11.04.2025
A critical legal issue arising from the Supreme Court Grand Chamber Resolution of January 24, 2024, in case No. 922/2321/22 was discussed at an online meeting of Energy Club members on April 9. The document establishes a 10% limit on the total price increase for goods under procurement contracts, creating significant risks for stable energy supply to the budget sector, especially under martial law conditions and electricity market price volatility.
The meeting was attended by 24 representatives of Energy Club member companies. After thoroughly analyzing the consequences of the Supreme Court Grand Chamber Resolution for electricity market participants, they discussed options for solving the problem and minimizing negative consequences. It was decided to prepare a collective appeal on behalf of Energy Club members to the Committees of the Verkhovna Rada of Ukraine on Legal Policy and on Energy and Housing and Communal Services to protect the interests of the energy sector.
For more details about the discussion, analysis of the Supreme Court Resolution consequences, relevant remarks and proposals – read in the material.
The meeting moderator, Energy Club Vice President and former Deputy Minister of Energy of Ukraine Maxim Nemchynov reported: the event was initiated by one of the Energy Club participants, General Director of Eurotrade Energy LLC Oleksandr Kudym. The topic raised is very important and relevant for many companies, as it creates problems in the electricity market.
“The Resolution of the Supreme Court Grand Chamber of Ukraine dated January 24, 2024, in case No. 922/2321/22 states that any price increase of more than 10% until the end of the contract is not allowed. And as we understand, in the electricity market, and in general for energy carriers, this issue is quite complex and quite problematic to keep prices at such a level, especially with long-term contracts. Unfortunately, today we cannot fully provide ourselves with either natural gas or electricity in full, we have to import these energy carriers, so this is really quite a complex issue that can have a very serious impact,” Maxim Nemchynov noted.
General Director of Eurotrade Energy LLC Oleksandr Kudym spoke about the changes that have occurred over the past six months after discussing this topic on the Energy Club platform and reminded that there were several options for solving the problem: “The first is revising the position of the Supreme Court Grand Chamber. The position that was presented in the ‘Energy Partnership’ does not actually differ from the position of any other lawsuit filed by us or other legal companies that support our partners. It was based on two main principles: when the decision was made by the Grand Chamber, the wrong version of the law was taken as a basis, and everyone knows this perfectly well. That is, at the time of making amendments to the additional agreements from August 2021, another legal norm was already in effect. We all spoke about this in all decisions, and finally the Supreme Court judges listened to at least one of them. And the second aspect: there are decisions of the Ministry of Economy that contradict the position of the Grand Chamber.
During these six months, all cases related to the essence of these 10% reviews are being lost.
The second option is to amend the Law and exempt companies that acted in accordance with the Ministry of Economy’s clarifications from liability. This was unlikely, but a relevant draft law was submitted. However, the European Commission did not accept it, explaining that it does not comply with European norms, and since we are integrating into European legislation, it is impossible. And this option fell away for us.
And the last option, which I personally hoped for, is a decision on bilateral restitution. We reached the appeal, received a positive decision, but the cassation cancelled everything. This is nonsense, because the same decisions of the Supreme Chamber – the first from the beginning of 2024, and the second from the end – are about bilateral restitution. However, no one wants to take this into account and apply it. The latest decision of the Supreme Court was that one decision applies, the other does not, and why – no one explains. Moreover, in all these lawsuits filed by us and other industry enterprises, the prosecutor’s office allows so many violations, but no one pays attention to this either. Therefore, this option also falls away. The only option left is to review the Grand Chamber’s decision.”
Oleksandr Kudym suggested options for getting out of the difficult situation:
“In the Ministry of Economy, the Supreme Court, and other instances we appeal to, everyone says the same thing: the market is not united, the market does not invest in making this problem reach national significance. And this affects all of us. If previous decisions were lost, then now, this year, law enforcement agencies have become more active, many criminal proceedings have been opened and suspicions have been served on level ground. Examinations are conducted ‘on the knee,’ they take the dates of concluding additional agreements, compare prices, establish damages that do not actually exist: we all understand that we could not keep up with the market. And it’s good that some law enforcement officers listen to arguments.
