Corporatization of SE Guaranteed Buyer: Legal Challenges for Green energy Companies

Valeriia Gudiy, Partner

Oleh Trokhymchuk, Counsel, Co-Head of Dispute Resolution Practice

Source: Energobusiness

The electricity market in Ukraine operates on a competitive basis with certain restrictions established by Ukrainian law. The functioning of such a market must ensure Ukraine’s energy security, create conditions for the safe operation of electric power facilities, energy efficiency, and environmental protection, as well as promote the development of alternative and renewable energy sources.

Increasing the production and consumption of energy generated from alternative sources is justified by the need to conserve traditional fuel and energy resources and reduce Ukraine’s dependence on imports by restructuring production and rationalizing energy consumption through an increase in the share of energy from alternative sources.

State authorities shall create favorable economic conditions for the construction of alternative energy facilities and apply economic levers and incentives to expand the use of alternative energy sources. The purchase of electricity generated by power facilities using alternative energy sources shall be guaranteed by the state.

The outlined tasks and directions are quite clear and correspond to the progressive standards of the European Union. However, in Ukraine, producers of electricity from alternative sources face a number of problems which, in our opinion, should be addressed not only by the legislative but also by the judicial authorities of Ukraine.

The transformation of SE Guaranteed Buyer: changes and impact on green energy producers

In order to ensure public interests and fulfill state guarantees regarding the purchase of electricity at the established “green” tariff, the Government established the state-owned enterprise Guaranteed Buyer. However, the activities of the enterprise, to put it mildly, do not meet expectations.

According to the Unified State Register of Court Decisions, the vast majority of cases involving the state-owned enterprise Guaranteed Buyer are cases concerning the recovery of debts from state-owned enterprises. According to the latest data reported by SE Guaranteed Buyer, the debt under the “green” tariff to electricity producers as of March 2025 amounts to approximately UAH 22.3 billion, while in 2024 the debt reached UAH 37.3 billion.

In early 2024, the Government decided by Order No. 74-p to transform SE Guaranteed Buyer into a joint-stock company, with 100% of the shares in its authorised capital owned by the state and not subject to privatisation.

By the decision dated 18 March 2024, information about SE Guaranteed Buyer’s termination as a result of the transformation was entered into the Unified State Register. Two months were set for creditors to submit their written claims, until 18 May 2024.

The question immediately arose as to whether such changes would affect relations with producers, given the existing debt and legal disputes.

The Civil Code of Ukraine stipulates that in the event of the transformation of a state-owned enterprise (as in the case of SE Guaranteed Buyer), all rights and obligations to creditors are transferred to the successor (the newly created business entity).

In the event of the transformation of a state-owned enterprise into a commercial company, legal succession is universal – it does not require the consent of creditors, and obligations are retained. In practice, this means that:

The newly established company (JSC) will become the successor to SE Guaranteed Buyer.

• All contracts, debt obligations, court cases, loans, guarantees, etc., remain in force, but now on behalf of the new legal entity.
• Creditors do not need to renegotiate contracts, but they may require additional guarantees in the event of changes in the financial condition of the company.

Understanding and anticipating the likely “hysteria” on the electricity market, SE Guaranteed Buyer immediately published a news item on its official website entitled “Transformation of SE Guaranteed Buyer: our contractors have nothing to worry about”, in which:

• Counterparties are urged to remain calm and not to succumb to provocations, as the company continues to operate as usual and to fulfill its obligations in full.
• SE Guaranteed Buyer’s team, together with the Cabinet of Ministers of Ukraine, is working to ensure that the corporatization process is quick, transparent, and comfortable for all partners.

Faith in the activities of state bodies, the words of state structures, and high standards of justice in Ukraine will surely come someday, but until the debt problem is resolved, it is advisable to treat any changes with caution.

