Ukraine energy austerity measures may harm DTEK, Coal Energy

Ukrainian President Petro Poroshenko issued a directive on Nov. 15 aiming to improve energy security for the heating season of 2014/15. The Cabinet of Ministers will have to ensure that all the natural gas produced by state companies and their JVs will be directed to households and heating utilities, according to the document. The Cabinet is also ordered to implement a prepayment mechanism for gas to be consumed as of Dec. 1, decrease accumulated debts for natural gas and ensure that bankrupted enterprises will not get any gas.



The government is also ordered to secure the minimization of the price of coal that Ukraine might import, and to consider an opportunity to import electricity from Russia, if necessary. With the president’s directive, the Cabinet also gained the authority to terminate concession agreements for coal mines and ban coal exports from Ukraine.



Alexander Paraschiy: Ukraine indeed has to implement austerity measures in electricity and gas sectors, given that extremely low coal stockpiles at some of Ukraine’s power plants threaten the integrity of the nation’s electricity system, and the accumulated receivables of monopoly gas importer Naftogaz (UAH 13.7 bln as of Nov. 11, out of which UAH 5.2 bln was accumulated this year) threaten its financial stability.



However, some of the president’s initiatives look especially risky for Ukraine’s coal sector. In particular, a risk that concession contracts for mines might be cancelled might heavily affect the business of DTEK (DTEKUA), whose two mines in concession brought 33% of DTEK’s total coal mining output in 2013; and Coal Energy (CLE PW), whose two mines in concession contributed to 41% of the company’s total mining output in FY2013.



At the same time, in the short term, the termination of such agreements (the mentioned mines in concession are currently on the occupied territory of Donbas) will be beneficial for private companies, who cannot sell coal from these mines and still have to pay salaries and concession fees.

Источник: Конкорд Капитал