DTEK Trading to supply Zakhidenergo with 350 ths mt of coal

DTEK Trading won a tender conducted by Zakhidenergo (UX: ZAEN UK) to supply with 350 ths mt of coal. The two parties signed a contract worth UAH 260.9 mln (including VAT). Yegor Samusenko: Thisis the first coal supply to Zakhidenergo from DTEK, an event we relate to changes in the management of Zakhidenergo’s main shareholder, state-owned holding National Energy Company of Ukraine, which is believed to be loyal to DTEK starting from March 2010. The price per mt of coal is 10% higher than other state-controlled GenCos pay for coal bought from state coal suppliers. Though the contract amounts to ~5% of 2009 coal consumption by Zakhidenergo, we believe DTEK’s share in coal supplies to Zakhidenergo could reach 50%, which would result in a UAH 210 mln incremental loss if all purchases are made at the same high price. For reference, DTEK supplies coal to Dniproenergo, another GenCo where it has loyal management, at even higher price of UAH 700 per mt. We see this news as negative for the stock.

Coal tenders results, 2010
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                                   Coal sold  % of annual   Price
                                       ths t  consumption   per mt
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DTEK to Zakhidenergo         350           5%      621
DTEK to Dniproenergo       4,686          82%      700
DTEK to Dniproenergo       1,864          33%      700
Coal from state mines                          510-580
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Source: Ministry of Economy, Concorde Capital calculations