MP accuses D.Trading of milking DTEK Energy

Head of the parliamentary energy committee Andriy
Gerus stated last week that D.Trading, a subsidiary of DTEK Group, came out
ahead after an abnormal price drop at the day-ahead segment of the electricity
market (DAM) in early July. Meanwhile, the losers are power generation
companies, including DTEK Energy (DTEKUA). According to Gerus, D.Trading
concluded bilateral contracts with DTEK Energy’s generating companies for the
purchase of power in July at a flexible price. If the price at the DAM is 5%
higher or lower than the contracted price, the adjusted contracted price would
be the DAM price less 5%, Gerus told liga.net on July 7. In this way, in any
price fluctuations, D.Trading generates 5% margin, which Gerus described as too
high for a trader’s margin. Gerus also promised to initiate legislative changes
to force private power producers to sell most of their electricity at the DAM.
Gerus worked for Concorde Capital between 2007 and 2015.

Recall, the power sector regulator accused D.Trading of a radical
decrease of purchases at the DAM in early July, which caused a decline of the
DAM price to an average UAH 426/MWh of July 4, from a June average of UAH
1425/MWh. Later on, the Antimonopoly Committee initiated its own investigation of possible manipulations
at the DAM.

According to the censor.net news site, three
generating companies of DTEK Energy sold 930 GWh of electricity for July under
bilateral contracts via Ukrainian Energy Exchange at the price of UAH 1150/MWh
for baseload electricity. This is 60% of all electricity produced by DTEK
Energy in June. The news site believes that D.Trading is the buyer. The
contract terms, revealed on the ueex.com.ua website, assume that the change of
the actual price to baseload price at DAM less 5% if such DAM price is 5% more
or less than the contract price, which is in line with what Gerus stated. The
contracts allow to decrease the volume of power sales by up to 50% upon the
mutual agreement of the contractors.

Alexander Paraschiy: From the
point of view of DTEKUA bondholders, neither selling a large amount of power by
DTEK Energy under bilateral contracts at a low price, nor applying a 5%
discount to DAM baseload price look beneficial as such terms lead to the
re-distribution of a significant amount DTEK Energy’s profit in favor of
non-public D.Trading. DTEK declined to explain to us the logic behind such
contract terms. We understand that such contracts might make sense in order to
maximize the power output of DTEK Energy in case of excess power supply at the
DAM, though the price for such maximization looks too high.

Radical shifts of DTEK-related companies from one
market segment to another and creating large imbalances in the segments, draws
the special attention of various controlling bodies, adding risks of penalties
for the group. On the other hand, by playing with fire, DTEK seems to aiming at
drawing attention to regulatory and market inefficiencies, which,
theoretically, could force the regulators to take appropriate measures and
therefore improve the market to the benefit of DTEK in the long-term. In any
case, in the short-term, such moves promise few triggers for DTEKUA bonds to
recover from the current levels.