Risks emerge that DTEK won’t secure higher electricity prices in 1Q18

Ukraine’s president has yet to appoint
commissioners to the NERC, Ukraine’s power sector regulator, which raises the
risk that higher power prices for thermal power plants (TPPs) for 1Q18 won’t be
approved on time. Based on the current legislation, the forecasted wholesale
electricity price (which determines prices for TPPs) should be approved no
later than ten days in advance, meaning that today is the
deadline for setting prices for 1Q18.

The forecasted wholesale price for 2018, as
drafted in November, should lead to an 18%-20% hike in TPPs’ achieved
power price from current levels. If that happens, the biggest operator of TPPs
in Ukraine, DTEK Energy (DTEKUA), could generate about USD 100 mln in
additional revenue in 1Q18.

The next NERC meeting is scheduled for Dec.
27 with the agenda containing no scheduled approval of the forecasted wholesale
power price for 2018.

Recall, the NERC has not been able to
approve any regulation since mid-November due to lack of quorum, as some of the
commissioners did not sign up for the NERC meetings, and later some were fired.

Meanwhile, the appointment of new ones
require a long procedure lasting about three months. To resolve the issue, parliament
amended legislation on Dec. 7 to allow the president to appoint
interim commissioners for three months.

Alexander Paraschiy: We
had expected that the regulation enabling TPPs to achieve higher
electricity prices would have been granted smoothly by now by the NERC, which
should have been replenished by the president. But despite getting
authorization from parliament, his surprising lack of action has cast doubt
upon our expectations.

This means risks have significantly increased that
DTEK Energy won’t enjoy better prices and higher revenue in 1Q18 than it has
now. It’s still possible that the regulator will find some legal solution to
raise electricity prices as of January. But the current situation may lead to
selling pressure on DTEK Energy’s Eurobonds.