Land Reclamation 2.0: Farmers Gained Veto Rights on Loans of State Water Management Operators

The second stage of the land reclamation reform has started in Ukraine, changing the management model of state irrigation systems and water management infrastructure. The new law provides for a transition from centralized budget management to a system of operators and water user organizations, which is expected to affect the cost of irrigation, water use efficiency, and the operation of the agricultural sector.

On June 21, the Law of Ukraine No. 4795-IX "On Amendments to Certain Legislative Acts to Improve the Management System of Engineering Infrastructure Objects of State-Owned Reclamation Systems" came into force. This document continues the land reclamation reform that began in 2022 with the adoption of the law on water user organizations and the stimulation of hydraulic land reclamation. Essentially, it is a structural change in the water resource management model in the agricultural sector.

Essence of the second stage of the reform and what changes

The key idea of the reform is the transition from budget maintenance of reclamation systems to an economically self-sufficient model.

Instead of the classic model where state structures directly managed the infrastructure, a new architecture is introduced.

1. Reclamation system operators. The creation of operators in the form of state non-commercial enterprises is envisaged. They will be responsible for the operation of irrigation and drainage systems, technical maintenance of infrastructure, and ensuring water supply and drainage.
2. Water user organizations. Separate roles are given to associations of farmers and other water users. They will participate in system management, influence water use priorities, and may be involved in supervisory mechanisms.
3. Supervisory boards. Representatives of the agricultural sector and water users are planned to be involved in management structures to strengthen control over the efficient use of infrastructure.

Creation of water user organizations (WUOs)

Another key idea of the reform is the further development of water user organizations (WUOs) – non-profit associations of farmers and land users who independently manage reclamation infrastructure. Members of WUOs can be owners or users (tenants) of agricultural land plots where reclamation is carried out.

For farmers (owners and users of agricultural land), this provides several important advantages:

• WUOs as non-profit legal entities have the right to own engineering infrastructure objects of reclamation systems (pumping stations, canals, pipelines) that are state or municipal property. This allows farmers to directly own and manage the networks that provide irrigation to their fields.
• Farmers as customers of operator services have the right to elect their representatives to the supervisory boards of state reclamation system operators. This allows them to influence the approval of investment programs, tariff setting for water intake and delivery, and decisions on loan attraction.

• Reclamation system operators are obliged to agree on loan terms or energy service contracts with farmers who use more than half of the land in the system's service area. Without such consent, the operator loses the right to compensation of expenses under these loans from the WUO.
• In case of water shortage or emergency situations, after meeting drinking water supply needs, the remaining water is distributed among WUO members proportionally to their withdrawal limits defined in special water use permits.
• Operators are obliged to provide services to WUOs on the same terms as to other persons, applying a unified tariff calculation methodology. The methodology provides for the distribution of fixed costs (capacity fees) proportionally to the area of farmers' land plots.
• WUOs are non-profit organizations, meaning all income is used exclusively for the operation, technical maintenance, and restoration of reclamation systems for the needs of their members.
• The legislation provides for possible state support for WUOs and operators, including partial reimbursement of loans for infrastructure renewal.

Effectively, the state is gradually moving from a centralized management model to one where farmers themselves become active participants in the operation and development of reclamation systems.

Farmers gained real influence on tariffs: how the new reclamation management model works

Another important innovation of the reform is strengthening the participation of water users themselves in managing reclamation infrastructure. The new law provides for the creation of state reclamation operators in the form of state non-commercial companies responsible for operating state canals and other engineering infrastructure objects.

At the same time, farmers gain more opportunities to influence the activities of such operators through corporate governance mechanisms and interaction with water user organizations. Moreover, the law enshrines the principle of non-discriminatory access to operator services. They are obliged to provide services to all water users and water user organizations on equal terms and according to unified tariff calculation approaches. It is expected that this model will combine state control over strategic reclamation objects with active participation of agribusiness in water resource management and irrigation development in Ukraine.

A new model of reclamation system management is forming in Ukraine, which effectively transfers key influence on tariff formation to farmers through the supervisory boards of operators.

This is a system where service users – agricultural enterprises and their associations – receive not only an economic but also a managerial role in determining the cost of water supply and drainage.

