DTEK converts another unit for hard coal, imports 80 kt of anthracite

DTEK Energy (DTEKUA) announced on Nov. 8 it has
completed the necessary work to convert power unit #9 at its Prydniprovska
Power Plant from burning anthracite to hard coal. Another converted power unit,
#10, will be commissioned in December. Total costs related to the conversion of
the two units are estimated at UAH 300 mln, DTEK Energy wrote.

Last year, the holding converted its first two power
units at Prydniprovska Power Plant (#7 and #8) to hard coal. Following the
conversion, the plant stopped consuming anthracite (which is scarce in Ukraine,
as it’s not mined outside the occupied territory) since Apr. 21, 2018. Each converted
power unit has installed capacity of 150 MW.

In other news, DTEK Energy reported that it contracted
80 kt of anthracite in Rotterdam (sourced from South Africa), which will be
supplied to its Kryvorizka Power Plant. This plant, operating the 300 MW power
units, is one the two remaining anthracite consumers of DTEK. Currently, the
plant has 102 kt stockpiles of coal and is working in usual mode, DTEK
reported.

Recall, earlier this week, DTEK had to start
burning natural gas at its other anthracite-burning
station, Luhanska, which ran out of coal stockpiles. Commenting on the issue on
Nov. 7, DTEK’s press service confirmed that Luhanska Power Plant is blocked
from supplying coal from Russian territory, which is the only source of coal
supply after a blockade was imposed on the occupied Luhansk. The plant will
petition the government to construct a connection with Ukraine’s railway
network to enable it to receive coal from Ukraine-based mines or ports.

Alexander Paraschiy: Following
the conversion of four 150 MW power units at Prydniprovska to hard coal, this
plant won’t use anthracite. That means that out of eight DTEK power plants,
only two will remain anthracite-consuming (Luhanska and Kryvorizka). In DTEK’s
annual report, the holding mentioned its plan to convert two 300 MW-sized power
units at Kryvorizka (out of seven units available for work) into hard coal in
the future. This year, the plant was using some portion of hard coal in its
fuel mix, or 15% of total coal consumed in 9M18, according to Energy Ministry
data. This portion will double next year, according to the ministry’s forecast.

So the only DTEK plant that remains fully dependent on
anthracite is its Luhanska Power Plant. The plant is located very close to
DTEK’s Russia-based anthracite coal mines, so there were always clear economic
advantages in leaving the plant anthracite-burning. However, this logic was
undermined recently as Russia blocked coal supplies to the plant from its
territory. Now the plant has to burn expensive natural gas, which may spoil
DTEK’s overall profitability for Nov.-Dec. 2018 and will force the power
generator to seriously consider diversifying both the plant’s fuel mix and
fuel-supply routes. 

All in all, we see DTEK’s efforts to reduce its
dependence on anthracite will bring it some economic benefits next year, while
the risks of not having any coal supply for its Luhanska Thermal Plant is the
holding’s key weakness that demands some solution. We remain neutral about
DTEKUA Eurobonds.