DTEK, DOEN must seek buyers on occupied Donbas themselves



12 мая 2015 года
Конкорд Капитал

Донбассэнерго (DOEN)


The Ukrainian government has effectively excluded electricity producers and suppliers located on the occupied territory of Donbas from the nation’s wholesale electricity market (WEM), according to a Cabinet of Ministers resolution adopted on May 7. The WEM operator will only buy electricity from occupied Donbas that is flowing to unoccupied Ukraine. Any power supplies to and from the occupied territory will be priced at the average rate of thermal power plants (TPPs). Power distribution companies (DisCos) servicing the occupied territories will have to buy electricity not from the WEM, but directly from power producers located on the occupied territory.

Before the resolution, the WEM operator bought all its electricity from all producers, including the occupied power plants, and sold it back to power DisCos. As DisCos servicing the occupied territories were collecting little money from their own consumers, they were unable to pay in full the power purchased on the Ukrainian wholesale market. For that reason, the government froze all payments to producers located in occupied Donbas for their electricity since February.

Among listed companies, this regulation will affect Donbasenergo (DOEN UK), which biggest of the two power plants is located on the occupied territory; and DTEK (DTEKUA), which has one power station (9% of total power produced in 2014) and two DisCos operational there.

The average price of electricity produced by TPPs in Ukraine was UAH 853/MWh in April, while the average price at the WEM was 15% less: UAH 725/MWh.

Alexander Paraschiy: This is very strong move that will allow for avoiding the negative effect of poor payment discipline on the occupied territories for Ukraine’s entire power system. Moreover, it will allow for decreasing the average price of electricity in the rest of Ukraine by up to two percent. This saving arises from the facts that (1) Donbas-based TPPs will no longer supply the expensive electricity (priced at UAH 853/MWh in April) made from coal, which was mixed with much cheaper nuclear power (UAH 424/MWh) on the wholesale market; and (2) Donbas-based residential consumers won’t be cross-subsidized at the cost of industrial power consumers of all of Ukraine any more.

The regulation will most likely have a negative effect on DTEK’s and Donbasenergo’s cash generation potential. Their power stations located on the occupied territories won’t be able to receive money directly from the wholesale market, so they will have to count on payment discipline from local consumers, which is not that high. Moreover, to keep the generator’s average power prices non-declining, consumers on the occupied territories will have to pay 20% more for a unit of electricity. Consumers might not tolerate such an increase, or if it happens, their payment discipline will likely worsen further.

As a positive outcome for power generators located on the occupied territories, now their cash flow won’t depend on the decisions of the Ukrainian government, which, as we mentioned above, has frozen all payments to the occupied territory since February. Moreover, TPPs now have a chance to receive the frozen payments.

For DTEK, which controls coal mines, a power plant and power DisCos on the occupied territory, the regulation offers the chance to create a small, fully integrated coal-to-power cycle on the occupied territory. For instance, DTEK can try selling its coal to occupied TPPs and electricity to end-users at any price. Recall, DTEK insisted the Ukrainian government should accept the price for DTEK’s coal of UAH 1500/t, while the government is ready to tolerate no more than UAH 1,200/t. But again, this cycle will be focused on the sale of power to a depressed region with doubtful purchasing power, which means its success will be limited.

Источник: Конкорд Капитал



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