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The Ukrainian Energy Regulator Adopts Controversial Changes to the PPA

On 9 January 2018 the National Energy and Utilities Regulatory Commission (the "Regulator") adopted amendments to the template Power Purchase Agreement between the State Enterprise "Energorynok" ("Energorynok") and a business entity that produces electricity from alternative energy sources (the "RES producer"), adopted by the Regulator Resolution No.1314, dated 11 October 2012 (the "PPA"). The Regulator introduced these changes further to the changes adopted in September 2017. Summary of those changes is available here. The Regulator claims that changes are aiming to make the PPA bankable. The changes will become effective after official publication.

Below is the summary of the main changes:

1. Force Majeure clause

The list of force majeure circumstances was significantly extended.

2. Arbitration

Companies with foreign capital may resolve disputes in ICC arbitration in Paris. Notwithstanding the arbitration clause, such companies may agree to submit disputes to commercial courts of Ukraine.

3. Direct Agreement between Energorynok and Creditors

For purposes of the project's financing Energorynok may enter into a direct agreement with Creditors, meaning an international financial organization, international financial fund, international export-credit agency, multiparty bank of development or international financial development organization (the "Creditors"). Such direct agreement would provide a grace period of up to 120 days for the Creditors to step in and resolve a potential violation of the PPA by the RES producer within this time without the PPA termination.

4. Changes in Law definition

The Regulator introduced quite broad definition of the Change in Law clause (including changes in the "green" tariff, licensing, regulatory and tax regimes) and provided that such changes may trigger amendments to the PPA, aiming to secure the original intent of the parties, provided the revenues from the electricity sales of the project is impacted by the Change of Law for more than 5 per cent in the last 12 months.

5. Termination of the PPA by the RES producer

The RES producer has a right to terminate the PPA: (i) before transfer of offtaker obligation from Energorynok to the guaranteed buyer and in cases either Energorynok or the guaranteed buyer have liquidity issues; (ii) default in payments by Energorynok for more than 90 days; (iii) any substantial breach of the PPA by Energorynok, which was not cured during 120 days; (iv) in case of continuous  force majeure circumstances; (v) Change of Law circumstances, which caused losses exceeding 10 per cent in revenues from electricity sales in the last 12 months; and (vi) Energorynok and RES Producer cannot agree on mutually acceptable changes to the PPA caused by the Change in Law. 

6. Termination Payment

In case of the termination of the PPA as described above the RES producer may be entitled to the termination payment, which shall at least include: outstanding senior debt from Creditors; sums due to swap banks from the Creditors; other losses and expenses the Creditors sustained due to termination.

To conclude, despite that some changes to the PPA are positive, provisions regarding direct agreements and compensation of damages are discriminatory towards Ukrainian banks and foreign banks, which do not fall under the definition of Creditors (see above). Moreover, there is a risk that such changes to the PPA may be challenged in courts due to questionable legal status of the Regulator.

For more details, please contact Yaroslav Petrov, Partner, yaroslav.petrov@asterslaw.com