DTEK Group issues 2017 operating update

Coal mining at Ukraine’s biggest energy holding DTEK
fell 11% yoy to 27.71 mmt in 2017, according to its Feb. 15 operating update. The
Ukraine-based mines controlled currently by DTEK Energy (DTEKUA) produced 22.91
mmt of coal, or 8.2% more yoy.

Electricity generated by DTEK Group’s power generation
units for Ukraine’s wholesale market dropped 7.4% yoy to 37.10 TWh. As we
reported before, electricity generation (gross) at power plants that are
currently under DTEK Energy control declined 1.6% yoy to 39.86 TWh. Power
DisCos of DTEK Energy transmitted 43.16 TWh of electricity, or 5.8% less yoy.

DTEK Group imported 2.57 mmt of coal in 2017, or 11x
more yoy. Out of this amount, 0.91 mmt was supplied by the Russian mines of
DTEK Group. Production of natural gas by the group (not a part of DTEK Energy,
Eurobond issuer) climbed 1.5% yoy to 1.66 bcm in 2017.

Alexander Paraschiy: DTEK Energycoal and power production data are not news,
so only the coal import stats are valuable from this operating update. The
growth in coal imports was surprisingly high last year, and will most likely
decrease in 2018. Based on the Energy Ministry’s forecast, the power plants of
DTEK Energy will have to produce 41.81 TWh of electricity in 2018 (a 4.9% yoy
increase), while we expect their output growth will be smaller, or about +2%
yoy.

DTEK Energy’s earlier guidance of coal mining was 24.6
mmt in 2018 (a 7.3% yoy rise), while the emergence of a local competitor on the
coal market will likely force the holding to downgrade its plans. Preliminary
data for January show that output fell at DTEK’s mines. All this confirms our
neutral view on DTEKUA bonds.