Legislative initiatives for 01-21 July 2020

Impacting RES producers

Review of legislative initiatives was prepared for the European-Ukrainian Energy Agency by IMEPOWER – EUEA Energy Adviser 2020.

The Verkhovna Rada of Ukraine

 Effective Laws

 On 17 July 2020, the Law No. 733-IX “On Amendments to the Law of Ukraine “On Environmental Impact Assessment” (on peculiarities of conducting public discussions during the quarantine period) came into force. Info about the Law was provided in newsletter for 18-30 June 2020.

 On 6 July 2020, the Law of Ukraine No. 719-IX “On Measures to Repay Debts in the Wholesale Electricity Market” (concerning mechanisms for repayment of debts for electricity before 1 July 2019) came into force. Info about the Law was provided in newsletter for 1-17 June 2020.

 On 2 July 2020, the Law No. 674-IX “On the Customs Tariff of Ukraine” (on new version of the Customs Tariff) came into force. Info about the Law was provided in newsletter for 1-17 June 2020.

Voted laws, resolutions

On 21 July 2020, the Law on Amendments to Certain Laws of Ukraine on Improvement of Support Conditions of Electricity Production from Renewable Energy Sources (No. 3658) was adopted to implement the provisions of the Memorandum for resolving of the problematic issues in the renewable power industry of Ukraine signed between the Government and representatives of RES investors on 10 June 2020. See the overview of the adopted Law here.

On 21 July 2020, the Law “On State Support for Investment Projects with Material Investments” (registration No. 3760) was adopted in the first reading. On 1 July 2020, the President of Ukraine submitted the draft Law to the Verkhovna Rada. The draft Law is called by public “the law on investment nanny”.

The draft Law defines the legal basis for state support for investment projects with material investments. According to the explanation to the draft Law, it shall promote attraction of strategic investors, enhance investment attractiveness of Ukraine.

In particular, the draft Law stipulates the following:

  • Areas of economic activity in which investment projects can be implemented under the conditions specified by this Law:
  • in the fields of processing industry,
  • infrastructure and logistics,
  • household waste management;
  • tourism, health care, education, sports.
  • Criteria for classification of investment projects as projects with material investments:
  • amount of investment in the project shall be equal at least to equivalent of EUR 30 million;
  • at least 150 jobs are created with an average salary of employees 15% or more higher than the average salary in the relevant industry and in the region;
  • project implementation term shall not exceed 5 years;
  • Forms of state support of investment projects with material investments are as follows:
  • granting tax benefits;
  • granting the right to land use for project implementation;
  • provision of infrastructure facilities for the project (highways, communication lines, other utilities) at the cost of the state;
  • establishment of a special state institution supporting the applicants/investors within the process of project preparation and implementation. Such authorized institution shall support respective applicants and investors on a free of charge basis.
  • Maximum amount of state support shall not exceed 30% of the amount of investment in the project.
  • Investor-state relations are regulated under the Special Investment Contract (the “SIC”)
  • Regulation of the procedure for preparation of an application for state support, its consideration and decision-making on the expediency or inexpediency of a SIC conclusion.
  • Specification of the guarantees of rights of investors implementing investment projects with material investments (stabilization clause). In particular:

The Draft Law guarantees that the rights and obligations of the SIC Party under a SIC will be subject to the laws of Ukraine effective at the time of the conclusion of the SIC.

If, however, following the conclusion of the SIC, Ukraine were to reduce or cancel any applicable taxes or duties, simplify the regulation of economic activity, liberalize state supervision (control) procedures, mitigate the responsibility of the SIC Party or otherwise improve the position of the Investment SIC Party, such improved regulations would apply to the rights and obligations of the SIC Party.

The aforementioned guarantees will not apply to legislative changes relating to defense, national security, public order and environmental protection.

As for the RES activities, according to the draft Law, the state support under this Law shall not be provided for implementation of projects with material investments in RES, mining, crop production and finance.

On 21 July 2020, there was adopted in the first reading the draft Law “On Amendments to the Law of Ukraine “On Public Procurement” to create preconditions for sustainable development and modernization of domestic industry” (registration No. 3739).

According to the draft Law, the specifics of the procedure for purchasing certain goods shall be temporarily stipulated starting from 1 January 2021. In particular, certain items will be allowed to participate in public procurement only if the level of localization of their production in Ukraine exceeds a certain amount specified by this Law. More detail info about the draft Law was provided in newsletter for 15-30 June 2020.

