April 24, 2013

NERC Published Draft Procedure On Local Content Determination

Please be informed that on April 23, 2013, National Energy Regulation Commission (the “NERC”) published draft of Procedure on Determination of Local Content (the “LC”) for Power Plants, including Commissioned Construction Lines (Launching Complexes) Producing Electricity from Alternative Energy Sources (Except for Blast Furnace and Coke Gases) (the “Draft”) (see in Ukrainian at http://www.nerc.gov.ua/index.php?news=3203) . This long awaiting Draft was adopted by NERC several weeks ago but was published only yesterday. Draft creates rules of game (new local content requirements (the “LCR”)) for producers of electricity from renewables according to the changes in Power Industry Law which will enter into force since July 1, 2013. The main points of Draft which should be highlighted are:

1. Effect of entry into force

On July 1, 2013 Draft cancels currently effective procedure on local content determination. This subjects producers which will commission their plants before July 1, 2013, and should follow the current LCR to a high risk. The expert organizations which should determine LC in power plants commissioned till July 1, 2013, will not have legal grounds for this starting with July 1, 2013. Thus, there should be a transition period for the termination of the current LC determination procedure.

2. Eligible producers

Draft covers only licensed producers. This means that the producer should first commission its plant and get the electricity generation (cogeneration) license. Currently, the license is issued only after commissioning and formalization of ownership rights in power plants. This may delay the process of “green” tariff establishment.

3. How Is LC Calculated?

LC for power plants is calculated by adding up all elements (fixed shares as established by Power Industry Law since July 1, 2013) of Ukrainian origin available at the power plants. For instance, wind farm developer may add up construction works (20 % fixed share of LC) and assembly of nacelles (30% fixed share of LC). The total sum of all elements of fixed shares of Ukrainian origin should equal or exceed the LCR established by Power Industry Law as of the date of commissioning. Draft provides the figures for various types of renewables. It is, in general, in compliance with Power Industry Law, however, should be corrected with respect to biogas. If within one element (fixed share) the producer uses at least one component of foreign origin or cannot prof the Ukrainian origin for each component, this element does not count towards fulfillment LCR. For instance, if 99% of solar cells contain Ukrainian polycrystalline silicon and 1% does not, the producer may use 0% towards fulfillment of LCR. Thus, all components in one or another element should be of Ukrainian origin. The value of elements or its components is disregarded for the purpose of LC determination.

4. How to proof LC? LC is proofed by certificate of Ukrainian origin issued by Chamber of Commerce of Ukraine. The origin of construction works are determined by its performer (performers). Such performer should produce the excerpt from the Unified State Register of Legal Entities and Private Entrepreneurs. It turns out that representative offices of foreign companies formally may not provide this document because they are not registered in the

respective register. If some operations with solar modules were conducted abroad, the producer may present certificate of origin issued by an authorized agency of a foreign state. Such certificates should contain information that LC elements (manufacturing polysilicon, ingots, cells, modules, assembly of modules) were used during manufacturing of the respective solar modules.

5. How to Get LC Calculation by NERC? The producer should file an application with the calculation of LC, certificates of origin, excerpts from the Unified State Register of Legal Entities and Private Entrepreneurs and other documents confirming LC, title documents etc. NERC considers the documents within 30 calendar days and issue its resolution in this regard. Draft states that resolution on LC and establishment of “green” tariff may be passed during one meeting of NERC. At the same time under the new procedure for “green” tariff establishment (entered into force on April 23, 2013) NERC decision on LC should precede the decision on “green” tariff establishment.

6. Lists of LC Elements After each NERC decision on LC all elements which have been proofed to be of Ukrainian origin it shall add such elements to special lists with the respective data in certificate of origins or other documents. There are separate lists depending on the source of energy and published at NERC website. Elements already mentioned by NERC in its lists may not be used for other power plants.

We always follow the changes in Ukrainian legislation and will keep you timely updated thereon.

Should you have any additional questions and comments, please, contact us:

Maksym Sysoiev, Attorney-at-Law, Senior Associate Email maksym.sysoiev@danevychlaw.com