s right to dispose of the by-product. Neither the draft law nor the law on waste management stipulates this. We are creating a conflict that can be used for further claims by regulatory authorities against enterprises,” added Igor Potsiluyko, environmental protection specialist at Poltava Mining.
His remarks were very appropriate, as there are many cases of using ambiguity in laws to put pressure on honest businesses in Ukraine and, despite the war, number of such cases continues to grow.
Business proposals
If we aggregate the proposals of business, in particular, the National Association of Extractive Industries of Ukraine (NAEIU) and the European Business Association (EBA), we can identify the following key points that relate directly to the iron and steel industry and need to be improved.
1. Double fiscal burden.
Adoption of the draft law in its current version may create a situation of double fiscal burden. In particular, 6 years after the law comes into force, steel companies will have to pay both the existing environmental tax for waste disposal and the financial security for the facilities where the waste is stored, as introduced by the new law. This will lead to an increase in the cost and final price of products, as well as other negative economic consequences, such as reduced production due to declined competitiveness of products or even closure due to unprofitability, as well as a decrease in tax revenues to the budget.
“We propose to return to the old version of the draft law, which contained an article stating that the relevant provisions come into force after the amendments to the to the Tax Code of Ukraine regarding the abolition of the tax on waste disposal. It is necessary to supplement the final and transitional provisions of the draft law with position that articles regarding financial provision will be enforced only after the abolition of the tax on mining waste disposal,” the EBA said.
2. Inconsistency of fines with the nature of violations.
For calculations of fines the draft law proposes to use the minimum wage, which was set at the time of fine’s imposition, instead of the standard tax-free minimum income in such cases. This approach does not provide any justification for the excessively high fines of UAH 160-480 thousand for each violation.
Moreover, such amounts may be charged even for minor violations, such as late submission of a report (UAH 400 thousand). In addition, according to clause 5 of the same article, for a repeated offense within a year after the first fine is imposed, the amount will be doubled to UAH 320-960 thousand.
According to the NAEIU, this level of sanctions significantly exceeds economic feasibility and may create additional financial pressure on enterprises. Additionally, corruption may be facilitated.
“We call for a return to the tax-free minimum income as a basis for calculating fines and for a more differentiated approach to determining the amount of sanctions depending on the severity of the violation,” the NAEIU emphasizes.
3. Increased bureaucracy due to duplication of procedures.
The draft law establishes a significant number of licensing procedures, which greatly complicates the activities of operators due to duplication. For example, it is proposed to oblige operators to submit a notification on the transfer of waste generated during extraction. However, the waste declaration already indicates the volume of transfer and the entity to which it is transferred. In addition, sludge pits are not subject to an environmental impact assessment (EIA), as they are not listed in Article 3 of the Law of Ukraine “On Environmental Impact Assessment,” but this may change if the draft law is adopted. The EBA proposes to remove both paragraphs.
4. Clarification of the status of non-factional materials.
NAEIU proposes to supplement the draft law by classifying non-fractional materials as a by-product, rather than waste, generation of which is not the main purpose of production, but this waste could be used as raw materials in other production or as finished products. For example, the non-fractional screening of dry magnetic separation at a iron and steel plant is suitable for road construction.
“That is why this draft law is an opportunity to regulate the status of such substances for their reuse while minimizing the amount of new waste,” the NAEIU said.
In general, the business expects that its proposals will be taken into account when finalizing the draft law directly with members of the relevant parliamentary committee.
