1. Payments for Aug-Dec 2020:As per Jan 5^th2021, the Guaranteed Buyer (GB) has made full settlements for Aug-Oct, while the level of payments for Nov and Dec is still at 70% and 12%. This implies additional “new” debt of UAH 2-2.5 billion that has been accumulated due to shortage of funds in Ukrenergo (TSO) transmission tariff.

2. Estimated deficit of payments for 2021:The Law on the State Budget for 2021 approved by the Parliament does not contain 20% co-financing of the Guaranteed Buyer’s payment to renewables (mentioned in the 2^ndEmbassy letter), as was envisaged by the Law 810. When approving the TSO transmission tariff for 2021, the NEURC ignored this and approved a tariff-level only sufficient to ensure 70-80% of payments from GB to renewables. This will imply addition deficit of UAH 15 billion on an annual basis – in the absence of additional funding sources (higher TSO-tariff, increase of carbon tax directed to pay RES, etc).

3. Repayment of “old” debt (before Aug 2020):Under the MOU, the GB was obligated to repay 40% of the debt accumulated up until Aug 1^st2020 during Q4 2020, and remaining 60% in equal installments during Q1-4 2021. The amount of the “old” debt is UAH 22.4 billion.

The Cabinet of Ministers (CMU) provided in Dec 2020 the state guarantees for the TSO to raise up to UAH 11.3 billion from state-owned banks that would allow partial repayment of the TSO debt to GB and follow-up repayment of 40% of “old” GB’s debt to renewables.

Ukrenergo signed respective loan agreements with 3 state-owned banks last week for a total amount of UAH 10.25 billion. From the beginning it was obvious for all stakeholders that 100% of these funds were intended for repayment of debt to renewables (confirmed by internal CMU documents related to the approved decision on the state guarantees).

The NEURC was supposed to do technical approval of the loan agreements to provide banks with the security that servicing of respective loans will be included by the NEURC in TSO tariffs (usual practice in such situations). Unfortunately, the Regulator has instead made two attempts (Dec 31^st 2020 and Jan 6^th 2021) to implement a “hijacking operation” - by imposing additional instruction onto the GB that prohibits using these funds for repayment of 40% of “old” GB’s debt to renewables.

If such instruction is approved by the NEURC and implemented by the GB, most of the amount (UAH 7+ billion) will instead be transferred to Energoatom, which is one Ukraine’s notoriously corruption “black holes”. Final decision has been postponed by the NEURC until Jan 13^th 2021.

Such decision by the NEURC (who signed the MOU together with the CMU) will also serve as clear sign that Ukraine has completely failed to respect its commitments under the MOU in all key areas; i) no 100% current payments in Aug-Dec 2020, ii) no 100% current payments forecasted for 2021 and iii) no repayments of old debt.

4. Household tariff increase in Dec 2020.Dec 29^th2020, the CMU approved the decision to remove the first subsidy level (below 100 kWh of monthly consumption) for electricity household consumers. In our opinion this is a positive step in the right direction, but the increase is not sufficient to balance the Household PSO. We estimate that the GB will face a UAH 1 billion deficit on the Household PSO in Q1 2021, which may cause additional trouble to renewables (in similar situations last year the GB used a portion of RES funds to pay to Energoatom).

In general, household tariff increase should not have any relation to the Renewable PSO, as cross-subsidy of any potential surplus of Household PSO towards Renewable PSO is not envisaged. It means that higher household tariffs increase more funds will go to the GB, which will be used to pay Energoatom and Ukrhydroenergo for the electricity that they provide for the Household PSO.

Next steps of EUEA discussed and agreed by members:

Separate letters to the NEURC and to the IMF are being under preparation and will be sent by Wednesday (January 13). Following the decision of the NEURC on Wednesday, January 13, we will prepare the letters, first to involve investors in developing an action plan for the Ministry of Energy to overcome the crisis, and secondly on the potential continuation of mediation with the international community (IFIs, Energy Community Secretariat, etc.). for the organized framework on resolving the crisis.