Ukraine court invalidates high electricity rates for industry

The Kyiv Administrative Court ruled on Oct. 17 to overturn the resolutions of the power sector regulator on electricity rates for industrial consumers for May, June and July, Concorde Capital has learned from court’s database. These resolutions boosted the electricity rates for large consumers by 5.2% in both May and June (from April) and by another 10.0% in July (from June).

The court ruled that by setting such rates, the regulator breached its rule that stipulates no more than a 5% m/m increase in consumer rates. The court hearing was initiated by Ukraine’s Ferroalloy Association and the Nikopol Ferroalloy Plant, entities controlled by tycoon Igor Kolomoisky.

Alexander Paraschiy: Most likely, the regulator will appeal (or already has appealed) the Kyiv court’s ruling, which means this conflict will take many more months to resolve. October’s power rates for large industrial consumers are 27% higher than they were in April. The hikes are a disadvantage for electricity-intensive industries like ferroalloy producers and electric metallurgical plants. Such assets are controlled by powerful tycoons Kolomoisky and Victor Pinchuk.

The court ruling demonstrates that Kolomoisky has already started his fight against fast growth in power prices. That will be a fight with power sector regulator and the key beneficiaries of the power rate increase, including Rinat Akhmetov and his DTEK Energy (DTEKUA).

At this stage, we can only guess how the court battle will end, but in any case we have to highlight that risks are growing that high electricity rates, currently enjoyed by DTEK, will be revised in the near future.

If the plaintiffs win the case against the regulator, it will allow them to question also the October increase in consumer electricity rates, which was 9.9% as compared to September.

A downward revision of past electricity rates for final consumers, if approved by higher courts, can only be implemented by reducing future rates by the corresponding amount. Such a reduction, in turn, is only possible by decreasing wholesale electricity prices, and therefore, prices for electricity producers, including the prices of the power plants of DTEK Energy.