European-Ukrainian Energy Agency (EUEA) Statement on Retroactive Amendments to Electricity Market Law Brought under the Draft Law registration number 2236-2

We are deeply concerned to hear that the Parliament Committee on Energy, Housing and Utilities Services approved yesterday Draft Law with registration number 2236-2 introducing amendments to the Electricity Market Law that, in particular, excluded renewable power plants with installed capacity of more than 150 MW from curtailment compensation mechanism envisaged by the Articles 44 and 68 of the Electricity Market Law.

If approved by the Parliament of Ukraine, such amendments would mean a retrospective change of the “green tariff” guarantees in place since 2009, namely that all electricity produced by alternative energy producers will be purchased at the green tariff. This change might not only result in investment arbitrations against Ukraine but more important would undermine the trust into the Ukrainian State and the state guarantees. If implemented, no banks and financial institutions would ever lend funds for renewable or other energy projects as they cannot be sure that new retrospective changes would come up again.

Draft Law 2236-2 have clear negative impact on the biggest international investors in renewable sector.  In particular, it will affect such projects of EUEA members under construction as 250 MW Syvash wind farm project (investors are NBT and Total Eren, debt financing comes from eight banks led by EBRD) and 500 MW Zaporizhya wind farm project (investors are LongWing, VLC Renewables, GE Capital, debt financing for the first stage comes from OPIC).

In the case of approval of abovementioned Draft Law, the transmission system operator will have unlimited ability to reduce electricity production of renewable power plants with 150+ MW capacity by any figure at any time without compensation provided by the state for the electricity volumes which were not delivered to the grid.

On this basis we conclude that proposed amendment has discriminatory nature, violates the rights of international investors, endangers successful completion of renewable projects under construction, breaches the promise of the Government of Ukraine not to apply retroactive changes towards investors. It is goes far from fair and equitable principles that should be ensured by Ukraine under Energy Charter Treaty and numerous Bilateral Investment Treaties.

Such norms, if approved, will result in material losses (full amount of “green” tariff and interest on late payments for all affected RES producers) from the State Budget, as well as reimbursement of other litigation costs at the expense of the state budget of Ukraine (litigation, legal). Also, implementation of this rule will cause reputational losses for the image of Ukraine as an unreliable jurisdiction for foreign investors, and will completely undermine any work to attract foreign investors and investments in Ukraine, including, in fact  blocking of any works including privatization and land market opening.

We find it unacceptable that such initiatives are brought up and might be supported despite the opposite statements from the Ukrainian officials. In circumstances when assurance to investors that retroactive changes will not take place by the top Government and Parliament officials are followed by such legal initiatives the following day we cannot build trustful and open dialogue.

We appeal to the Members of the Ukrainian Parliament to consider above information when voting for the Draft Law 2236-2. We ask the President of Ukraine and the Prime Minister of Ukraine to keep the promises given to the investor community regarding stability of investment climate. We remain committed to invest hundreds millions of dollars in the Ukrainian energy sector if the regulatory framework remains stable and no retroactive steps are taken by the Parliament or the Government. In case of violation of our rights, we reserve the right of initiating proceedings in international arbitration tribunals against Ukraine.