Energy Club Held a Professional Discussion: Public Procurement of Energy Resources: How Does the Interpretation of the Law Affect the Market? A Dialogue Between Government and Business

16.05.2025

On May 16, 2025, Energy Club held a professional discussion in the Energy Freedom talk show format on the topic: “Public procurement of energy resources: How does the interpretation of the Law affect the market? Dialogue between government and business.” The event was held online and became a platform for an open dialogue between representatives of the government, energy business and other stakeholders on the problems caused by the Grand Chamber of the Supreme Court’s interpretation of the provision of the Law “On Public Procurement” on the 10% limitation on contract price changes.

Please find below the speech of one of the speakers – Oleksandr Kudym, Director of Euro Trade Energy LLC:

1. The legal conclusions of the Grand Chamber of the Supreme Court dated January 24, 2024, in case No. 922/2321/22 regarding the increase in the price per unit of electricity by more than 10% of the price determined by the parties in the contract. Firstly, for your information: 2020 showed fluctuations in the average weighted day-ahead market price from December to January by 9.64%, 2021 – 116%, 2022 – 17.25%, 2023 – 18.3%, 2024 – 55%. That is, year after year, there are systematic unpredictable fluctuations in electricity prices that significantly exceed the imaginary ceiling of 10%. At the same time, currently, no market participant, not even the Ministry of Energy of Ukraine, NEURC, the state Market Operator, state generation companies (Energoatom or Ukrhydroenergo), let alone licensees, has any informational and analytical basis, software, or mathematical models, not even based on supercomputers or artificial intelligence, that can predict electricity price fluctuations in the market during a budget period – a year – even with an acceptable margin of error of 10%, which makes it impossible to account for at least the main risks of price increases during contract execution, not to mention the risks of treasury payment delays, inflation, or currency fluctuations that directly affect any sector of the economy. Secondly, without even touching upon the legal structure of the direct norm of paragraph 2 of part five of Article 41 of the Law (in the version that was in effect during the disputed additional agreements in 2021), the direct evolution of changes to this norm of the Law (according to which the principle of proportionality of price increase was gradually added, and restrictions on the frequency of making relevant changes were removed), the approval by the Cabinet of Ministers decree of the Peculiarities of Procurement, which removed the 10 percent limit, clarifications on the application of this norm of the Law by the Authorized Body, whose representative is present at this meeting and will separately confirm that all actions of the Government and the legislative branch were and are currently aimed at the final result – adding to the indicated norm of the Law the following sentence: “The restriction on price increase up to 10 percent applies to each individual case of price increase per unit of goods, provided that such a change does not lead to an increase in the amount specified in the procurement contract.” Thirdly, I would like to briefly touch upon the market circumstances that allow both customers in the field of public procurement and their participants to at least explore the main trends in the decisions made by other respected customers during the execution of concluded contracts in 2021. That is, when making decisions regarding amendments to the terms of the contract, both Customers and participants studied similar cases, in particular those adopted by the main body that forms policy in the field of public procurement – the Ministry of Economy of Ukraine, the main body in the field of state financial control – the State Audit Service of Ukraine, directly the Supreme Court of Ukraine, courts of various instances, the Office of the Prosecutor General, and all other law enforcement agencies without exception. So, absolutely all customers acted in the same logical sequence and typically made changes to the contract price exceeding 10 percent of its original price. There are also official positions of both the SASU (State Audit Service of Ukraine) and the Secretariat of the Supreme Court, according to which they, like all other customers, were guided when making changes to their own electricity supply contracts by the legally defined possibilities of applying changes to essential terms exactly on the date of making the relevant decisions, as well as the legal positions of the Supreme Court in rulings that confirmed the legality of the changes made exceeding 10 percent of its original price. My final point is that the courts of all instances, when considering the legal conclusions of the Grand Chamber of the Supreme Court dated January 24, 2024, do not examine the differences or similarities in the conclusion of additional agreements by Vek Technology LLC (this is the procurement participant based on the results of which the contract was concluded and amendments were made to it, which became the subject of consideration in the relevant case by the Grand Chamber of the Supreme Court) and the direct making of changes in each individual case. In particular, during the term of the concluded contract between Vek Technology LLC and the relevant structural unit of the SES (State Emergency Service), a colossal 14 additional agreements were concluded regarding the increase in the price per unit of goods, as a result of which the price per unit of electricity increased by 92%, and out of the total number of concluded additional agreements, 5 of them were concluded in April 2021 (during a period of no significant market fluctuations, during which most market participants did not even try to initiate relevant changes) and as many as 8 additional agreements in October 2021 (which are dated the same date, namely October 13, 2021) and which increased the price immediately by the amount of all additional agreements, and not for each separate period of fluctuation. I can understand both the position of the Grand Chamber of the Supreme Court and the Prosecutor’s Office even without investigating the issue of the proportionality of the fluctuation in the price of goods on the market or the reasonableness of the relevant changes made by Vek Technology LLC and the relevant structural unit of the SES, but most situations of other suppliers are fundamentally different from the one considered by the Grand Chamber of the Supreme Court, both in terms of the significant difference in the percentage increase in the price per unit of electricity and in the approach to concluding additional agreements. We analyzed hundreds of concluded additional agreements by various market participants and found that the average number of additional agreements concluded specifically for price increases in 2021 does not exceed 4, and the average percentage of price increase per unit of electricity does not exceed 50 percent. That is, market participants, together with the state, took on joint responsibility and have already compensated for the rampant price growth in the market in 2021 at their own expense. Moreover, let’s think together about how any market participant could compensate for such huge losses from the execution of the terms of concluded contracts in 2021. The answer is very simple and obvious – from the profits received in previous periods of their operation. At the same time, as you know, the electricity market was demonopolized only in 2019, and the market actually began to function in 2020. The average profitability from the execution of contracts can vary in the market from 3 to 20%. With simple mathematical calculations, we can calculate that to cover even a 50% gap between the purchase and sale price in 2021, any market participant, even with the maximum threshold margin of 20%, needs to operate in the market for at least 2.5 years, and we only had the first full year of market operation in 2020.
2. The Supreme Court considered the cassation appeal of an electricity supplier (ruling of August 28, 2024, in case No. 918/694/23), who challenged the decision to invalidate five additional agreements that increased the price of goods by 31.5% compared to the initial price. The main question was: does Cabinet of Ministers Decree No. 1178 (which establishes the “peculiarities” of procurement during martial law) allow deviation from the 10 percent limit established by paragraph 2 of part five of Article 41 of the Law of Ukraine “On Public Procurement”? At the same time, the Supreme Court stated that Decree No. 1178 is a subordinate act and does not change the content of the Law: its provisions only detail the cases when the parties can use paragraph 2 of part 5 of Article 41 of the Law, but do not establish a different algorithm for calculating the percentage ratio of pricing and, accordingly, do not cancel the 10% limit. Therefore, there are no grounds to believe that the adoption of the Cabinet of Ministers Decree is a “change in legislation” that would allow deviation from the established conclusion of the Grand Chamber of the Supreme Court. That is, the resonance lies in the fact that customers and participants in public procurement can use all the algorithms and processes laid down in the Peculiarities, with the exception of the norm governing the price increase in proportion to the fluctuation in the price of goods on the market. Along with this, as in 2021, in 2022-2023, absolutely all Customers and participants in public procurement, when making decisions regarding amendments to the terms of contracts, were guided by the understanding that the relevant Cabinet of Ministers Decree removed the 10 percent limit.
3. Now let’s move on to the current practical consequences of the adoption of the relevant legal conclusions of the Grand Chamber of the Supreme Court and the Supreme Court:

