Ukraine parliament drafts two bills to unblock power sector regulator

The energy committee of Ukraine’s parliament
recommended on Dec. 6 that lawmakers vote for two alternative draft bills aimed
at resolving the regulatory vacuum due to lack of quorum at the NERC, Ukraine’s
energy and utility regulator. Recall, with the resignation of one of four NERC
commissioners last week, the regulator lacked a quorum of four members that is
necessary to adopt any regulation. The appointment of new commissioners is
possible only in late February, according to current legislation, meaning that
the regulator’s work is blocked for about three months.

The first draft law (#7359) assumes a regulatory
status quo, or postponement of the validity of earlier adopted regulations for
the new periods of no quorum at the NERC (e.g. regulations adopted for November
will also act in December-February).

The alternative draft (#7342-1) gives authority to the
president to appoint temporary commissioners for no more than three months so
that the NERC gains quorum immediately and its work is unfrozen.

In its Dec. 5 press release, DTEK Energy (DTEKUA)
mentioned another possible solution for NERC’s deadlock. Namely, reducing the
NERC’s quorum to three commissioners from four.

Alexander Paraschiy: The
unfreezing of the NERC’s operations is critical for DTEK Energy, Ukraine’s
leading coal and power holding. In particular, it’s important for DTEK that the
regulator set a new forecasted wholesale price for electricity for 2018, which
will allow DTEK’s thermal power plants to enjoy about a 20% higher electricity
price since January, as compared to today’s price. For this to happen, the NERC
should become a valid regulator and will have to adopt a new regulation by Dec.
21.

The difference between the “unfreezing” and “status
quo” draft laws is about USD 100 mln in revenue for DTEK Energy in the first
quarter of 2018. Clearly, DTEK’s ultimate owner Rinat Akhmetov and his allies
in parliament (as well as President Poroshenko, who looks loyal to Akhmetov’s
initiatives in the electricity sector) will do all their best to fulfill the
“unfreezing” scenario. Therefore, we continue to expect that some king of
“unfreezing” will happen in the very near future, either as it’s stipulated by
draft law #7342-1, or any other similar solution. We maintain our bullish view
on DTEKUA Eurobonds.