Ukraine postpones Centrenergo privatization to 1H17

The Ukrainian government’s planned privatization of electricity generator Centrenergo (CEEN UK) won’t happen this year, State Property Fund Head Ihor Bilous told journalists on May 23. “It’s impossible to prepare for the privatization of such a complex asset in half a year,” he said. “I think the sale will be in the first or second quarter of next year”. He clarified that Centrenergo is harder to sell than the government’s other large asset slated for sale, fertilizer producer Odesa Portside Plant (OPP).

A tender for the sale of a 99% stake in OPP will take place in late July at a starting price set at USD 521 mln, Bilous said. On top of that, the government is going to sell six large stakes in power distribution companies this autumn, which Bilous expects may be worth totally USD 300 mln. Ukraine’s 2016 state budget foresees UAH 17 bln in proceeds from the privatization of state assets, or about USD 650 mln.

Alexander Paraschiy: The postponement of the Centrenergo sale is a disappointment to the market. Bilous’s claim about the inability to prepare it for sale in half a year is a poor excuse, especially considering that he has led the privatization agency for more than a year, which is enough time to prepare any company for sale. We see the real reason as Centrenergo’s central role in Ukraine’s corruption-laden coal trade. The company’s two power stations are designed to burn anthracite coal, which in Ukraine is only mined on the territory occupied by pro-Russian forces. The only official producer of anthracite coal in Ukraine is DTEK (DTEKUA), which claims it’s not supplying any coal to Centrenergo, even though it has enough capacity to do that. That means the coal for Cenrtenergo is being prodcued by unofficial miners and supplied from the occupied territories, with the blessing of top officials who are interested in extended their profit.

On the other hand, it looks like the government will be able to fulfill (or will be close to fulfilling) its privatization plan for 2016 even without Centrenergo, provided it’s able to sell OPP and power DisCos. Meanwhile, the government will indeed have more time to better prepare Centrenergo for sale. Recall, recently the power sector regulator changed its approach to pricing electricity produced by thermal power plants like those controlled by Centrenergo, which will enable it to report much higher profit in 2016. This may potentially boost the company’s valuation in the next year.

This news has also implications for DTEK. As a positive implication, the enhancement of Centrenergo will mean the regulators will further boost the rates of thermal power generation companies in 2016. As a negative implication, in their enhancement attempt, the state regulators will likely boost Centrenergo’s power output in 2016 at the cost of DTEK’s power plants. Also, remaining in state hands, Centrenergo is unlikely to buy coal from DTEK (though this may change if the company gets a private investor).