In October and November 2011 Ukrainian Parliament adopted following laws of Ukraine which introduce important amendments to the Law of Ukraine "On Power Generation" No. 575/97-ВP dated 16 October 1997 ("Law 575/97"):

 Law of Ukraine "On Amending of Certain Legislative Acts of Ukraine" No. 3830-VI dated 6 October 2011 ("Law 3830");

 Law of Ukraine "On Amending of Article 171 of Law of Ukraine "On Power Generation" No. 9444/П dated 18 November 2011 ("Law 9444");

It should be mentioned also that the President of Ukraine issued the following Decrees on 23 November 2011:

Decree of the President of Ukraine "On Liquidation of the National Commission for Electric Energy Regulation of Ukraine" No. 1057/2011 ("Decree 1057");

Decree of the President of Ukraine "On the National Commission Exercising State Regulation in the Area of Electric Energy" No. 1059/2011 ("Decree 1059")

Below, we provide a brief summary of novelties envisaged by the above Laws and Presidential Decrees.

Law 3830

Law 3830 came into force on 9 November 2011. Main purpose of this Law is to extend the state supervision and control over power generation, supply and consumption. Below we have highlighted some of important novelties of the Law 3830:

 The Law 3830 introduced: a) new wording for definitions of "transmission of electricity" and "electricity supply", which provide more detailed description of the above kind of activities; and b) added two new definitions: "power generation" and "normative document", which were not previously provided by the Law 575/97. Purpose of such new definitions is to cover some regulatory gaps in the Law 575/97;

 Article 9 "State supervision (control) over power generation" of the Law 575/97 is restated in a new wording. Under the Law 3830 Sate Inspection on Operation of Energy Stations and Power Lines and State Inspection on Supervision over Electrical and Thermal Energy Power Consumption Regimes were replaced by single controlling body - State Inspection on State Energy Supervision ("Inspection");

 Law 3830 grants the Inspection a wide scope of powers and rights, provides for certain instruments to perform extensive control over power generation, transmission and supply activities. The Inspection has inter alia the following rights and powers: right of free access to power generation and transmission facilities; right to issue mandatory orders and directives; right to issue administrative protocols and to consider administrative cases; to suspend or to prohibit operation of power generation and transmission facilities; and to impose fines to the participants of energy market;

 Under the Law 575/97 all settlements in the wholesale energy market should be performed through special purpose current accounts under special algorithm approved by National Electricity Regulatory Commission of Ukraine ("NERC"). Law 575/97 envisages exclusive list of permitted transfers from such special purpose accounts. Law 3830 extends the list of permitted transfers of monetary funds for the special purpose. However the wording of such new ground for transferring the funds is rather ambiguous. We believe that purpose of such novelty is to provide state authorities with an instrument of obtaining of additional funding which may be used to cover gaps in financing of maintenance of energy system of Ukraine;

 Law 3830 introduces a prohibition to allocate structures and other objects in the protective zones of power generation facilities without performance of mandatory technical safety measures. Such prohibition was not initially envisaged by the Law 875/97;

 Law 3830 sets out direct obligation of power supply companies to ensure due technical condition and maintenance of power generation objects in compliance with normative legislative acts and normative documents. Previously such direct obligation was not provided by Law 575/97;

 Law 3830 extends the cases which constitute the violation of the legislation on power generation. Namely, the Law provides for that a breach of normative-legislative acts and normative documents regulating technical operation of power generation facilities and transmission lines is a ground for liability;

Law 9444

Law 9444 sets out that regulation on procedure of determination of the share of materials (goods), works and services of Ukrainian origin used for construction of a generation facility based on alternative sources of energy should be adopted by NERC ("Local Content Requirement"). Moreover the Law envisages that Ukrainian origin of materials (goods) should be confirmed by relevant certificates on origin. Regulation on procedure of issuance of such certificates should be adopted by the Cabinet of Ministers of Ukraine ("CMU").

Is should be noted that the Law 9444 provides for more detailed rules for application of the Local Content Requirement. Law 9444 adjusts Local Content Requirement in the following way:

 For power generation facilities (based on alternative sources of energy) the construction of which commenced before 1 January 2012 and will be put into operation until 1 January 2013 - the share of materials, works and services of Ukrainian origin used for their construction should be not less than 15 percent of their total value,

 For power generation facilities (based on alternative sources of energy) the construction of which commenced before 1 January 2012 and will be put into operation after 1 January 2013 - the share of materials, works and services of Ukrainian origin used for their construction should be not less than 30 percent of its total value,

 For power generation facilities (based on alternative sources of energy) the construction of which commenced before 1 January 2012 and will be put into operation after 1 January 2014 - the share of materials, works and services of Ukrainian origin used for their construction should be not less than 50 percent of its total value,

We note that both NERC's Regulation on procedure of determination of the share of materials (goods), works and services of Ukrainian origin used for construction of generation facilities based on alternative sources of energy and CMU's Regulation on procedure of issuance of certificated of origin are not adopted at the moment.

The Law 9444 has not yet come into force because it is not signed by President of Ukraine but we assume that it will be signed in the nearest future.

Presidential Decrees 1057 and 1059

Decree 1057 - liquidation of the National Commission for Electric Energy Regulation of Ukraine and cancellation of a number of Decrees of the President of Ukraine that used to regulate its activities.
Decree 1059 - establishment of the National Commission Exercising State Regulation in the Area of Electric Energy and approval of the regulation as a basis for its activities. The Commission's abbreviated name - NERC - remained unchanged.

It should be noted that according to both cancelled and effective Decrees of the President NERC is the body in charge of state regulation of activities in energy sector.

The purpose of Decree 1057 and Decree 1059 is to bring the normative and legal acts that regulated and continue regulating the activities of NERC into compliance with the provision of the effective Constitution of Ukraine, under which central executive authorities (including NERC) are established by and subordinated to the President of Ukraine.

Please do not hesitate to contact us should you have any questions on the above:

Oleksandr Kurdydyk
Partner
T: +380 44 490 95 70
F: +380 44 490 95 77
E: oleksandr.kurdydyk@dlapiper.com

Dmytro Derkach
Senior Associate
T: +380 44 490 95 75
F: +380 44 490 95 77
E: dmytro.derkach@dlapiper.com

Dmytro Lapa
Associate
T: +380 44 490 95 75
F: +380 44 490 95 77
E: dmytro.lapa@dlapiper.com

DLA Piper UKRAINE LLC is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities.

The matters covered in this newsletter are intended as a general overview. This newsletter is not intended, and should not be used, as a substitute for taking legal advice in any specific situation. DLA Piper UKRAINE LLC will accept no responsibility for any actions taken or not taken on the basis of this newsletter. If you would like further advice, please contact Finance and Projects Team at +380 44 490 95 75.

Copyright © 2011 DLA Piper. All rights reserved. | DECEMBER11 | 2073868