finance & markets

Energy assets, anyone?

19.09.2014 | By Dmytro Ryasniy

Liquidation of the major player in the energy distribution the Energy Company of Ukraine started last week. This process will launch privatization of its subordinate companies, which will lead to the situation when the whole market will belong to private owners

CINEMA LINE

The fact that the ECU is living its last was revealed on September 3 when the Cabinet ordered to eliminate it by its decision No. 398. Six months were given for implementation of that decision, but the process may be completed even earlier. This company was founded in 2004 and then it was composed of 32 enterprises (regional power distribution companies, TPPs and HPPs), now there are only 19 of them. The rest was privatized.

Market veteran were not surprised with the news, as many of them called the ECU stillborn from the very first days of its existence. Skepticism was explained by the fact that the ECU was actually created to meet the ambitions of its first head Oleh Dubyna. Shortly before this, Dubyna lost the struggle for the position of the Deputy Prime Minister for Fuel and Energy to Andriy Klyuyev, but failed to fully compensate the fiasco, because at the last minute the ECU was deprived of supervisory control over the power grid, which is its most important element. As a result t from the outside it looked like the ECU was a fullfledged control structure, but in fact it was a holding company with limited powers, through which the government pursued its centralized policy in power generation.

At certain stages it seemed justified. For example, when in 2009 it was necessary to help the domestic coal industry overcome the crisis, the government manually made the thermal generation within the structure of the ECU to accumulate excessive stocks of coal. Although in fact it was an administrative violation, as the purchase of resources was carried out at the cost of expensive credits, and after prolonged storage in TPP warehouses the coal itself lost its properties and turned into barren rock.

PACKAGE SOLUTION

The past experience suggests that elimination of the ECU will not make market players regrets. Especially because they still remember the time when at the helm of the company were representatives of big business, who used its potential for the benefit of their own business groups.

Another issue is that the oligarchs can exploit the ECU even now, when it is living its last days. After all, almost all the shares in energy companies under its control will be transferred to the State Property Fund with a view to their eventual privatization.

Based on our information this refers to sixteen facilities (see table) of the remaining nineteen. The only exceptions are Luhanskoblenergo (shell company in the process of bankruptcy), the Dniester PSP (operates hydropower, not subject to privatization) and the Tsentrnergo (the only major thermal power company remaining in state ownership), whose shares the ECU will give to the Ministry of Energy and Coal Industry.

The transfer of securities from the SPF to energy companies will launch the process of preparation to their privatization. In terms of armed conflict on the territory of Ukraine there is no need to expect good revenue from the sale of such assets. However, tenders for the sale of energy companies have never surprised with nice prices. Now the resonance of future transactions can be particularly strong, because the shares of the key energy companies of the country will be offered for bidding. And in case the favorite of the upcoming auction Pryvat Group buys from the state the socalled minor blocking shares (25% + 1 share) in thermal generation plants, the majority shareholder of these companies Akhmetovs DTEK will not be able to run its business without Kolomoiskiy.

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