Energy Community initiates proceedings against Ukraine concerning the local content clause

To obtain Green Tariff, electricity generation facilities in Ukraine must comply with the local  content rule. At the same time, as we repeatedly noted before, this requirement is contrary to a  number of international agreements in the field of energy, including the Energy Charter. It is also  contrary to the competition rules laid down by the World Trade Organization as well as to the  non-discriminatory principle of the Treaty establishing the Energy Community (hereinafter, the  Treaty).

In this regard, on October 2, 2014 Energy Community Secretariat appealed to Ukraine with an open  letter which expressed its preliminary findings that the local content clause of the Ukrainian Law  “On Electric Power Industry”¹² is contrary to Directive 2009/28/ЕС¹³ on renewable energy as well as  to Article 7 of the Treaty stipulating that “Any discrimination within the scope of this Treaty  shall be prohibited.”

According to the Dispute Settlement Procedure under the Treaty approved by the Ministerial Council  of the Energy Community on June 27, 2008 (hereinafter, the Rules), by its actions the Energy  Community has initiated preliminary proceedings. Now Ukraine has 2 months to state its position on  its alleged breach of the Treaty and to submit its comments.

It should be noted that the course of further proceedings will depend on Ukraine. Thus, according  to the Rules, the Secretariat may, at any time during the preliminary proceedings (which it has  already initiated against Ukraine), decide on their suspension or termination, particularly if  Ukraine ceases its non- compliance with the laws of the Energy Community or makes clear commitments  in respect of its intention to amended its legislation.

At the same time, if after the proceedings the Energy Community concludes that the violation of the  Treaty on the part of Ukraine was lengthy and serious, it may apply the following sanctions under  Article 92 of the Treaty: suspend the right to vote, the right to attend the meeting, or the right  to use the mechanisms provided by the Treaty.

There is an opinion that the possible sanctions on the part of the Energy Community are not sever  enough to have an impact on the offender. However, it should be clear that Ukraine’s further  actions will demonstrate whether it values its reputation among the European countries, and whether  its integration into the European energy space is seen as a priority. This issue is particularly  relevant against the background of Ukraine’s energy space is seen as a priority. This issue is particularly relevant again urgent need to diversify gas supplies and increase its energy independence.