Ukrainian Arbitration Blog

Platform dedicated to practical insights and updates about international arbitration in Ukraine

On 23 March 2021 the Ministry of Justice of Ukraine reportedly received an official notice of arbitration from Modus Energy International B.V. over Ukraine’s recent decision to reduce feed-in tariffs for renewable energy producers made back in 2020. The claimant’s claims are based on the Energy Charter Treaty.

The claimant is the shareholder of three Ukrainian companies that operate solar power plants in Ukraine that entered into power purchase agreements with Ukraine’s state enterprise Guaranteed Buyer in 2019. The claimant argues that the feed-in tariff cuts implemented into Ukrainian legislation in 2020 were contrary to the Energy Charter Treaty and caused almost EUR 11.5 million of losses to the claimant. The claimant also argues that it was pressured by the Guaranteed Buyer into signing amendments to relevant power purchase agreements under the alleged threat of the agreements’ termination.

The investor’s claims are based on Articles 10(1) and 22(1) of the Energy Charter Treaty. At this stage, not much else is known about the specific details of this case.

It is worth recalling that Ukraine’s reformatting of the legal regime in the renewable energy sector was a complicated and painful process. The amendments introduced by Ukraine’s Parliament included feed-in tariff cuts, new balancing responsibilities and changes to the green auctions system.

Many foreign investors in Ukraine’s renewable energy sector expressed serious concerns over the legitimacy and practicality of the state’s measures. In turn, the government deflected the criticism with reference to the alleged need to reduce Guaranteed Buyer’s exposure to financial liabilities towards renewable energy producers that was swiftly building up, and to deal with numerous payment defaults by Guaranteed Buyer under power purchase agreements with energy producers.

Despite the strong dissatisfaction of investors the government managed to bring to the table of negotiations some of the renewable energy producers. The negotiations resulted in the signing of the Memorandum of Understanding (“MoU”) between the government and some of the producers in June 2020. Among other provisions, the MoU set out the terms for restructuring of the feed-in tariff in exchange for resolving Guaranteed Buyer’s issues with meeting payment obligations towards renewable energy producers.

The MoU’s terms were later implemented in amendments to Ukraine’s legislation that were adopted by Ukraine’s Parliament in July 2020.

Notably, many foreign renewable energy investors, including the claimant refused to accede to the MoU. Some expressed their readiness to fight the changes in arbitration under applicable investment protection treaties.

To the best of the author’s knowledge, the claimant’s action is the first filed against Ukraine in connection with the changes in Ukraine’s renewable energy regime. At the same time, it is likely that other foreign investors will follow suit. This essentially brings Ukraine to the “club” of states whose changes to renewable energy framework also sparked investment arbitration claims by dissatisfied investors, such as Spain, Italy, Czech Republic, etc.