According to the envisaged model, representatives of farmers occupy at least two-thirds of the supervisory board of the reclamation system operator. This ensures their decisive influence on all key decisions, including tariff ones.

In fact, the supervisory board becomes the center of tariff setting – without the participation of the state regulator in the final decision.

Tariffs are determined internally

The exclusive competence of the supervisory board includes approving tariffs for water supply, drainage, and land protection services from harmful water effects.

Thus, the cost of services is formed not by an external regulator but by an internal management body dominated by system users themselves.

Votes depend on land area

The system provides proportional voting: the weight of a farmer's vote depends on the area of land they cultivate within the operator's service area.

This means that large producers have greater influence on tariff decisions than smaller participants.

Besides tariffs, the supervisory board approves investment programs and decisions on loan attraction. Since these costs are included in the tariff structure, farmers effectively influence the future cost of services.

Until supervisory boards are fully formed, tariffs are temporarily approved by the operator's head. After system launch, these powers transfer to the collegial body.

Changes in service provision and tariffs

The law provides that operators of state reclamation systems will provide services under a two-part tariff. This approach has long been used in many countries to maintain complex infrastructure.

The tariff will consist of two parts:

Capacity fee – covers fixed costs regardless of actual water volume. These include maintenance of pumping stations, network repairs, equipment modernization, loan servicing, and other investment expenses.

Fee for actual water volume – depends on the amount of water received by a specific water user and compensates the operator's variable costs. Parliament emphasizes that this system should ensure financial stability of reclamation system operators while making calculations more predictable for farmers.

Rights and obligations of landowners

• Individuals and legal entities have the right to independently build reclamation objects on their own or leased land and acquire ownership rights to them.
• Owners and tenants of plots where reclamation objects are located are obliged to provide access to specialists operating them and not obstruct system operation.
• If an enterprise operating a state system plans to attract a loan for its renewal, it must notify and agree on terms with farmers whose plots constitute more than half of the system's service area.

Water distribution in case of shortage

In case of water shortage in the source or emergency situations, after meeting drinking water supply needs, the remaining water is distributed among farmers proportionally to their withdrawal limits defined in special water use permits.

Note that the reform directly affects agricultural producers who use irrigation. In practice, changes may mean: more predictable operation of irrigation systems, potential short-term increase in service costs, improved quality and stability of water supply, and greater farmer participation in infrastructure management.

Parliament emphasizes that land reclamation is directly linked to food security, agricultural sector yields, adaptation to climate change, and rural area resilience. Old irrigation systems have long suffered from underfunding, leading to water losses, infrastructure wear, and inefficient resource use.

Legal fact-check

Despite the scale of the reform, several issues remain open: First – transition to the new management model. The law enshrines the concept of operators, but detailed mechanisms for their formation and control are largely delegated to subordinate regulations.

Second – tariff policy. Basic transparency principles are defined, but the specific tariff calculation procedure must be established by separate acts.

Third – role of water users. The law provides for farmer participation in management, but the degree of their real influence will depend on operator statutes and government decisions.

Fourth – risks of regional inequality. Due to varying infrastructure conditions in regions, reform implementation may be uneven.

What will change in practice

Upon full implementation of the reform, the reclamation system in Ukraine will operate under a new model:

• The state will gradually move away from direct infrastructure management; operators will become key executors of technical operation.
• Farmers will gain more influence over water resource management.
• System financing will become more dependent on the tariff model.

Effectively, this is a transition to market-oriented water infrastructure management.

The second stage of the land reclamation reform attempts to change the very logic of water resource management in the agricultural sector – from budget maintenance to a system of operators and water users. The key idea is to increase efficiency, transparency, and financial sustainability of reclamation infrastructure. At the same time, the reform's success will directly depend on how subordinate mechanisms are implemented, particularly in tariff setting, control, and real involvement of farmers in system management.

As previously reported by "Judicial and Legal Newspaper", on March 19, the Ukrainian President Volodymyr Zelenskyy signed the law that provides changes in the management of reclamation infrastructure, including function separation, updating operator work models, and enabling investment attraction.

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