According to the Plan for the transformation of the SE Guaranteed Buyer into a joint-stock company (100% of shares owned by the state), approved by the Order No. 367-p of the Cabinet of Ministers of Ukraine dated 23 April 2024 (as amended), the following steps are currently planned:

• In May 2025, draft statutes of the joint-stock company Guaranteed Buyer, regulations on the principles of forming the supervisory board, regulations on the supervisory board of the company, and regulations on the executive body of the company were to be prepared.
• In June 2025, it is planned to submit for approval by the Cabinet of Ministers of Ukraine drafts of the charter of the joint-stock company, regulations on the principles of forming the supervisory board, regulations on the supervisory board of the company, regulations on the executive body of the company, as well as the transfer deed of property transferred to the authorized capital of the company, a decision on the issue of the company’s shares and the assignment of the duties of the head company’s executive body to the head of the enterprise.
• In July 2025, it is planned to submit to the state registrar the documents necessary for state registration of the joint-stock company and state registration of termination of the state-owned enterprise.
• Submitting an application for registration of the company’s share issue to the National Securities and Stock Market Commission, state registration of the company’s share issue, depositing the global certificate with the Central Depository, crediting the shares to the state’s account with the depository institution, preparing and submitting for approval by the Cabinet of Ministers of Ukraine a draft decision on the approval, by the established procedure, of the personal composition of the company’s supervisory board.
• Formation of the personal composition of the company’s executive body in accordance with the established procedure is planned for October-December 2025.

Objectively, it can be expected that in the period from the registration of the joint-stock company (at least until December 2025), relations with electricity producers under the “green” tariff will experience some stagnation.

Cancellation of unlawful financial burden on green energy companies

Since the beginning of the green energy market, producers have faced certain problems in the functioning of the mechanisms introduced by the legislator. The historical relationship between the state (National Energy and Utilities Regulatory Commission – SE Guaranteed Buyer – producer – court) shows signs that the state is shirking its responsibility by shifting the burden of responsibility onto a financially insolvent state-owned enterprise rather than onto the Ukrainian budget.

On 15 January 2021, when SE Guaranteed Buyer already had certain problems with receiving funds to pay “green” tariff, the National Energy and Utilities Regulatory Commission by Resolution No. 46 “On approval of amendments to the resolution of the NERC from April 26, 2019 № 641” introduced new formulas for calculating the share of the compensation for the cost of setting the imbalance of electricity by SE Guaranteed Buyer to the seller at the “green” tariff, which is included in the balancing group of SE Guaranteed Buyer.

The application of the new formula was explained by the National Energy and Utilities Regulatory Commission as necessary to establish the share of compensation for the cost of settling the imbalance of electricity of SE Guaranteed Buyer, but in reality, the agency imposed an additional financial burden on producers.

Ilyashev & Partners Law Firm has experience in protecting the interests of a renewable energy producer and ensuring the lifting of the unlawful financial burden. In the interests of our client, we filed an administrative appeal against the unlawful formula of the National Energy and Utilities Regulatory Commission, which was considered in case No. 640/4069/21.

By the decision of the Administrative Court of Kyiv City dated 16 July 2021, in this case, subparagraph 8 of paragraph 1 of the Amendments to the Resolution of the National Energy and Utilities Regulatory Commission dated 26 April 2019, No. 641, approved by NERC Resolution No. 46 dated 15 January 2021, was recognized as unlawful and invalid in the part concerning the new wording of paragraph 9.3 of Chapter 9 of the Procedure for the purchase by SE Guaranteed Buyer of electricity produced from alternative energy sources.

Reviewing case No. 640/4069/21, the Supreme Court on 08 February 2022 concluded that the National Energy and Utilities Regulatory Commission had unlawfully imposed additional liability for the poor-quality trading activities of SE Guaranteed Buyer on producers who had been granted a “green” tariff and producers who, following an auction, had acquired the right to support and were included in the guaranteed buyer’s balancing group. The decision of the Administrative Court of Appeal of Kyiv dated 16 July 2021, in case No. 640/4069/21, came into force on 08 September 2022.

