The new ruling of the Supreme Court threatens all tenders on the energy market of Ukraine: we are talking about agreements worth tens of billions of hryvnia
Total blackout or shock therapy for the domestic energy market from local prosecutors and judges? At the end of January, the Grand Chamber of the Supreme Court satisfied the demands of the prosecutor's office and issued a resolution that could block the supply of electricity to almost all budgetary organizations and institutions of Ukraine. The entire energy trading system is under attack; we are talking about potential transactions worth at least 20 billion UAH.
Who and why is jeopardizing the country’s energy security during the war, what will happen now with tenders for the supply of electricity, and because of whom may Ukrainian “state employees” be left without electricity?
On January 24, the Supreme Court of Ukraine adopted a decision in case 922/2321/22. She summed up the progress of the process of the Chernihiv Regional Prosecutor's Office against the company "Vek Technology" and declared illegal additional agreements for electricity with a total value of more than 400 thousand hryvnia, which the supplier concluded with the Special Forces of the State Emergency Service during 2021.
What is it about?
As procurement specialist Andrey Kostenko notes, in fact, the Ukrainian Armed Forces determined that it is impossible to increase the price per unit of goods under concluded contracts based on the results of public procurement by more than 10% in total.
“That is, even if the price per unit increases repeatedly, then together all these increases cannot exceed 10%. The problem is that the vast majority of customers and participants in the public procurement market perceived this norm in such a way that the price per unit of goods could be increased several times. However, each of these times cannot be individually more than 10%, and in total it is clear that the increase can be more than 10%,” he comments.
In other words, since the spring of 2020, the rules of the procurement law have been in force in Ukraine. Using them, you can increase the price of the product with a threshold of 10% during the transaction, depending on market fluctuations. But the law does not have an exact interpretation - in general or for one additional agreement. And this was the basis of the problem.
Another procurement expert, Valentin Petrov, points out that the Ministry of Economy gave an explanation stating that the price can be increased several times, but not by more than 10%. Lawyers interpreted the law in the same way. One of their arguments was a restriction that prohibited price increases more than once a quarter.
Is the prosecutor's office distorting the vision of the law with its demands?
It turns out that the lawsuit with Century Technology is not the first such attempt. However, previously the same Supreme Court took the side of suppliers. But his latest ruling jeopardizes thousands of agreements concluded from the spring of 2020 to October 2022, when the law suspended the introduction of a special procurement procedure due to the war.
“The prosecutor’s office will now consider that all those customers and all those suppliers who raised the price by more than 10% under additional contracts are actually damage caused to the state. And he will turn to such suppliers of goods in order, relatively speaking, to compensate for all these conditionally incurred losses,” says Andrei Kostenko.
Experts are convinced that electricity suppliers will suffer the most from this logic. Because they concluded deals with state employees for a year, but the kilowatts themselves had to be purchased every month at the current cost.
“In Ukraine, we do not have long contracts for the purchase of electrical energy. That is, the longest contract is, relatively speaking, a month. There are no quarterly or annual contracts. That is, imagine that you must predict today what the price of electrical energy will be in a year. Even before the full-scale invasion, this was an asterisk problem. Plus, we have price restrictions on the market, so-called price caps. When price caps are revised upward, the price automatically increases,” comments Alexander Vizir, head of the Association for Energy Efficiency and Energy Saving.
According to Andrei Kostenko, if you follow the logic of the prosecutor’s office and the Supreme Court, it turns out that the state is ready to cover 10% of 100 to suppliers, and the remaining 90% falls on the shoulders of the supplier. At the same time, the latter must somehow buy electricity and continue to supply it to customers.
How does all this affect the electricity market?
During 2021 alone, with the blessing of the state, the cost of electricity has more than doubled. Therefore, hundreds of traders entered into thousands of additional agreements, trying to catch up with this “price explosion”. Moreover, many of them still ended up in the red. And now, this means that the prosecutor’s office, thanks to the decision of the Supreme Court, may demand that the difference be returned, despite the actual rise in price per kilowatt.
“Since 2020, when this norm referred to by the Supreme Court came into force, respectively, from May 20, all contracts that have already been concluded as a result of tenders held under this version of the law are subject to this threat hanging over them,” emphasizes Valentin Petrov.
