Ukraine parliament drafts two bills to unblock power sector regulator

7 December 2017

The energy committee of Ukraine's parliament recommended on Dec. 6 that lawmakers vote for two alternative draft bills aimed at resolving the regulatory vacuum due to lack of quorum at the NERC, Ukraine’s energy and utility regulator. Recall, with the resignation of one of four NERC commissioners last week, the regulator lacked a quorum of four members that is necessary to adopt any regulation. The appointment of new commissioners is possible only in late February, according to current legislation, meaning that the regulator's work is blocked for about three months.

 

The first draft law (#7359) assumes a regulatory status quo, or postponement of the validity of earlier adopted regulations for the new periods of no quorum at the NERC (e.g. regulations adopted for November will also act in December-February).

 

The alternative draft (#7342-1) gives authority to the president to appoint temporary commissioners for no more than three months so that the NERC gains quorum immediately and its work is unfrozen.

 

In its Dec. 5 press release, DTEK Energy (DTEKUA) mentioned another possible solution for NERC’s deadlock. Namely, reducing the NERC's quorum to three commissioners from four.

 

Alexander Paraschiy: The unfreezing of the NERC's operations is critical for DTEK Energy, Ukraine’s leading coal and power holding. In particular, it’s important for DTEK that the regulator set a new forecasted wholesale price for electricity for 2018, which will allow DTEK’s thermal power plants to enjoy about a 20% higher electricity price since January, as compared to today’s price. For this to happen, the NERC should become a valid regulator and will have to adopt a new regulation by Dec. 21.

 

The difference between the “unfreezing” and “status quo” draft laws is about USD 100 mln in revenue for DTEK Energy in the first quarter of 2018. Clearly, DTEK’s ultimate owner Rinat Akhmetov and his allies in parliament (as well as President Poroshenko, who looks loyal to Akhmetov’s initiatives in the electricity sector) will do all their best to fulfill the “unfreezing” scenario. Therefore, we continue to expect that some king of “unfreezing” will happen in the very near future, either as it’s stipulated by draft law #7342-1, or any other similar solution. We maintain our bullish view on DTEKUA Eurobonds.

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