DTEK GenCos report heavy losses, CoalCo posts high EBITDA in 1H15

Some of DTEK’s (DTEKUA) coal and power companies reported their 1H15 financials, which revealed a shift in profitability from the holding’s power generation to coal sub-segment. The company’s biggest coal miner Pavlohradvuhillia reported a 58% yoy jump in EBITDA to UAH 1.32 bln on a 130% yoy surge in net revenue to UAH 9.85 bln in 1H15. Its boosted top line was the result of a 86% yoy increase in its realized coal price to UAH 1,125 per ton. If not for a strange increase in “net other operating costs” by almost UAH 3 bln yoy, the company would have reported EBITDA of UAH 4.28 bln (5.4x increase yoy). Pavlohradvuhillia reported a net loss of UAH 78 mln in 1H15, driven by high financial costs and heavy “other losses”.

The radical increase in realized coal prices led to heavy operating losses among DTEK’s coal-fired power generation companies in 1H15, based on their individual reports. The combined operating losses of two publicly listed GenCos, Zakhidenergo (ZAEN UK) and Dniproenergo (DNEN UK), amounted to UAH 2.2 bln.

Alexander Paraschiy: By reporting heavy losses at its GenCos in 1H15, DTEK could be pursuing two goals: 1) an attempt to diminish the value of its GenCos ahead of the privatization of their 25% stakes and 2) laying the groundwork to lobby that the state power sector regulator remove its limits on GenCos’ electricity rates.  We wonder what in particular caused DTEK’s biggest mine to report heavy “other operating costs,” but even if we do account for them, DTEK’s 1H15 consolidated operating profit would drop significantly. This is, again, because of state-imposed limits to producers’ electricity rates, which we expect will be removed once the winter season comes.