Legislative initiatives for 1-17 June 2020 impacting RES producers

The Verkhovna Rada of Ukraine

Voted laws, resolutions

On 4 June 2020, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “About the Customs Tariff of Ukraine”. Effective Customs Tariff Law is set out in a new wording. Its objective is to harmonize the customs tariff with the Ukrainian Classification of Goods of Foreign Economic Activity based on the Harmonized Commodity Description and Coding System 2017 at the level of the first six characters (official edition of World Customs Organization) and the Combined Nomenclature of the European Union at the level of the seventh and eighth characters (Official Journal of the European Communities, L 294 dated 28.10.2016, vol. 59), taking into account obligations of Ukraine in the framework of cooperation with the WTO. The rates of duty on energy equipment for SPPs and WPPs remained the same. The Law shall come into force on 1 July 2020.

On 5 June 2020, the Verkhovna Rada of Ukraine voted for the establishment of the Temporary Special Commission of the Verkhovna Rada of Ukraine on the Protection of Investors’ Rights (Resolution of the Verkhovna Rada of Ukraine No. 683-IX dated 5 June 2020). The temporary special commission is established with the rights of the Verkhovna Rada Committees. Following tasks are assigned to the Temporary Special Commission:

  • analysis of the level of legislative protection of business rights and freedoms and ensuring drafting of the proposals for amendments to the statutory instruments;
  • within its authorities, response to cases of violation of business rights by representatives of state authorities and local self-government bodies;
  • expanding parliamentary cooperation with business associations and relevant structures;
  • cooperation with local self-government bodies to promote the creation of unimpeded conditions for attracting investment in the regions of Ukraine.

On 17 June 2020, the Verkhovna Rada of Ukraine adopted the Law on the Measures for Repayment of the Debt in the Wholesale Electricity Market (registration No. 2386 dated 6 November 2019). Currently, the Law is at the stage of signing by the Chairman of the Verkhovna Rada of Ukraine.

Objective of the Law is to settle accounts payable and receivable incurred in the wholesale electricity market until 1 July 2019 (debt of SE Energorynok). The draft Law provides for a set of measures, specifically:

  • Mutual settlements.

Participants in mutual settlements: state budget ► state coal enterprises / water supply enterprises located or supplying services in the temporarily occupied territories / electricity suppliers until 30 April 2015 in the temporarily occupied territories of Donetsk and Luhansk regions ► distribution system operators ► SE Energorynok ► electricity producers.

The algorithm for transferring funds received by SE Energorynok provides for full allocation of these funds among electricity producers and PrJSC NPC Ukrenergo in proportion to the amount of debt, except for RES producers receiving debt repayment on a first-priority basis.

Participants can also transfer debt and assign the right of claim for electricity purchased/sold in the wholesale market among electricity suppliers, distribution system operators, SE Energorynok, electricity producers and PrJSC NPC Ukrenergo.

  • Debt writing-off.

Participants of debt writing-off are coal enterprises ► SE regional electric networks and SE Ukrinterenergo► SE Energorynok ►producers of electricity of state sector of economy (SE and 100% PrJSC) and NPC Ukrenergo

The Cabinet of Ministers of Ukraine takes the decision to increase the authorized capital of electricity producers by issuing and contributing domestic government bonds to the authorized capital in the amount of written-off debt.

  • Replacement of the party to obligations of SE Energorynok.

According to the balances of accounts receivable or payable, SE Energorynok determines and confirms the amount of debt of each of its debtors and assigns to its creditors the right of claim to such debtors (based on the agreement).

  • Write-off of debt balances of SE Energorynok and its liquidation.

For RES producers, adoption of this Law is a positive signal of solving the issue of repayment of “old” debt occurring before 1 July 2019. It is envisaged to repay the debt by settling mutual accounts with electricity producers with priority repayment of debts to RES producers. However, it should be noted that the effectiveness of this mechanism implementation largely depends on whether the State Budget for 2021 will provide for expenditures under the relevant budget programs to repay the debts of state-owned coal companies, water supply companies.

Registered legislative initiatives

Registration No. 3658 dated 15 June 2020 – draft Law “On Introduction of Amendments to Certain Laws of Ukraine on Improvement of Terms of Support of Electricity Production from Renewable Energy Sources” drafted by the Ministry of Energy and submitted by the Cabinet of Ministers of Ukraine to implement the provision of the Memorandum of Understanding for Resolving of the Problematic Issues in the Renewable Power Industry of Ukraine (the “Memorandum of Understanding”) signed on 10 June 2020. The Committee on Energy and Housing and Communal Services shall be in charge for its drafting by the Verkhovna Rada. See an overview of the draft Law and comparison with the signed Memorandum here.