Considering that the regulatory act of the National Energy and Utilities Regulatory Commission in the contested part was found to be unlawful in case No. 640/4069/21, many producers filed claims with the commercial court for compensation for damages caused to them as a result of the NERC’s adoption of an unlawful regulatory act, since in the period from 16 January 2021 to 08 September 2022, such producers paid to SE Guaranteed Buyer a share of the compensation for the cost of settling the electricity imbalance, calculated using the same unlawful formula.

There were several legal options for shaping judicial practice:

• Compensation by the state for damage caused by the adoption by a state authority of a normative legal act that was recognized as unlawful and repealed following Article 1175 of the Civil Code of Ukraine.
• Compensation for damage caused by unlawful decisions of a state authority in the exercise of its powers following Article 1173 of the Civil Code of Ukraine.
• Refusal to recover funds from the state budget due to the unproven amount of damage, the fact of damage, etc.

However, in most court disputes involving claims by renewable energy producers, the Commercial Court of Kyiv proposed another legal option that allowed funds from the state budget to be retained, namely: the court refused to satisfy the claims because subparagraph 8 of paragraph 1 of the Amendments to the National Energy and Utilities Regulatory Commission No. 641 of 26 April 2019, approved by NERC Resolution No. 46 dated 15 January 2021, had lost its effect from the moment the decision of the Administrative Court of Kyiv City in case No. 640/4069/21, namely, from 08 September 2022. Therefore, the calculation of the amount of compensation for the settlement of the electricity imbalance until the specified date should have been carried out on the basis of Resolution No. 46 dated 15 January 2021, and, accordingly, no damage was allegedly caused to the producers.

The establishment of such judicial practice in wartime did not pose a risk to the state or state authorities, but was clear evidence of a deliberate violation by the state of Article 1 of Protocol 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms concerning the right to peaceful enjoyment of property, which in this case is the producers’ funds.

According to lawyers, to create at least some conditions for assessing the effectiveness of judicial protection against the consequences of the NERC’s adoption of an unlawful regulatory act, which for a fairly long period enabled SE Guaranteed Buyer to receive additional illegal funds, court rulings began to appear stating that the funds paid to SE Guaranteed Buyer in the period from 16 January 2021, to 08 September 2022, are unjustifiably retained funds under Article 1212 of the Civil Code of Ukraine and should be reimbursed not by the state, but by SE Guaranteed Buyer.

The answer to the question of whether green energy producers received funds from SE Guaranteed Buyer that were unjustifiably retained by the enterprise under an unlawful regulatory act of the NERC, and whether effective protection is ensured in the state, is obvious, especially considering the size of the state-owned enterprise’s current debt to producers.

The above story of the defense of violated rights by participants in the market for electricity generated from alternative sources and its consequences may indicate a high risk of continued disregard for the interests of business entities, which causes distrust among lawyers regarding decisions made concerning the functioning of the guaranteed buyer.

Covering the debt of SE Guaranteed Buyer: advice for energy companies

In relations with the successor of SE Guaranteed Buyer, attention should be paid to the legal risk associated with the failure of creditors to submit written claims to SE Guaranteed Buyer within the time limit specified in the transformation procedure.

As already mentioned, creditors had two months – until 18 May 2024 – to submit their written claims. Despite the fact that, according to the Civil Code of Ukraine, in the event of the transformation of a state-owned enterprise into a commercial company, legal succession is universal (does not require the consent of creditors, and obligations are retained), the absence of a written claim within the established period may have several adverse consequences:

• The creditor’s claims may not be taken into account in the transfer deed to be approved by the Cabinet of Ministers of Ukraine in June 2025 and, accordingly, will not be included in the balance sheet of the newly formed joint-stock company.
• Counterparty that has not asserted its claim potentially loses its priority in the order of debt satisfaction, especially in conditions of limited financing and existing multi-billion-dollar debt.
• The possibility of judicial protection of such claims in the future may be complicated: there is a risk that the new legal entity (joint-stock company) may claim that there is no obligation if the relevant data is not included in its financial statements and transfer deed.

In the absence of a clear state policy on debt repayment and the realities of wartime, it can be argued that the risk of being left without a real mechanism for debt repayment is very real for those market participants who did not exercise their right to submit written claims within the specified time limit.