If the previous story concerned financial factors, now we are all absolutely at risk, because the number of such initiated criminal proceedings and suspicion notifications is simply colossal. Therefore, if we do not unite now, then I see no point in further appealing to anyone, if the market is not united, if owners and directors do not want to give wide publicity to this information in the media. Friends, we have a bunch of tools that we can use. These include appeals to higher educational institutions, the Supreme Court Herald, the Council of Judges of Ukraine, the judicial and legal newspaper, which also form a position that will influence the review of the Supreme Court Grand Chamber’s decision. But in the quantity and quality needed now, no one does this. And the situation is really very bad, and this is our last chance. If we don’t use it, I don’t see any further prospects.”
The meeting moderator fully supported Oleksandr Kudym’s position, emphasizing that the problem is the same for everyone and concerns enterprises working with budget institutions or state companies, but it can affect the development of the energy market.
“I joined you to understand what the Energy Club community will decide on this issue, because we must develop a common position on solving this problem,” said Olha Tagiyeva, Head of the NGO “Energy Union”, in her speech. “Maybe someone doesn’t understand yet, but the problem is really big.
I have a specific proposal. We can write letters, reach out to acquaintances, gather meetings. But we need legal assistance. I understand that we still need to make changes to Article 41 of the Law, and we need a specific phrase: what needs to be changed. Let’s join forces, decide, and put forward a specific proposal about what wording should be in this article so that we don’t have any questions. Perhaps several changes need to be made, and I know that lawyers are working on this.
When people ask me why I defend businesses that worked with the budget, I can say that the market worked, changes were made, laws were passed hastily, and businesses today are responsible for supplying electricity to budget institutions. It is not possible for these 10% to change.
So I propose to work and suggest a specific wording of changes to the Law, which we will address to the relevant committee. We received a response to our appeal from the Ministry of Economy about what was meant when the changes to the Law were adopted. But we need clear advice from lawyers, a roadmap: what we, as electricity suppliers, and budget consumers, whom we can also involve, should do to defend our position and protect electricity supplies that actually took place in accordance with the legislation in force at that time.”
“We are already working on proposals, preparing a letter, and would like it to be supported by all participants of Energy Club and other unions and associations, because the problem is global,” added Maxim Nemchynov. “Trust in the market is already not very high, given the state’s failure to fulfill its obligations, and if such precedents continue, distrust will become a large-scale phenomenon. It is unclear how pricing can be limited by such decisions. We believe that we have a market economy, we want to work in a free market. I’m curious about what decisions were made in the European Union when they had natural gas costing more than 1000-2000 euros per cubic meter? Did they turn a blind eye to market price formation? Possibly, there are gaps in legislation and traders’ and suppliers’ desire to conclude long-term contracts without understanding the risks. Perhaps we need to come to hedging: if someone cannot fulfill the terms of the contract, companies should be confident that they will receive electricity. But we have a fairly young market, and to get to this, we need to go through a certain path, and hedging will again lead to price increases, we need to understand that this tool also costs money, like any insurance, clearing, but these are also guarantees of performance, supply, payment. That is, ultimately, it is an improvement of service. Therefore, if we cannot resolve this issue now, what improvement of service in the future can we talk about? Companies will not receive long-term contracts. Everyone will work on the DAM, IDM. And how then to calculate economic models? What prices to include in production, where electricity constitutes a significant part of the cost of goods? In my opinion, globally solving this issue will only allow us to form a normal electricity market, which will take into account such situations: long-term forward contracts with responsibility, futures with performance guarantees. These are essentially tools that banks will finance. We need to understand: if we cannot apply these mechanisms, there must be others that allow electricity producers to receive funds that will cover its cost.”
“Our problem is not only in these 10%, but in general in the powers of the prosecutor’s office to appeal in the interests of the Council, as court practice now shows. Because the Law of Ukraine ‘On Public Procurement’ provides for monitoring by the State Audit Service,” expressed her opinion, a lawyer of UkrgazResource company. “I believe lawyers need to get together and form a position regarding the departure from the Supreme Court Grand Chamber’s conclusion of June 21, 2023, which stated that the prosecutor’s office should recover funds not in favor of the electricity consumer, but of a higher-level budget organization. Because the legal positions of the Supreme Chamber have completely confused the situation in energy.”
