Amendments of the Serbian Market Code – new amount of the collateral for market participants

Author: Attorney-at-Law Vojinović B. Milan, Law Firm “VUK Tax Attorney”

Date: 13th January 2022

Market Code is drafted in accordance with the Serbian Energy Law, also taking into account relevant European Union regulations, as well as obligations deriving from the membership of the Serbian Transmission System Operator “Elektromreža Srbije” (“EMS”) in the European Network of Transmission System Operators ENTSO-E.

Market Code regulates necessary matters relevant for the functioning of the power market, including balance responsibility of the market participants, the balancing market, securing of payments, charging of electrical energy for balancing purposes, as well as the method of providing system services. Therefore, Market Code is one of the most important by-laws in the energy sector which significantly affects the status and behaviour of the market participants, particularly regarding their accountability and financial obligations towards EMS, as well as towards other market participants.

On its session held on 21st October 2021, EMS’ Assembly passed Amendments of the Market Code (the “Amendments to the Market Code”).

On the session held on 28th October 2021, the Council of the Energy Agency of the Republic of Serbia (“AERS”) adopted the Decision on the Approval of Amendments to the Market Code which were drafted by EMS.

On 2nd November 2021, EMS published on its website Amendments to the Market Code, and on the same day these Amendments came into force.

According to AERS, main reason for the amendments to the Market Code is minimizing the risk of operation caused by irregular activities of market participants and possible lack of financial discipline towards EMS as the transmission system operator. Also, according to the data and information available at the market, risky behaviour of certain market participants, particularly licensed power suppliers, i.e. non-fulfilment of the financial obligations to EMS for imbalance, have been triggered amendments of the Market Code by EMS, after five (5) years of its validity and implementation.

The most significant Amendments to Market Code include the following:

  • the methodology for determination of the risk value in case of default has been changed, which also takes into account the compensation for the deviation of the balancing group;
  • the articles related to the termination of the Balance Responsibility Contract have been additionally specified;
  • the revolving bank guarantee as well as the revolving clause in the special-purpose deposit have been revoked;
  • the minimum and maximum value of the payment security instrument have been changed, whereby the minimum value of the payment security instrument/collateral is EUR 1,000,000 and the maximum is EUR 5,000,000;
  • the possibility of emergency settlement has been introduced within the settlement period, if the operator estimates that the balance responsible party (“BRP”) caused a fee for balancing group deviation in excess of 50% of the value of payment security instrument;
  • the articles related to the unbalanced daily schedule have been changed, and invoices are now issued on day D + 1 for day D with a payment deadline of 1 (one) day.

Anyhow, Amendments to the Market Code had most significant implications at the power market regarding minimum and maximum value of the payment security instrument that market participants are obliged to provide to EMS in order to retain/acquire BRP status, whereby minimum value of the payment security instrument/collateral is EUR 1,000,000 and the maximum value is EUR 5,000,000. In accordance with the previously valid version of the Market Code, minimum value of the payment security instrument/collateral was EUR 50,000 and the maximum value was EUR 1,000,000. Consequently, the market participants which did not provide payment security instrument/collateral in the amount stipulated by the Amendments of the Market Code within 15 days from the day when these Amendments came into force, i.e. until 17th November 2021, such market participants lost their BRP status, i.e. EMS sent to them unilateral termination of the balance responsibility contract.

New minimum and maximum value of the payment security instrument/collateral mostly affected power suppliers (traders) which, until entering into force of the Amendments to the Market Code, provided payment security instrument/collateral in the minimum amount of EUR 50,000, regulated their BRP status, and properly participated at the power market until Amendments to the Market Code came into force. New minimum amount of the payment security instrument/collateral of EUR 1,000,000 affected power suppliers (traders) which did not accept, or they were not able to pay deposit in the amount of EUR 1,000,000, in a way that either EMS had terminated their balance responsibility contract, and thereby these traders lost their BRP status, or they did not transfer their balance responsibility to another BRP which provided payment security instrument/collateral as per risk assessment determined in accordance with the Amendments to the Market Code. On the other hand, power suppliers (traders), which provided payment security instrument/collateral in accordance with the Amendments of the Market Code, retained their BRP status and they concluded new balance responsibility contract. Also, power suppliers (traders) which did not pay deposit in the amount of EUR 1,000,000, are not able to participate at the auctions for reservation of cross-border capacities where mandatory condition for participation on auctions is regulated BRP status.

Market participants that lost BRP status, may acquire this status again by fulfilling new conditions stipulated by the Amendments to the Market Code, by, amongst other, providing new payment security instrument/collateral in the amount of EUR 1,000,000. Therefore, market participants, and particularly licensed power suppliers (traders) should examine current situation and come up with commercial decision regarding their further status at the Serbian power market. On the other hand, certain power suppliers which lost BRP status may participate at specific monthly and yearly auctions for reservation of cross-border capacities, where BRP status is not mandatory condition for participation at auctions.

Regardless of high amount of the payment security instrument/collateral necessary for retaining/acquiring the BRP status, numerous market participants accepted to retain BRP status at the Serbian power market, and at the day of publishing this newsletter, as per official and public data of EMS, there are 42 registered BRP market participants. Also, if we take into account the quantity/scope of business operations and power trading at the SEEPEX power exchange, it seems that new payment security instrument/collateral did not jeopardize the liquidity and business success of this power exchange.

We have no doubts that intention of EMS was to stabilize the power market and prevent irresponsible behaviour of the market participants, but the new amount of the payment security instrument/collateral necessary for acquiring the BRP status, have decreased the number of market participants, and consequently the competition at the power market, which along with increase of energy prices at global market can affect energy stability not just in the Republic of Serbia, but also in the South-eastern Europe region.

Our Law Firm will timely and closely monitor all upcoming activities in this area, in order to assist, through its considerable experience and expert analysis, its clients to eliminate all ambiguities and successful participation at the power market.