finance & markets

Two against all

19.12.2014 | By Dmytro Ryasniy

The oligarchic map of Ukraine is changing its face. At the moment this phenomenon is not drawing particular attention due to the clashes in the east of the country. However the end of this conflict may serve as a catalyst of the events as a result of which two largest empires may become a history


Change of power in the country has always been a reason for the redistribution of spheres of influence among businessmen. For example in 2004, after the end of presidential cadence of Leonid Kuchma the group Slavutych owned by Viktor Medvedchuk and Hryhoriy Surkis broke up. In 2010, when Viktor Yushchenko left the office the empire Brinkford owned by David Zhvaniya and Mykola Martynenko collapsed. Based on this experience, many experts predict a similar outcome for the empires associated with disgraced Viktor Yanukovych: Dmytro Firtash Group DF and Rinat Akhmetovs SCM.

The authors of the forecast feel particularly confident since there is already a contender for the assets of both oligarch, namely Ihor Kolomoyskiy, who recently openly announced the necessity to nationalize the property that was privatized with violations of law in 20112014. Privats founder even listed the assets, which he thought must be nationalized. Not only should, but must be returned into state ownership: Ukrtelecom, Zakhidenergo, Dniproenergo, DniproOblenergo, oblast gas companies, Zaporizhzhya Titanium and Magnesium Combine (ZTMC), Sumykhimprom, said the businessman.

This time, however, it will not be about banal transition of assets from one group into the other. The market should prepare for the real change of favorites and the name of Kolomoyskiy will not be on the top of this list. Even if the energy companies are not nationalized, the change of their own can be viewed as inevitable. The thing is that the foundation of DTEK heat and energy generating companies are on the verge of being shut down due to coal shortage. Optimists believe this problem is temporary, arguing that after the border line between Ukraine and captured territory is finalized coal supplies will be renewed. Ministry of Energy shared this opinion up until recently. However, later the bet on the fuel from Donbas was recalled.

On November 25, the Ministry of Energy issued an order No. 841 officially ordering to suspend financial and economic activity of the companies subordinated to it in the ATO zone. At that it was decided that in case of total absence of coal, the heating and power stations will be transferred to burning imported gas. In that case the price of the produced electricity will shoot through the roof. However, the most important thing at the moment is to survive the winter and after that the situation will change dramatically.

The thing is that upon the initiative of the Cabinet of Ministers domestic R&D institutes are already working on reconstruction of thermal power plants. It is expected that after the reconstruction their energy units will be able to abandon the use of coal of scarce types (anthracite group and lean coal) to the benefit of available coal of gas group. After this work is completed the issue of shortage of the raw material for the Ukrainian TPPs and thermal power stations will be resolved. This, however, does not guarantee preservation of sovereignty for the energy wing of SCM. Rather to the contrary: most likely businessmen that are close to the power, with Akhmetov not being among them, will be allowed to export of profitable coal of gas group (for instance from Poland). This is not about the fact that in such conditions Akhmetov will become dependable on external supplies, becoming thus an ideal target for acquisition. Most importantly, the most profitable (raw material) part will be removed from the fuel and energy vertical, which the Donetsk oligarch was building for years. This fact increases the relevance of the sale of DTEK by its current owner, or at least some of its assets.


Akhmetovs empire is waiting only for the corporate changes, while Firtash Group DF is already in the process of active disintegration. The start to this was given several months ago, when the Cabinet refused to extent the rent agreement of Vilnohirsk Mining and Metallurgical Pland and Irshansk MPP with PJSC Crimea Titan owned by Firtash. Moreover, Firtash has major problems in other business niches. For example four chemical plants of Group DF are on the verge of total collapse. It is believed that Premier Arseniy Yatsenyuk is the initiator of this process. Indeed, he contributed to the situation. On October 1, for instance, the Cabinet issued a resolution prohibiting companies that manufacture mineral fertilizers to use gas produced in Ukraine and also gas from the underground gas storage facilities until the end of the autumnwinter period. However, Firtash main problem is not his bad relationship with the power, but in the economy of his companies or, actually, its absence: when he purchased chemical plants, he relied on partner relations with Gazprom that guaranteed raw material supplies for the companies. According to Reuters Firtash bought gas at US $249/1,000 cu m, while Naftogaz of Ukraine purchased gas at US $412. Now the companies of Firtash are in the same conditions as all the rest: nothing prevents them from purchasing gas by direct contracts, but they do not do it because of the unprofitability of business in such conditions.

No matter how long DF Group covers the losses of its chemical wing it has not changes to keep it whole even if it finds the solution to the raw material problem. The reason is very simple two of the four Ukrainian plants of Ostchem Azot in Severodonetsk and Stirol in Horlivka are located on the territories that are not controlled by Kyiv. This means that their products will not be demanded even if both companies are put back into operation. Ukraine and EU will not purchase it because of the economic sanctions, while Russia covers its demand for mineral fertilizers using local producers.

By the way, nobody will be able to help Firtash with preserving control over gas trading business as Energy Ministry is considering nationalization of distribution networks used by the regional companies mostly owned or coowned Group DF. Firtash, however, may agree to exit this voluntarily as the profits in this sector dive drastically. Point is that the Cabinet activated the process of transferring local distributors to the accounts with a special regime of use, which allow the government to automatically write off the main part of the funds of these companies as payment for gas supply to Naftogaz of Ukraine.

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