Public Energy Procurement: How Legal Interpretation Limits the Market and What Energy Club Proposes?

18.04.2025

Energy Club continues to work on solving current issues in the energy market. Currently, one of the key problems is the interpretation by the Grand Chamber of the Supreme Court of the provision in the Law of Ukraine “On Public Procurement” regarding contract price changes. This creates significant difficulties for suppliers and threatens the stability of supply, especially for budgetary institutions. Understanding the importance of this issue, we are initiating an online meeting for joint discussion and finding solutions to the situation.

The source of concern is the ruling of the Grand Chamber of the Supreme Court dated January 24, 2024, in case No. 922/2321/22. According to the Court’s conclusions, amendments to the procurement contract regarding price increases per unit of goods (in our case, energy resources) due to market price fluctuations, as provided by paragraph 2 of part 5 of Article 41 of the Law “On Public Procurement,” has a significant limitation. Specifically, the total amount of all price increases during the contract term cannot exceed 10% of the initial price determined in the contract at the time of its conclusion.

At first glance, the 10% rule may seem like a standard safeguard. However, its interpretation as a cumulative limit for the entire contract period, regardless of the number of justified market fluctuations and contract duration, creates significant problems specifically for the energy resources market.

Why is this critical?

1. Incompatibility with market volatility: Natural gas and electricity markets are extremely volatile. Prices can experience significant fluctuations exceeding 10% multiple times throughout the year, especially under martial law conditions and global energy instability. Setting a cumulative increase at 10% for the entire contract period, for example an annual contract, means ignoring objective economic reality.
2. Risks for suppliers: Suppliers who win a tender at one price may face situations where market prices rise much more than the 10% cumulative limit. This puts them in a position to either supply energy resources at a loss or refuse to fulfill the contract. Both options are unacceptable and destructive for business. As a result, companies may avoid participating in public procurement, which reduces competition.
3. Threat to the stability of supply for budgetary institutions: The most vulnerable are budgetary institutions – hospitals, schools, kindergartens, military units, critical infrastructure facilities. They make purchases using budget funds through the ProZorro system. If suppliers refuse to participate in tenders due to excessive risks or cannot fulfill already concluded contracts due to unprofitability, these institutions may be left without vital energy resources, which is absolutely unacceptable, especially during wartime and the heating season.
4. Distortion of competition and price increases: Anticipating potential losses due to limitations, suppliers may be forced to include these risks in their initial tender proposal, artificially inflating the price. This will lead to inefficient use of budget funds.

The issue has not gone unnoticed by Energy Club members. Energy Club was approached by member company “Euro Trade Energy” with a request to highlight this issue. Understanding the systemic nature of the problem, Energy Club promptly organized a meeting of Energy Club members on April 9, 2024. The aim was to deeply analyze the consequences of the Supreme Court ruling, exchange experiences, and form a common Energy Club position.

Based on the discussion and analysis, Energy Club prepared and sent an official appeal to the Chairman of the Verkhovna Rada Committee on Legal Policy, Denys Maslov. In this appeal, we request clarification regarding the legislator’s intent when formulating the relevant provisions of the Law “On Public Procurement.” We seek to understand whether the current interpretation of the Court corresponds to the vision of pricing flexibility that was intended during the development of the law, especially for such specific and volatile commodities as energy resources.

Understanding that the problem affects the interests of a wide range of participants – from legislators and government officials to suppliers and end consumers in the budgetary sector – Energy Club is initiating an online meeting on this topic.

We invite to participate:

• Members of Parliament – representatives of relevant committees of the Verkhovna Rada (on energy and housing and communal services, legal policy).
• Representatives of interested ministries and departments (Ministry of Energy, Ministry of Economy).
• Representatives of NEURC.
• Representatives of Energy Club member companies.
• Representatives of clients – budgetary institutions and organizations.
• Leading lawyers and experts in public procurement.

The purpose of our meeting is to establish direct and constructive dialogue between all stakeholders. We aim to jointly:

• Discuss in detail the practical consequences and risks arising from the interpretation of the Law by the Supreme Court ruling in case No. 922/2321/22.
• Consider possible ways to solve the problem – whether through legislative changes, official clarifications, or the formation of new court practice.
• Promote a balanced approach and practice in applying public procurement legislation that would take into account the specifics of energy markets and ensure supply stability, especially under current conditions.

We believe that only through open, professional, and constructive dialogue can we find the optimal solution to this complex legal collision. A solution that will protect the interests of the state, ensure stable energy supply to the budget sector, and allow suppliers to work under predictable conditions.

Energy Club invites all interested parties to join this important discussion.
We are confident that the Energy Club platform can and should serve as a place for effective communication between business and government, for jointly finding answers to the most difficult challenges, and for protecting the interests of participants in Ukraine’s energy market.