• thousands of lawsuits filed by the Prosecutor’s Office against market participants, while the selectivity of such lawsuits is obvious (we set ourselves the task of finding lawsuits filed by the Prosecutor’s Office regarding their own concluded contracts in 2021, and contracts concluded by territorial bodies of the SBU, Police, BEB, SBI, judges of various instances, and found only 4 lawsuits out of hundreds of contracts concluded by the relevant bodies);
• colossal resource expenditures on simultaneously conducting court proceedings, and in courts of different regions where customers are located, and not at the territorial location of suppliers;
• an incredible number of inaccuracies in the prosecutor’s calculations regarding the amounts to be returned, which are actually ignored by judges;
• selectivity in the application by judges of the practice of decisions of the Grand Chamber of the Supreme Court that do not favor the position of the prosecutor’s office (in particular, the non-application by courts of the Grand Chamber’s decision on bilateral restitution);
• the most dangerous consequence of the relevant crisis is criminal prosecution. The list of law enforcement agencies that have initiated relevant similar proceedings includes the National Police, the SBU, the BEB, and in recent months, the NABU and the SBI have also been added. The algorithm for opening and investigating these criminal proceedings is as follows:
• the investigator’s assumption of causing damage to budgets of various levels or relevant enterprises due to an increase in the price of electricity, gas, and fuel by more than 10 percent of the initial contract price, specifically taking into account the legal conclusions of the Grand Chamber of the Supreme Court dated January 24, 2024, in case No. 922/2321/22 and the Supreme Court’s ruling of August 28, 2024, in case No. 918/694/23;
• conducting an economic expert examination, which states the fact of such damage and its amount;
• serving suspicion notices of committing a criminal offense to the relevant officials of customers and participants in public procurement. To share personal experience in the investigation of criminal proceedings by various law enforcement agencies regarding the concluded contracts of Euro Trade Energy LLC. If a year ago the number of market participants sued by the Prosecutor’s Office was insignificant and most believed that these lawsuits would bypass them, now in May 2025, it is difficult to find an electricity supplier who participated in public procurement in 2021-2023 and was not affected by the relevant participation. A similar dynamic exists in the number and scale of criminal proceedings initiated by law enforcement agencies in 2025; literally by the middle of next year, it will be difficult to find officials of customers and participants in public procurement who will not be served with relevant suspicion notices of committing criminal offenses. That is why market participants, together with Energy Club, have invited professional legal specialists who form a general public position on certain issues of law application, officials of the Ministry of Economy of Ukraine, representatives of leading higher education institutions, journalists, and directly the secretariat of the Grand Chamber of the Supreme Court to this meeting to convey the existential crisis that is currently relentlessly destroying the energy market, as well as to convey the position on the need for a joint appeal to the secretariat of the Grand Chamber of the Supreme Court to clarify the relevant legal conclusions.