Ukraine PM bans payments for power from separatist-controlled territory

Ukrainian Prime Minister Arseniy Yatsenyuk ordered the state wholesale electricity market operator on Feb. 18 to cease all payments for electricity to producers that are located on the occupied territory of Donbas, the Interfax-Ukraine news agency reported. Yatsenyuk demanded that power regulators design a clear mechanism that would enable Ukraine to pay only for electricity (produced on the occupied territory) that is consumed on the territory controlled by the government, as opposed to the territory controlled by the separatists.

Earlier this month, the power sector regulator adopted a resolution that ceased any payments by the state wholesale market operator for electricity produced by power units on the occupied territories. Power producers appealed this resolution and an administrative court ruled in their favor on Feb. 13.

Alexander Paraschiy: The key problem in implementing the prime minister’s order is that all the electricity being produced by Ukraine’s top power plants is sold to a single buyer, which is the wholesale market operator. Distinguishing the electricity that comes from the occupied territory is beyond the responsibility and capability of the wholesale market operator. For this reason, and because such plans demand radical reshaping of the wholesale power market system in Ukraine, we estimate the implementation of Yatsenyuk’s order will take a lot of time.

Meanwhile, power producers located in the occupied territory or nearby may suffer from a cash deficit, even though some of them are supplying a lot of power to Ukraine. Their stoppage could lead to a power deficit in the entire Ukrainian system. Yatsenyuk’s order, as it was phrased, also failed to address who will pay for electricity produced on government-controlled territory and supplied to the occupied locations.

The biggest power producers located on the occupied territory are Donbasenergo’s (DOEN UK) Starobesheve thermal power plant (TPP) and DTEK’s (DTEKUA) Zuyivska TPP. While the loss of payments from the wholesale market to DTEK’s occupied asset is minimal (Zuyivska generates just 9% of the holding’s total electricity and less than 5% of DTEK’s total revenue), the stoppage of payments is a real disaster for Donbasenergo as its Starobesheve TPP currently generates about 95% of the company’s total power and revenue.

With Ukraine’s recent surrender of the railroad hub of Debaltseve, there is a big risk that two other power generation units (both located 20 km from Debaltseve) will soon fall under territory occupied by terrorists. The assets under real risk are Centrenergo’s (CEEN UK) Vuhlehirsk TPP and DTEK’s Myronivska combined heat & power plant (CHPP). While Myronivska CHPP is a really small producer (1% of DTEK power generation), Vuhlehirsk TPP is an important asset for Centrenergo as it generates a third of its power (and revenue) currently.