Cabinet orders merger of Centrenergo with DTEK-leased mine

Ukraine’s cabinet ordered on Oct. 5 the merger of
power generation company Centrenergo (CEEN UK) with some state-controlled coal
mines into a new joint stock company, its website said. The list of “efficient”
mines that will be merged with the power generation company should be
determined by the end of this year. The total planned production capacity of
these mines should not exceed 4.2 mmt of sellable coal.

In the same resolution, the cabinet ordered the termination
of the government’s lease agreement of Dobropillia Coal, a mining asset leased
by DTEK Energy (DTEKUA). The termination assumes that the lessee will repay all
the lease arrears and won’t demand any compensation from the state for any
possible upgrades that have been made on the asset.

Alexander Paraschiy: The
resolution effectively means that Centrenergo will be merged with Dobropillia
Coal only, the asset that – according to earlier reports from DTEK – could
provide up to 4 mmt of coal for Centrenergo. Dobropillia is clearly more
cost-efficient than any state-run mine. The solution looks beneficial for DTEK,
which won’t have a headache to find demand for Dobropillia’s coal, as the
holding does not need this coal internally. The merger also looks to benefit
the government, enabling it to take control over an efficient coal mine.

On the flipside, it’s the government that will get a
headache as steam coal produced by all the other state-run mines will find no
demand in the mid-term. The annual coal needs of Centrenergo – 4.2-5.0 mmt in
the last two years, and likely to be around 4.0 mmt this year and on – can be
satisfied solely by Dobropillia. Therefore, all the other state-controlled
steam coal mines are going to be closed soon.