New draft procedure on calculation of local content for the purpose of “green ” tariff in Ukraine

Please be informed that on March 16, 2012, National Electricity Regulation Commission (the “NERC”), a Ukrainian state authorities controlling most of “green” tariff (feed-in tariff) related procedures in Ukraine, placed at its website long awaiting new draft procedure on calculation of local content for the purpose of “green ” tariff. The Ukrainian effective legislation requires producers of electricity from renewables to have certain shares of local content in their power plants in order to be eligible for establishment of “green” tariff in Ukraine. The draft provides the following main provisions related to calculation of local content requirement: 1. Formula to calculate the share of local content. 2. Documents proving value of materials, raw materials, works, services (contracts, invoices, acceptance certificates, including special forms of acceptance certificates in construction). 3. Ukrainian origin of raw materials, materials and fixed assets should be determined under the procedure established by the Cabinet of Ministers of Ukraine. 4. Origin of works and services should be determined by the country of registration of their performer. 5. Documents proving the share of Ukrainian materials in generating equipment imported from abroad (documents proving that manufacturer purchased the Ukrainian materials and their export customs value, documents proving import of the equipment to Ukraine and its import customs value). There are the following main steps for calculation of the local content: 1. PRELIMINARY CALCULATION. After preparation of project documentation the electricity producer may submit the package of documents with the authorized expert organization to determine local content in the planned project. After consideration of document expert organization issues its conclusion proving preliminary share of local content. 2. ACTUAL CALCULATION. After power plant commissioning the electricity producer should file documents proving value of construction and local content with the authorized expert organization seeking its conclusion on local content. Conclusion of expert organization and list of documents submitted for calculation of local content are documents proving the actual share of local content and are grounds for establishing “green” tariff by NERC. In general, the draft appears to be more straightforward and clearer than its predecessor. However, it still contains a number of shortcomings, e.g. • It is unclear what specific types of expenses related to construction (for instance, lease of land plots, costs for connection etc.) shall count to the power plant construction. • There are only 3 authorized expert organizations as of today. • Value of local content is calculated net of VAT while calculation of total value of construction apparently includes VAT. • Issuance of certificate of origin shall be governed by the procedure established by Cabinet of Ministers of Ukraine. Such procedure is currently absent and there is only draft resolution of the Cabinet that certificates of origin for the purpose of “green” tariff should be issued by Ukrainian Chambers of Commerce and Industry or regional chambers of commerce and industry. The procedure for issuing certificates is currently established only by the Ukrainian Chamber of Commerce and Industry. • The procedure lacks formula and special information for calculation on special local content in solar power plants (share of materials in production of solar modules). The respective requirement will enter into force next year and absence of information on its calculation leaves uncertainty for the respective developers. • The procedure lacks any timeframes and thus the speed of documents consideration will depend solely on arrangements with the respective organizations.Source