Registration № 3657 dated 15 June 2020draft Law “On Amendments to the Law of Ukraine “On the Electricity Market” was prepared by the Ministry of Energy and submitted by the Cabinet of Ministers of Ukraine to overcome the crisis in the energy sector and provides in particular:

  • increase in the share of selling electricity generated by nuclear power plants under bilateral contracts;
  • extension of the payment term of the investment component to producers the electricity tariff of which includes such investment component (thermal generation);
  • extension of operation term of universal service suppliers and the last resort supplier in the electricity market,
  • permission to the Guaranteed Buyer to sell electricity, including electricity purchased from RES producers, under bilateral contracts.

The said provision implements the agreements of the Memorandum of Understanding.

Registration No. 3665 dated 16 June 2020 – draft Law “On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine Concerning the Introduction of Withdrawn Capital Tax to Replace Corporate Income Tax”.

According to the draft Law, starting from 1 January 2021 corporate income tax will be replaced with tax on withdrawn capital. The draft Law provides for the following:

  • taxable item (capital withdrawal transactions and transactions equated to capital withdrawal transactions);
  • payers of the tax on withdrawn capital;
  • tax rates;
  • creation of the Register of payers of the tax on withdrawn capital;
  • introduction of automated analysis of tax information;
  • other issues.

The Committee on Energy and Housing and Communal Services

Following meetings were held by the Committee from 01 to 15 June 2020.

On 4 June 2020, the Committee considered issues and took decisions as follows:

  1. V. Golikova, O.V. Prokhorenko, O.M. Riabchyn shall be elected from the side of the Verkhovna Rada of Ukraine to the Competition Commission of the NEURC.
  2. To recommend to the Verkhovna Rada of Ukraine to adopt in the first reading the draft Law on Amendments to Certain Laws of Ukraine (concerning settlement of payment default in electricity market and the issue of certification of the transmission system operator), p. No. 3364-1.

This draft Law, in particular, provides for the use of TSO’s funds received from cross-border capacity allocation as of 1 April 2020 to repay debts to the Guaranteed Buyer for the provision of services to increase the share of electricity production from renewable energy sources.

On 10 June 2020, the Committee decided to recommend to the Verkhovna Rada of Ukraine to adopt during the second reading and in general the draft Law on the Measures for Repayment of the Debt in the Wholesale Electricity Market, registration No. 2386. This draft Law forms the basis for solution of the debts issue (including towards the RES producers) incurred before 1 July 2019 in the Wholesale Electricity Market.

The Cabinet of Ministers of Ukraine

The Memorandum of Understanding for the Resolution of Problematic Issues in the Renewable Energy Industry of Ukraine was approved by the Cabinet of Ministers of Ukraine at the meeting held on 10 June 2020. See summary of the signed Memorandum here.

National Energy and Utilities Regulatory Commission

Made decisions

At the meeting held on 17 June 2020 the NEURC considered the Memorandum of Understanding for the Resolution of Problematic Issues in the Renewable Energy Industry of Ukraine and approved it with following reservations:

  • The Memorandum does not provide for the restructuring of FiT for WPPs commissioned on or before 30 June 2015. According to the NEURC, it is discrimination against other producers. WPPs are characterized by a longer service life and have more opportunities for return on attracted investments.
  • According to the provisions of Clause 7 of Section III of the Memorandum, the NEURC shall revise the tariff of NPC Ukrenergo for electricity transmission service. Taking into account the obligations to repay debts to RES producers during 2020-2021, the projected level of the transmission tariff will be UAH 523/MWh (excluding VAT), which is by 3 times higher than the current level. This may adversely impact the competitiveness of Ukrainian industry.

Publication of the draft statutory instruments for their further discussion

On 11 June 2020, the NEURC published the Draft Resolution on introduction of amendments to the Market Rules approved by Resolution of the NEURC No. 307 dated 14 March 2018 stipulating a mechanism for cost compensation and a methodology for estimation of the volume of dispatcher’s curtailment of electricity production of RES plants selling electricity at FiT.

Market participants shall submit comments and suggestions to the draft document on or before 24 June 2020.