Ukraine anti-corruption body investigates electricity pricing

The National Anti-Corruption Bureau of Ukraine (NABU)
performed a search of the offices of the National Electricity Regulation
Commission on Aug. 17, according to media reports. The search was part of an
investigation of alleged corruption aimed at benefitting power generation
companies, the NABU press service commented to Interfax-Ukraine. In particular,
NABU is investigating possible corruption in introducing a new pricing model
for thermal power plants in April 2016, now called “Rotterdam Plus.”

Based on that methodology, the electricity price
produced by coal-fired power plants in Ukraine fully covers the cost of
imported coal (calculated based on the API2 index, or CIF price in the ports of
Amsterdam and Rotterdam, plus delivery costs from Rotterdam to Ukraine).
However, last year, Ukrainian power plants burned mostly domestic coal, which
they bought at a much lower price than API2+ delivery costs. This enabled power
generating companies like Centrenergo (CEEN UK) and the subsidiaries of DTEK Energy
(DTEKUA) to boost their profits in 2016.

Alexander Paraschiy: The new
pricing model was definitely ill-grounded, so suspicions in possible collusion
are logical. At the same time, in our view, it would be hard to find any signs
of corruption in implementing Rotterdam Plus. Instead, the search might be
aimed at pressuring the power sector regulator to revise its pricing
methodology for thermal power plants, but we don’t believe it would achieve
that goal.

Despite the widely criticized Rotterdam Plus
approach generating abnormally high profits for coal-fired generation companies
in 2016, this year’s power price based on that methodology won’t allow power
GenCos to be more profitable. Moreover, the current price of electricity
supplied by thermal power plants is even higher than the price implied by the
Rotterdam Plus approach.