Energy Headlines

n the near future, most of the state-owned power engineering and distribution assets will be auctioned off. The government thus plans to kill two birds with one stone: to fill the gaps in the national coffers and enhance energy holding companies controlled by the country’s financial-industrial groups

In early summer, President Viktor Yanukovych presented the Program of Economic Reforms for 2010-2014, which outlined the country’s privatization plan in detail. The document calls for the lifting of the moratorium on the privatization of energy companies and preparations for the privatization of energy distributors and thermal power generating companies this year. The sale of state-owned assets in the energy sector was scheduled to start in the second phase of the program (2011-2012).

But the government`s plans were modified as First Vice Premier Andriy Klyuyev unveiled new strategy in late August. "This year the sale of the Odesa Portside Plant and TurboAtom (the proceeds from which were earlier planned to cover the budget deficit - "k:") will not be privatized. As for Ukrtelecom, this is still a major issue. But we have other large objects that can be profitably sold to resolve the problem of filling the coffers of the national budget, for example, thermal power plants and oblenergos [regional power distributors]," Klyuyev told the press.

The first vice premier said the Cabinet expects to generate enough money from the privatization of these facilities to allow the State Property Fund to fulfill its plan of privatization proceeds initially envisaged at just over UAH $10 bn.

Over the first 8 months of 2010, privatization proceeds to the national budget totaled approximately UAH 416 mn or 4% of the planned amount. In order for the SPF to receive the necessary UAH 9.6 bn to during the remaining the last four months of the year, the ministry headed by Oleksandr Ryabchenko will have to arrange an energy trade fair.

According to "k:", currently the SPF is ready to put up for sale minority share packages of the regional distribution companies OdesaOblenergo (25.01%), SumyOblenergo (25% +1) and PoltavaOblenergo (16.24%). These stakes can be sold one of the first, since they have already been transferred to the SPF from the state-run Energy Company of Ukraine, which manages the state assets in electricity companies. The fund’s press service told "k:", the assets of the Poltava enterprise will be the first to be put up for sale. According to the information "k:" possesses, 16.24% of the shares of these enterprises will be offered for sale on auctions by late September. Following this, a small share package in SumyOblenergo and later OdesaOblenergo are scheduled for sale.

Another matter altogether is that the state will unlikely to earn more than UAH 1 bn from the sale of all three aforementioned energy companies, seeing as the starting price of PoltavaOblenergo set by the SPF is only UAH 108 mn and the price of SumyOblenergo is around UAH 209 mn.

Moreover, counting on a significant increase in the price of the packages during the course of the tender is for naught as only Ukrainian businessmen Kostyantyn Hryhoryshyn and Ihor Kolomoiskiy, who indirectly control on a parity basis approximately 80% in PoltavaOblenergo and nearly 72% of shares in SumyOblenergo, will bid for these assets.

The only enterprise whose shares may rise several times in price during the tender is OdesaOblenergo. The reason is this enterprise has only two major private stakeholders. The first is the duo of Russian businessmen Mikhail Voyevodin and Aleksander Babakov, who through their related companies VS Sun Energy International Ukraine and VS Energy International N.V. own 55.36% in OdesaOblenergo. The second is Ukrainian businessman Kostyantyn Zhevago, who indirectly (through FS Traiding Limited LLC) controls around 16% of OdesaOblenergo. It is precisely between these two business groups that the competition on tender will be fierce, as the purchase of a state share will allow the rivals to increase their influence on the Odesa-based enterprise. However, even in this scenario the sale of OdesaOblenergo will solve only part of the problem of fulfilling the SPF privatization plan. In other words, the government will have to fill the budget holes by selling heavy stuff, namely heat generating enterprises.

It is common knowledge that the aforementioned Energy Company of Ukraine controls the state assets in four of the largest energy companies: 85% of DonbasEnergo, 78% of TsentrEnergo, a 50%+1 share in DniproEnergo and 70% of ZakhidEnergo. At the moment, it is impossible to find out which of these companies will participate in the privatization tender as the press service of the Energy Company of Ukraine and the SPF told "k:" they have yet to receive a government decree, pursuant to which the former must convey its shares to the latter.

But even on such conditions, the privatization of DniproEnergo and ZakhidEnergo will take place first. The fact that early this summer Oleksandr Ryabchenko informed the SPF of his plans to sell the state`s shares in the two enterprises in Q4 2010 is merely confirmation of this fact. Secondly, these companies attracted the greatest interest of Donetsk tycoon Rinat Akhmetov. The indisputable proof of this fact is that the founder of System Capital Management has over the past few years been actively buying up shares of these companies and today is the largest private stakeholder in them, owning 47% in DniproEnergo and 11% in ZakhidEnergo. By the way, the Burshtyn Thermal Power Plant, which belongs to ZakhidEnergo, produces electricity that is exported to Europe.

Akhmetov has long been interested in the energy export market, so for him the acquisition of this enterprise is strategic in nature. As for his rivals on the upcoming SPF privatization tenders, there will be not many or none at all. For now Akhmetov has several competitive advantages. One is that these energy companies have been for several years depending on the supply of coal (via the state-run Ukrainian Coal) from companies that Akhmetov has stakes in: PavlohradVuhillya, DTEK, Komsomolets Donbasu and DTEK-Trading. It is almost impossible to change these suppliers now seeing as DniproEnergo and ZakhidEnergo have management that was appointed six months ago on a quota of DTEK.

Source: ProUA