It should be separately noted that the MPs adopted the draft Law despite the objections of the Committee on issues of European integration while the members of the Committee substantiated that the draft Law contradicts Ukraine’s international legal obligations including the Association Agreement, Directive 2014/24/EU and provisions of the WTO Agreement “On Public Procurement” (ensuring equal treatment of all participants in the procurement procedure, transparency and non-discrimination of the procurement procedure).

On 13 July 2020, during the first reading there was adopted the draft Law “On amendments to the Law of Ukraine “On the Electricity Market” (registration No. 3199) enabling large consumers (capacity equal to or higher 100 MW) to buy electricity from producers under direct long-term (up to 5 years) agreements. The law contains a number of shortcomings, in particular, it violates the principles of competition in the electricity market and discriminates against producers of the public sector of the economy, obliging them to sell electricity to such consumers.

Registered legislative initiatives

Registration No. 3761 and No. 3762 dated 1 July 2020 – draft laws related to the draft Law with registration No. 3760 adopted on 21 July 2020 by the Verkhovna Rada in the first reading.

These draft Laws amend the Tax Code and the Customs Code. They introduce temporary (until 1 January 2035) tax benefits for investors with material investments, specifically:

  • to exempt from value added tax the goods imported to the customs territory for implementation of an investment project with material investments;
  • to exempt from import duty the equipment needed to implement an investment project with material investment, imported into the territory of Ukraine;
  • to exempt the entity from corporate income tax for 5 consecutive years after commissioning of the facility (built or reconstructed);
  • to authorize local government bodies on granting of tax benefits for land tax or land lease fee (reduction of amount or exemption from payment).

In this case, the total amount of all funds exempt from taxation may not exceed the total amount of state support provided under special investment contract.

The National Energy and Utilities Regulatory Commission

Taken decisions

At the meeting held on 15 July 2020, the NEURC approved the Regulation on submission and publication of data in the electricity market.

The TSO drafted the Regulation in accordance with the requirements of the Procedure for collecting and transmitting data on operation of electricity market for publication on ENTSO-E transparency platform, approved by the resolution of the NEURC No. 459 dated 19 June 2018.

The Regulation stipulates the following:

  • detailed description of data and form of their presentation;
  • requirements for means and formats of data transmission;
  • requirements for a data provider;
  • form of agreement on the data transfer to the ENTSO-E transparency platform between the TSO, primary data owner, and data provider.

Within two months from the date of publication of this Regulation on the website of the TSO (17 July 2020), owners of primary data shall ensure submission and updating of data on a permanent basis in accordance with the Regulation.

Please note that in accordance with the resolution of the NEURC No. 459 dated 19 June 2018, the producers of electricity with an installed capacity equal to or exceeding 1 MW are the owners of primary data.

Outcomes of the NEURC meeting on 11 July:

The NEURC adopted the Resolution “On Amendments to the Resolution of the NEURC No. 2668 dated 10 December 2019”. Tariff for electricity transmission services for NPC Ukrenergo has been revised. New tariff is set at UAH 240.23/MWh (excluding VAT).

The electricity transmission tariff includes a component to compensate the Guaranteed Buyer for payments to RES producers.

The NEURC adopted the Resolution “On Amendments to the Resolution of the NEURC No. 2669 dated 10 December 2019”. Tariff for dispatch (operational and technological) services for NPC Ukrenergo has been revised. The new tariff is set at UAH 24.75/MWh (excluding VAT).

Dispatch management services shall be paid for by RES producers as well.

Draft statutory instruments published for their further discussion

On 21 July 2020 the NEURC published the draft Resolution on amendments to be introduced to the Market Rules approved by Resolution of the NEURC No. 307 dated 14 March 2018. According to the draft Resolution, tariff for dispatch services shall be specified as a financing source of the difference on subaccount UA-1. The difference on subaccount UA-1 may be caused, in particular, by TSO’s issue of commands outside the range of the balancing market to address system constraints in the Power Grid of Ukraine.

In this regard, on 22 July 2020 the NEURC published a draft Resolution “On Amendments to Procedure for tariff setting for dispatch (operational and technological) services”.

These draft acts are of interest to RES producers, given that RES producers are payers for dispatch management services provided by TSO.

Market participants shall submit comments and suggestions to the draft document on or before 31 July 2020.

The Transmission System Operator (NPC Ukrenergo)

Draft statutory instruments published for their further discussion

The TSO published the summarized draft amendments to the Transmission System Code (https://ua.energy/wp-content/uploads/2020/07/Tablytsya-propozytsij-do-KSP_1.docx). The draft is aimed at regulation of dispatching (operational and technological) relations between TSO and RES electricity facilities in the process of their dispatching.

We would like to draw attention to importance of the draft document for RES producers. Comments and suggestions from market participants are accepted by the TSO until 10 August 2020.