Reform Index 110. Justice Has Been Restored. ‘Green’ Auctions Instead of ‘Green’ Tariffs

“When the first draft law was being elaborated, its goal was to introduce an effective competitive support system for the facilities generating electricity from renewable sources of energy.

The system was meant to change the size of the ‘green’ tariff set in legislation, which provided a strong impetus for the development of electricity generation from RES, but it appeared to be ineffective in the conditions of a drastic decrease in the prime cost of the generating equipment, in particular, solar panels. 

To put it simply, due to high ‘green’ tariffs, investors started getting unreasonably high income at the expense of electricity consumers. 

In the course of draft law processing, among other things, analysis of the effect of RES stimulation was made [RES – renewable energies, ed.] on the cost of electricity over the next three years. According to the calculations, already on the basis of the results of 2020 electricity produced from RES will cost more than 40 bln. UAH for consumers. If we apply a comprehensive approach to the situation, it becomes clear that Ukrainian economy cannot afford such additional costs. Probably, that could become the reason for partial default under the commitments in payments at the ‘green’ tariff, with all that it implies (lost arbitration court proceedings, investment climate deterioration, capital cost increase, etc.). 

It was necessary to give an opportunity to the government to influence the volume of financial commitments undertaken by Ukraine. That could be done through establishment of certain limits of payments for new investors. The idea was, however, not supported. 

Indirect control over the volume of costs was achieved through establishment of the participants duty to take part in an auction where they would compete for a quota (the capacity within which support is provided) established by the Cabinet of Ministers of Ukraine. Such mechanism is effective only in case investors who have not won the auction cannot implement all their projects at the ‘green’ tariff.  That is why the Law sets that the size of the facilities that may receive the ‘green’ tariff starting with January 01, 2020 may not exceed 1 MW for sun and 5 MW for wind. Thus, we have tried to stabilize the overheated RES sector, without violating the commitments undertaken by Ukraine, in line with the Law of Ukraine On Alternative Sources”.

‘The Resolution takes foreign economic contracts for a number of goods and services out of the effect of currency restrictions. Now payments under such contracts don’t need to be completed within 365 days, the gap between the date of commodity/service supply and the date of payment is not regulated and may be set at the discretion of the parties to the contract. This restriction was one of the most painful for business when it was 90, and then 180 days – companies had to re-conclude agreements every three months or every half a year not to violate payment deadlines, otherwise they became subject to sanction imposition. 

In particular, the following are taken out of the effect of the restrictions: (1) complex goods for space rocket complexes, aviation and military industrial complex – development and production of such goods may well exceed a year, and restrictions for them are too strict (2) goods under agreements on product distribution (3) procurements of medications and medical services of the Ministry of Health (4) goods and services– they were taken out of the effect of currency control back in 2016 by a special law as the ones that cannot be controlled and the ones it is inexpedient to control, while the Law on Currency did not record that, and now the National Bank is returning liberal regime for his market.’

‘Resolution No. 67 as of May 14, 2019 approves the list of exceptions from the regime of control of the deadline for payments in export and import operations. To put it simply, this reduces the load on banks and allows not to demand extra documents from clients for the operations indicated in the list.

Along with that, for a part of service export (the most wide-spread operations out of the ones mentioned in the list) this resolution is just status quo restoration. Back before the adoption of the Law On Currency these operations were excluded from the regime of control of payment deadlines. That enabled banks not to demand acts of service provision, which it was difficult to sign with foreign customers (in 2016 respective amendments were made in the Law On the Procedure of Making Payments in Foreign Currency for the sake of service export facilitation, mainly in IT).

The Law On Currency cancelled this exception along with the Law On the Procedure of Making Payments in Foreign Currency and entitled the Cabinet of Ministers of Ukraine and the National Bank of Ukraine to determine such exceptions or peculiarities with their acts. After the Law On Currency took effect and before resolution No. 67 was adopted, the banks and clients worked in a more rigid regulation regime in service export than before adoption of the Law of Ukraine On Currency – banks started requiring acts of service provision, signed with foreign customers, from their clients again. The situation was improved with adoption of resolution No. 67’.