DTEK expects coal supply resumption from occupied Ukraine

Ukraine’s leading coal and power holding DTEK (DTEKUA) expects a soon resumption of anthracite coal supply from the occupied districts of the Donetsk and Luhansk regions of Ukraine, company official Dmytro Malyar said on June 29, as cited by Interfax-Ukraine. He explained that the interruption of coal supplies since early June was caused by a strike at the railway on the occupied part of Ukraine, which is finished. Another hurdle has been damage to railway infrastructure, which is being repaired now.

Ukrainian power plants need to increase their stockpiles of anthracite to 1,100 kt by mid-autumn from 340 kt now, Malyar added. To make that possible, DTEK is suggesting that thermal power plants increase their power rates to cover the cost of imported coal, which is about UAH 1,700/t currently, according to Malyar. The head of the state power sector regulator said earlier that the coal price that is included in electricity rates of power plants is UAH 1,393/t, based on new coal pricing methodology.

Meanwhile, state railway operator Ukrzaliznytsia (RAILUA) said that cargo transportation from the occupied territory of Donbas has resumed since June 25, as reported by Interfax-Ukraine today. The report provides no information on whether coal supplies have also resumed. 

Alexander Paraschiy: A possible renewal of coal supplies from the occupied territories is a positive development. Due to supply interruptions, the stockpiles of anthracite coal (mined only on the occupied territory of Ukraine) at Ukrainian power plants decreased to 335 kt as of June 29, from 826 kt as of June 1. Moreover, some power plants had to cease their operations due to an absence of coal. An expected recovery of coal supplies is also beneficial for DTEK, whose mines will be able to destock their coal and possibly boost coal mining volumes.

For more than a year, DTEK has complained about the state’s mandated coal prices being too low and it continues to do so despite this year’s revision of coal pricing methodology to its benefit. Just last week, Ukrainian PM Groysman expressed his (and the president’s) doubts that the current high level of steam coal prices in Ukraine is well-grounded. So there is a high chance that this latest claim by DTEK will prevent a downward revision of coal prices. That confirms our expectations that no revision will happen soon, and confirms our neutral view on DTEK’s Eurobonds.