“Yes, a comprehensive approach is needed. We cannot act formally and apply norms that have nothing to do with modern life. We need to form modern practice and write legislation in a way that will really contribute to the development of a market economy and market. Because in fact we want a market, but we apply a planned economy approach. Who should be responsible for the economic actions of two entities? Perhaps we should first appeal to the Commercial Court? If they have no claims against each other, what can we talk about? A comprehensive approach will allow us to change the situation in the future and make it more understandable for business,” Maxim Nemchynov suggested.
General Director of Eurotrade Energy LLC Oleksandr Kudym: “Recently, I spoke with the director of the procurement department of the Ministry of Economy, and received a clear answer that the European Commission does not accept such a position at all, that one can use clarifications from the Ministry of Economy; within the framework of European legislation, such practice is completely absent. In any version, this norm will not be implemented in any variant of the Law.”
Oleksandr Kudym proposed organizing another meeting with the Ministry of Economy, whose representatives, unlike others, are open to communication and ready to help. “But absolutely everyone I spoke with says that they do not see a common market position, joint actions to solve this issue. The deputy minister’s position was as follows: close one company and open another, what’s the problem? I’m silent about how much effort our activities cost us: opening overdrafts, loans, etc. The last thing that showed me that we are on the edge and there is no going back is the opening of criminal proceedings against my company and several others over the past month. And this means interrogations, requests for signature samples for the purpose of serving suspicion. If we don’t unite now, we will all walk with this yoke, and investigations will last 3-5 years,” emphasized the general director of Eurotrade Energy LLC.
According to Maxim Nemchynov, a discussion of this complex topic with the Fuel and Energy Committee is planned in the near future. Interested Energy Club participants will be notified in advance about the date and time of the meeting in order to participate.
“We have the Law of Ukraine ‘On Public Procurement’ and the Law of Ukraine ‘On the Electricity Market’ working separately,” noted Olga Tagieva. “If they had listened to us, perhaps such problems would not have existed, as well as issues from the European Commission. The market in Europe works differently; bilateral agreements cannot be terminated, because for non-fulfillment, the consumer will pay a fine equal to the cost of electricity. We need to understand: our market is imperfect, forward contracts do not work, which do not exist, the supplier does not have a figure to rely on when supplying the budget with electricity. Therefore, everyone follows the path of DAM, price increases, and changes in the price that exists on the market. According to European legislation, prices entered into the contract cannot be increased. So in the European Court, they will not understand or hear us. We do not have a market for bilateral agreements that work for a year, and our suppliers have chosen the optimal payment scheme for the consumer. The supplier pays 25% when purchasing electricity for a month from Energoatom, and in Europe, 3-5% is paid by the consumer if this contract is for two years. We have a different situation. And at the hearings, we need to convey this.”
“It’s nonsense when the reference point is only DAM, IDM. This is a volatile price that changes. An index needs to be made, where a much larger percentage of long-term contracts,” Maxim Nemchynov added in conclusion. “Unfortunately, since 2022, generation has not offered long-term contracts due to martial law. It’s difficult to plan for more than a month. But from 2023, contracts can be concluded for three months. We must understand: the longer the contract, the more stable the price, and we need to form an index taking into account such contracts, only fractions of DAM, IDM. That’s how the market was planned. DAM, IDM are one of the market segments, not the main market. And now we have a situation where there is no trust in the market, everyone goes to DAM, IDM, where prices are not always adequate in terms of supply and demand, we all remember the summer of 2024, when the market was in deficit, but the price was falling. And how to form a price in this situation? We need to talk about this as well and propose a mechanism so that forward contracts are the main ones in pricing and ensure their implementation to avoid defaults. There is a lot of work, and it is difficult to do it in wartime conditions, but it won’t be otherwise, we won’t unite markets either, because there are virtually no guarantees for contract performance. We will propose to the committee to hold hearings and discuss ways out of this situation and market development.”
