By 29 November 2019, the Government of Ukraine was supposed to transpose Decision of the Ministerial Council of the Energy Community D/2018/10/MC-EnC implementing Regulation (EU) No 1227/2011 of the European Parliament and of the Council on wholesale energy market integrity and transparency; the aforesaid Regulation (REMIT) was due to implementation no later than as of 29 June 2019.
On 12 December 2020 MP Liudmyla Buimister has registered a bill #4503 “On Amending Certain Laws of Ukraine regarding Implementation of the European Union Laws on Integrity, Transparency and Prevention of Distortion of Competition on the Wholesale Markets” (Bill #4503), however, on 31 December 2020, an alternative bill #4503-1 (Bill #4503) was registered by MP Andrii Herus, head of the profile committee and member of the same faction as MP Liudmyla Buimister.
Below is the summary of the bills in comparative view with our limited comment.
From the market participant’s view, the bills require improvement along the following lines:
Definition of “professional trade organizers” and its use in the bill is inconsistent, although it should be compatible with the terminology of the Capital Market Reform Act (Law 738-IX);
“Joint” investigations are not outlined; thus, there is a gap instead of role and responsibility for the experts delegated to the enquiry / investigation by other bodies, such as NSSMC or AMCU;
No guarantees against double jeopardy; moreover, NEURC has discretion to order “return of the income” on top of the penalties applied;
Proposed fines do not correlate to the consequences and/or penalties under the current laws;
”Return of the income” penalty is either a novelty with unclear rules (who is recipient, what are the terms, how is it supervised etc.) or inconsistency with the law and practice of “expropriation of profit”.
Definition of the wholesale energy products is different than in the Capital Market Reform Act:
-Exclude physical delivery as a mandatory term and induce, thus, double oversight by –NEURC and NSSMC;
-Place of delivery is extended from Ukraine to Energy Community;
-Derivative contracts exclude gas extracted (produced) in EC;
-Contract on distribution of the natural gas / energy only if it exceeds the threshold; and
derivative contracts on distribution of gas/ power are excluded.
Deviates from the wholesale energy definition in REMIT by setting different consumption thresholds and ignoring conversion to MWh: natural gas – 55 million m3 per year (despite ongoing effort to convert into MWh) and electricity – 100 MW of combined capacity;
Does not stipulate local chapters of international self-regulating organizations, such as EFET;
Licenced and certified market participants are likely to be required to be in the the register of traders as well – that is, despite their already available credentials;
Exclusion of reporting on the intragroup bilateral electricity contracts.
Alternative Bill #4503-1 has a better legal technique on reporting of information by the market participants and the work of trade repositories but it omits several points in regulation of integrity aspect (exemption of legitimate practices that affect pricing, self-regulatory organization, ground rules for market-making etc.) and professional secrecy.
One issue is copied to the Bill from the Capital Market Reform Act:
There is no procedure for joint decisions of NSSMC and NEURC, although some regulations (g. on the exchange of information) should be approved jointly; approval procedure offered by #4503-1 could be a weaker alternative, since it puts the approving entity at disadvantage.
Integrites is working on the comments to Bills #4503 and #4503-1 and will be happy to coordinate an effort of addressing any concerns that our clients and partners might have.