8 July 2014
Several power plants in Donbas remain under threat of attack by pro-Russian terrorists, according to government reports on July 7. In particular, the National Security and Defense Council (NSDC) reported on July 7 that terrorists destroyed a railway bridge leading to the Luhansk TPP of DTEK (DTEKUA). Infrastructure in the town of Zuhres, where DTEK’s Zuyiv TPP is located, has been mined by terrorists, according to the same NSDC report.
In addition to the situation stabilizing at Donbasenergo’s Sloviansk thermal power plant (TPP), the top management at Luhanskteplovoz (LTPL UK) decided to restart work on its facilities after a temporary stoppage on July 7 due to the risk of armed conflict near its plant. Currently, the atmosphere is calm in the plant’s vicinity, reported Viktor Bykadorov, the company’s supervisory board head.
Meanwhile Khartsyzk Pipe (HRTR UK) of Metinvest (METINV) is working in normal mode, according to the holding’s July 7 report. However, armed representatives of the “Donetsk People’s Republic” visited the plant and stole ten vehicles on July 6, Metinvest reported.
Alexander Paraschiy: Given that the terrorists abandoned their bases in Sloviansk and Kramatorsk and shifted to Horlivka, Donetsk and Luhansk and other nearby cities, the risk posed to enterprises located there is increasing. Under greater risk of attack now are Luhanskteplovoz, Alchevsk Steel (ALMK UK), and Stakhanov Railcar (SVGZ UK).
Risk also remains high for Stirol (STIR UK), Yenakiyeve Steel (ENMZ UK), Khartsyzk Pipe (HRTR UK), and the Snizhne-based producer of turbine blades for Motor-Sich (MSICH UK). However, it’s likely these companies will fall out of the armed conflict zone should the anti-terrorist operation continue to build on its gains achieved this weekend.
A positive story in Donbas has been the port city of Mariupol, which is likely to remain calm. Mariupol is home to Azovstal (AZST UK). Another area that is likely to remain calm is the northern half of the Luhansk region, which is the area of operation of Kub-Gaz, Serinus Energy’s (SEN PW) main production asset.
As a positive externality, we expect high demand for construction materials in the freed zones, which will benefit construction goods producers not only in Donbas but also in neighboring regions. On top of that, we expect increased demand for the products of Zaporizhtransformator (ZATR UK), the leading producer of power transformers in the CIS region. Also, robust demand for heavy trucks should grow since many have been stolen by terrorists from local enterprises – this should improve the operations of AvtoKrAZ (KRAZ UK).