Dniproenergo gives DTEK contract for 1.25 mln mt of coal

Dniproenergo (DNEN) said yesterday that the winner of its tender for the provision of 1.25 mln mt of coal was DTEK, the Ministry of Economy announced. DTEK agreed on September 4 to provide Dniproenergo the coal for a total of UAH 889.8 mln including VAT. Yegor Samusenko: The September tender implies UAH 593 per mt of coal, 14% higher than the price Dniproenergo secured in its July and January tenders. Since coal is main cost component for electricity produced at Dniproenergo, we think this will lead to a further decrease in the company’s EBITDA margin to negative 6% in 2009E from negative 2% in 1H09. In the current regulatory environment, higher coal prices do not translate into automatic increases in electricity prices. Since Dniproenergo is controlled by DTEK (46% of shares), we view this tender as having a high risk of transfer pricing by DTEK to consolidate profit in a fully owned subsidiary. We see negative implications for the stock price and put this stock under review.