And we are talking not only about electricity, but also about any other product: gas, water, fuel, food, etc. For electricity alone, experts counted additional agreements for the period from the spring of 2020 to the fall of 2022 for a total amount of about 20 billion hryvnia.
So the general supply of light to state employees will be under threat.
“What is an electricity supplier? This is a table, a chair, a telephone, a secretary, a website and that’s it. That is, when a company has a question: return billions of hryvnias or simply re-register a new company - from a market point of view, it is clear that they will simply re-register new companies,” notes Alexander Vizir.
As a result, companies that have current contracts with hospitals, schools, the same prosecutor's office, the Supreme Court and other thousands of budgetary institutions will automatically terminate these agreements after losing in court, default and bankruptcy. And then “public sector employees” will automatically be transferred to the so-called PPN - the supplier of last resort, whose price is traditionally much higher than the market price. That is, the budget will suffer new losses.
And after the PPP, Alexander says, we will have to urgently hold new tenders and select new suppliers. But the conditions will be completely different.
“If this situation is not resolved in the regulatory field, that is, they do not find some way to provide for the supplier, then utility entities and entities financed from the state budget will receive electrical energy at a much more expensive price. Because suppliers will hedge their risks in this way,” the expert emphasizes.
How will all this turn out on a national scale?
“Now there are dozens of such cases against electric traders in different areas, and the number is growing progressively. Moreover, one of the companies that lost all links has already filed a lawsuit with the European Court of Human Rights. That is, this situation goes beyond the country’s borders,” notes journalist Igor Khmury.
At the same time, resistance from the suppliers themselves begins. Traders gather and hold online conferences at which collective messages are prepared.
And one more important point: agreements for the supply of electricity have two signatures. On the one hand – the company, on the other – the customer’s official. And if the court recognizes that the supplier caused damage with additional agreements, which must be compensated, then what about the signatory from the public sector?
Are we talking about the article “negligence” or even more serious?
The StopCor team found a number of tenders from the Supreme Court, the Chernigov Prosecutor's Office, the Office of the Prosecutor General, the Ministry of Economy and the State Audit Service during this period. In them, everyone signed additional agreements with a significant cumulative increase in cost. Because, as already mentioned, virtually all state employees took such steps due to market realities.
Then the editors drew up relevant requests in which they asked to evaluate the actions of the officials who signed these additional agreements. Do the competent authorities see abuses or even crimes in the actions of subordinates, taking into account the new ruling of the Supreme Court? The answers turned out to be revealing.
The Office of the Prosecutor General stated that the answers to our questions “are not already formed information.” So there is no ready answer to the request. As for comments, the law does not oblige you to comment on anything to the press.
The Ministry of Economy responded by email. They also noted that the answers to our questions are not ready-made information, so they will not answer in 5 days, as for the media, but will process it as an appeal from an ordinary citizen.
The State Audit Service responded somewhat more fully. They confirmed that the Supreme Court had previously issued several conflicting decisions. And the new ruling, in their opinion, concerns precisely the case in which it was issued. Consequently, SASU does not see any violations in the actions of its signatories.
And the most interesting was the answer directly from the Supreme Court. In it, the servants of Themis generally stated that their colleagues entered into additional agreements in accordance with their own decisions that were relevant at that time, so there was nothing to talk about.
“So the situation is quite absurd. The Supreme Court says it entered into new agreements and overpaid for electricity because those were the rules then. And at the same time he issues a resolution, thanks to which the prosecutor’s office “knocks out” money from similar agreements, because the Supreme Court said so. To understand the surrealism of the situation - a vivid example. Now in one of the regions a case is being brought against an electricity supplier by a prosecutor who himself had previously signed additional agreements that collectively went beyond 10%. Therefore, it is not surprising that the UCP refused to comment on anything to us,” the investigator sums up.
Let us remind you that the Chairman of the Infrastructure Development Committee of the Federation of Employers of Ukraine and the owner of the construction company Autostrada, Maxim Shkil, after a recent message in which he accused the government of failing to protect the Trypillya Thermal Power Plant and other energy facilities, explained why the protection of energy facilities in Ukraine was defeated.
