Critique of judicial and regulatory practice
The expert criticizes the judicial and regulatory practice of public procurement of electricity in Ukraine, noting that it creates systemic distortions in the market and increases risks for the stable supply of state and municipal consumers. Oleksandr Trokhymets, Vice President for Energy of the Ukrainian National Committee of the International Chamber of Commerce, believes that existing restrictions for the public segment of electricity procurement, which concern state authorities, state enterprises, or municipal enterprises with more than 50% state or community ownership, need to be revised.
Given the current situation in the electricity market, which operates under high uncertainty due to the war, Trokhymets emphasizes that the last-resort supplier offers electricity at a price that greatly exceeds the market price.
'The Constitution does not make a distinction between private property and public property. Property is in the same status. Accordingly, if property is in the same status, then the rules must be the same.' Oleksandr Trokhymets
The expert also emphasizes that restrictions in the business model for electricity suppliers lead to an increase in risks that they have to factor into the price. 'When a supplier comes in, they must include these risks in the price. That is, these risks already play into the price,' Trokhymets says. This price increase may lead to suppliers being unable to fulfill their obligations and, as a result, becoming consumers of the last-resort supplier.
Trokhymets notes that:
- 'In the end, what do we have? Either these suppliers cannot supply because they lack funds, they fall out of the market; this is called default.'
In the event of default, electricity consumers become dependent on the last-resort supplier, whose price may be several times higher than the market price. Trokhymets also points out that 'an adequate business will not enter into these relationships,' which may lead to the emergence of unscrupulous participants in the market.
He emphasizes that the inertia of state regulation and active actions of law enforcement agencies, which initiate criminal cases, only worsen the situation. 'With this overreach by law enforcement, when they initiate criminal cases, we simply destroy what remains of the market,' Trokhymets summarizes.
Under conditions where many enterprises, including water utilities and heating networks, do not have normal access to electricity, this situation raises serious questions about the stability of electricity supply in Ukraine.
Need for change
The situation in the electricity market in Ukraine requires an urgent review of existing rules and practices, as they may threaten not only economic stability but also the social well-being of the population. In conditions of war and economic instability, it is important to ensure equal conditions for all market participants to avoid defaults and consumers' dependence on last-resort suppliers who offer inflated prices.
As the electricity market in Ukraine grapples with systemic issues, the implications of regulatory practices are becoming increasingly evident. The recent analysis highlights that price limitations can expose buyers to legal repercussions, raising significant concerns for consumers and suppliers alike. Understanding the potential legal challenges in the procurement process is crucial for stakeholders navigating this volatile landscape. For more insights, explore how price cap regulations might impact electricity buyers and their obligations.