Antimonopoly committee initiates new investigation against DTEK

Ukraine’s Antimonopoly Committee opened on Oct. 4 an
investigation against DTEK Energy’s (DTEKUA) subsidiary on signs Ukraine’s
biggest electricity producer has been abusing its market power, the
epravda.com.ua news site reported the same day. The committee said in a
statement it will investigate the activity of DTEK-Zakhidenergo in the
so-called Burshtyn Energy Island, where the holding’s Burstyn power plant
accounts for about 90% of electricity production. (This is a part of the power
grid in Ukraine’s westernmost regions that has been separated from Ukraine’s
energy system and connected to the EU system ENTSO-E).

DTEK reduced electricity supply to the island on the
day-ahead and intraday markets, where power prices are capped by the regulator
(at UAH 959-2,048 per MWh, depending on day time), according to the preliminary
conclusions of the committee. Simultaneously, the plant offered more
electricity on the balancing market, where price caps are 15% higher than on
the day-ahead market. According to the committee, this has led to unsatisfied
demand for electricity on the day-ahead market, which forced consumers to buy
more electricity on the balancing market at higher prices.

Commenting on the news, DTEK Energy said in a press
release that the allegations in market power abuse are groundless. DTEK
promises to facilitate the investigation as much as possible and hopes that the
study will result in recommendations for regulators in fulfilling their
commitments to complete reforms on the energy market and remove administrative
obstacles.

Alexander Paraschiy: The power
sector regulator has introduced price caps on new market segments for July
2019-March 2020 to limit electricity price inflation caused by recent reforms.
Willing to maximize achieved price for its electricity, DTEK decided to sell
more power in the segment that allows for a higher price, which looks logical
and does not violate the rules established on the market.

On the one hand, DTEK’s behavior led to discrimination
against Burshtyn Island power consumers, who had no option but to buy more
expensive electricity from DTEK, thus having paid a higher price for their
power than what was offered by competitors outside the island. On the other
hand, if the energy market was without price limits, such discrimination could
have been smaller in size.

That leads us to conclude that DTEK will be able to
prove the absence of wrongdoing in its behavior. However, as soon as DTEK’s
Burshtyn power plant is a “natural monopoly” in Burshtyn Island, it will likely
remain an easy target for accusations of abusing its market power any time in
the future. Taking into account this risk, we remain bullish on DTEKUA bonds.