Is it a Mineral Deal or a Deal About More Than Just Minerals?

Also, on 23 May 2025, 2 other documents relating to the Fund were entered into, the text of which is not currently publicly available (the “Fund Documents”):

1. agreement on the establishment of LLC “DFC Ukraine Subsoil”; and
2. limited partnership agreement.

The information in this article is based on the analysis of the text of the Agreement and information on the terms of the partnership published by the Ministry of Economy of Ukraine.

What does the agreement cover?

The Agreement sets out the basic terms and conditions for the establishment and operation of the Fund, which was created with the participation of the U.S. partner, the U.S. International Development Finance Corporation (the “DFC”), and the Ukrainian partner, the Public-Private Partnerships Agency (the “PPP Agency”).

The Agreement sets out, among other things, the taxation of the parties, requirements for currency convertibility and cross-border transfers, contributions to the partnership, investment opportunity rights, and market-based offtake rights.

What do we know about the Fund?

• Structure and contributions

The Fund is a limited partnership organised and existing under the laws of the State of Delaware, USA.

This means that the Fund’s jurisdiction remains more predictable for the United States. At the same time, in case of disputes, the parties will settle them in arbitration in London.

The Fund’s structure includes limited partners and a general partner. The limited partners are the PPP Agency and DFC. The general partner is LLC “DFC Ukraine Subsoil” (the “General Partner”), which is registered in the State of Delaware.

The Limited Partners will initially receive 100 Class B shares each.

Ukraine makes a contribution in consideration of the 100 Class B shares in the form of an irrevocable right to receive 50% of all royalties (rents), licence fees and amounts payable under production sharing agreements.

In recognition of the US financial and material support since the full-scale invasion of russia, the US received 100 Class B shares.

In other words, the Agreement and the Fund Documents do not provide for any debt obligations of Ukraine to the United States in connection with the previously provided assistance.

Consequently, as of the Fund’s establishment date, despite the receipt of Class B shares by the parties involved, the Fund is currently devoid of any actual funds. It is anticipated that the United States will provide the initial funding, in exchange for which they are expected to receive Class A shares.

The parties will be able to receive Class A shares in the event of new financial contributions. The US will also receive Class A shares in case of new military assistance to Ukraine.

The number of Class A shares is to be determined by agreement between the PPP Agency and DFC. If no agreement can be reached, the General Partner will evaluate the military assistance at its own discretion.

Class A and B shares determine the priority of profit distribution. First, the Class A shareholders receive profits until all contributions have been repaid, and then the profits are shared with the Class B shareholders without restriction on a 50/50 basis.

Such distribution will be made only from the proceeds of completed investment projects and not earlier than 10 years after the Fund’s launch.

The Fund will invest in priority areas in Ukraine, including mining, energy, logistics and critical infrastructure. Profits will also be reinvested in Ukraine.

The Fund is expected to operate without any time limit. Once every ten years, the US and Ukrainian partners will review the Fund’s achievements and the feasibility of terminating its operation.

At the same time, there is currently no information on whether the contributions will be returned to the partners in the event of the Fund’s termination, what the mechanism of their return is, and, most importantly, what the value of each partner’s contribution is.

• Management

The management function of the partnership is performed by the General Partner, which is controlled exclusively by the Management Board (the “Management Board”).

The Management Board consists of three managers from Ukraine and the United States, appointed by DFC and the PPP Agency.

The Management Board performs a supervisory function and delegates powers to 4 committees – Investment, Administrative, Audit and Project Search Committees.

In the administrative and audit committees, the parties have an equal number of votes. In the investment committee, the majority belongs to DFC representatives – three against two from the PPP Agency. In the project search committee, the majority belongs to the representatives of the PPP Agency – three against two from DFC.

At the same time, all critical decisions are made only unanimously. Such decisions include, among others, amendments to the founding documents of the partnership and the general partner, amendments to the regulations on the Board Committee, investment decisions on more than 25% of the funds available for investment, material changes to the investment protocols, and acceptance of additional limited partners.

• Rights of the Fund

The Fund has exclusive rights – the investment opportunity rights and the market-based offtake rights.

The investment opportunity rights provide the Fund with the right to be the first to receive information on capital raising from a permit holder developing a critical minerals or oil and gas project. If the Fund is interested in the project, the holder must negotiate with the Fund.

The market-based offtake rights mean that the company that extracts the raw materials must first start negotiations on the purchase of production with the DFC or its authorised representative.

In both cases, the permit holder may simultaneously offer cooperation to third parties, but the financial or economic conditions cannot be significantly more favourable than the offer of the Fund/DFC.

What conclusions can we draw?

To the best of our knowledge, the following conclusions can be drawn in connection with the Agreement and the establishment of the Fund:

• Ukraine will make contributions to the value of the Class B shares throughout the life of the Fund through the Fund’s irrevocable right to receive 50% of all royalties (rents), licence fees, and amounts payable under production sharing agreements, with no limitations on the total amount of the contribution;
• The Agreement and the Fund Documents do not provide for any debt obligations of Ukraine in connection with the US assistance, and the Fund will operate without a time limit until both partners decide to terminate its operation;
• Ukraine receives a source of funding for projects in the field of critical minerals, oil and gas extraction and related infrastructure, but, according to the information provided, the Fund requires a “seed money” contribution from the United States;
• in parallel to making offers to the Fund, the permit holder is not restricted from making the same offer to anyone else in the market, i.e. if the market is willing to invest on better terms/buy production on better terms, this will theoretically affect the offer to Fund/DFC and it will be market-based; and
• exclusive rights, in the presence of additional incentives from the Fund/DFC, may lead to greater interest of the permit holders in attracting investments from the Fund or selling production to DFC (or its authorised representative), even if other market participants have identical conditions for cooperation.

The signing of the Agreement and the Fund’s Documents will lead to some changes in the regulatory acts to bring them in line with the terms of the documents.

Thus, on 4 June 2025, the Law of Ukraine “On Amendments to the Budget Code of Ukraine on the Implementation of the Agreement between the Government of Ukraine and the Government of the United States of America on the Establishment of the American-Ukrainian Reconstruction Investment Fund” was adopted, introducing changes to the distribution of funds received from the use of subsoil between local and state budgets.