Coal supplies to DTEK’s Luhanska plant stabilized

Luhanska Power Plant of DTEK Energy (DTEKUA), which
had to switch from coal to natural gas on Nov. 6, is gradually restoring its
coal stockpiles and has cut significantly its gas usage, Concorde Capital learned
from operating data provided by the Energy Ministry. In particular, on Nov. 21,
the plant nearly stopped burning natural gas (using only 0.19 mcm, which is 90%
less than on Nov. 7) and boosted coal consumption to 2.05 kt (or almost 90% of
its total fuel mix).

After coal supplies were interrupted on Oct. 11, at
the initiative of the Russian side that controls railway routes to the plant,
Luhanska started receiving coal irregularly as of Nov. 11. Since that date, the
plant has received 21.5 kt of coal, and its coal stockpiles reached 7.5 kt as
of end-Nov. 21 (covering its coal needs for almost three days). In Nov. 20-21,
coal supplies to the plant stabilized at 4.3-4.4 kt per day.

Recall, DTEK called upon regulators
to allow it to hike its electricity rates to cover its higher production costs
that emerged due to the need to burn expensive natural gas, but failed to get
approval.

Alexander Paraschiy: If coal supplies will continue in the latest daily amounts, Luhanska
will be able to fully shift back to burning coal only, having significantly
improved its bottom line. If so, the negative effect on DTEK Energy from
Luhanska plant’s burning natural gas instead of coal will be insignificant
(less than USD 1 mln). As the plant’s coal supplies depend on the good will of
Russian railway authorities, the risk remains for new supply interruptions in
the short term. At the same time, we continue to expect that such
interruptions, if any, will be short-lived, as the blockade of coal supplies
from DTEK’s Russian mines to the Luhanska power plant make no economic sense
for Russian authorities. All in all, we remain neutral on the DTEKUA Eurobond.