Rada unfreezes power sector regulator in best way for DTEK

Ukraine’s parliament approved on Dec. 7 a bill to
unfreeze the activity of the NERC, Ukraine’s power sector regulator. The
approved law allows President Poroshenko to appoint for no longer than three
months NERC commissioners at his sole discretion, bypassing the established
complicated selection procedure.

Recall, the activity of the NERC has been frozen since
mid-November as the regulator has lacked quorum of four commissioners. As of
today, the NERC has only three valid commissioners (of seven total) that does
not allow it to regulate the energy sector.

Alexander Paraschiy: This is
what we expected to happen as it’s very
good news for DTEK Energy (DTEKUA) and a potential price trigger for its
Eurobond. The quick unfreezing of the NERC’s activity will allow DTEK Energy to
count on a higher achieved price of electricity to be produced by its thermal
power plants as of January 2018.

For this price hike to happen, the NERC had to approve
the necessary regulation (namely, the approval of an increase of the forecasted
wholesale price of electricity for 2018) no later than Dec. 21. Now it’s almost
certain that the NERC will be able to do it as the Ukrainian president is
likely to appoint commissioners loyal to DTEK, as he has done before.

Under normal conditions, the NERC commissioners should
have been selected by a specially appointed nominating committee that emerged
in late November (but should have been created earlier), consisting of
representatives of parliament, president and the Cabinet.

But because the NERC has lost quorum and the recently
created nominating committee will be able to select new commissioners no
earlier than 75 days, the risk of a regulatory vacuum emerged in recent days
that endangered the stability of Ukraine’s energy sector. Taking into account
such risks, the most pragmatic solution was to grant exclusive temporary power
to the president to appoint the commissioners.

But there is also the risk that this “temporary”
solution may be prolonged for an indefinite time, meaning Ukraine’s power
sector regulator will remain under Poroshenko’s full control for much longer
than three months. So the approval of such legislation lead to the latest
authoritarian measure taken by Ukraine’s president, who is currently in direct
conflict with Ukraine’s reformers and the Western establishment.