Americans sell two Ukraine electricity distribution firms to Russians

U.S.-based AES Corp. (AES US) sold an 89% stake in electricity distributor Kyivoblenergo and an 85% stake in electricity distributor Rivneoblenergo at a combined price of $113 million, AES reported on its website on Feb. 27. The buyer is VS Energy Corp., which is owned by several Russian businessmen, including Aleksandr Babakov.

AES stated the book value of its investments in Kyivoblenergo and Rivneoblenergo was $131 mln, implying negative goodwill for the deal.

Alexander Paraschiy: Clearly, AES had a negative experience from its investment in Ukrainian power DisCos, although it invested in good state companies at exceptionally attractive conditions.

In 2001, the state sold its 75% stakes in both oblenergos to AES for a total of USD 70 mln. This was more of a fixed income investment – the regulator allowed these oblenergos (as well as three other oblenergos privatized in 2001) to generate annual profit that amounted to 17% of AES’ initial investment.

AES’ key problem was that it spoiled its relations with the state sector regulator from its first day in Ukraine (in fact, they started lecturing the regulator). Needless to say, with such behavior, the AES-related oblenergos ended up being discriminated by the regulator, which ultimately led to AES’ exit from Ukraine with losses.

In that same time span, VS Energy, a more flexible holding that also participated in the “special” 2001 privatization of the oblenergos, was able to build a constructive dialogue with the regulator and significantly improve the operating efficiency of its oblenergos. With the purchase of the American oblenergos, the holding now owns majority stakes in seven Ukrainian electricity distribution firms.