Centrenergo starts coal purchases from U.S. trader in political deal

Ukraine’s state-controlled power GenCo Centrenergo
(CEEN UK) signed a contract for the supply of anthracite coal from U.S.-based
coal trader Xcoal Energy and Resources, U.S. Energy Secretary Rick Perry and
U.S. Commerce Secretary Wilbur Ross reported in a July 31 joint statement. The
deal will “boost our own economy by supporting jobs in the coal and
transportation industries,” Perry commented. “As promised during the campaign,
President Trump is unshackling American energy with each day on the job,” Ross
added.

The contract was signed to implement agreements
between the presidents of Ukraine and the U.S. reached during Poroshenko’s
visit to Washington in mid-June, Centrenergo commented in its July 31 press
release.

The first supply of coal of 85,000 tons will arrive in
Ukraine in late September, according to Centrenergo’s CEO. It will cost USD
113/t at Ukraine port. Centrenergo may receive about 0.7 mmt of coal from the
U.S. this year, and about 2.0 mmt next year.

Alexander Paraschiy: In this
unexpected deal, the U.S.-made coal looks more expensive for Ukrainian
consumers than other alternatives. For instance, DTEK received the same type of
coal from South Africa for about USD 98/t, delivered to Ukraine port in late
June 2017. The difference may be explained by some appreciation in coal prices
on the global markets over the last two months, but the growth of benchmark
indices was no more than USD 11/t. Therefore, the Centrenergo deal looks more like
a political agreement between the Ukrainian and U.S. administrations, which
implies that the relationship between them may get even warmer soon.

The deal looks also beneficial for DTEK (DTEKUA),
which also depends on imports of anthracite coal. The Centrenergo/Xcoal price
could be used as a new benchmark for the coal costs of all thermal power plants
in Ukraine. This means there is a chance for a further increase in the average
electricity rates of thermal power plants.