Energy Ministry initiates law on temporary administration on electricity companies

The Energy Ministry posted on its website on Dec. 1 a
draft law allowing the introduction of temporary administrations at electricity
companies in case the activity of such companies threatens the security of the
electricity supply in Ukraine. Potential threats to the electricity supply,
according to a separate Ministry resolution, include, among others, the
disconnection or damage of electricity networks, low fuel stockpiles at power
plants (below the normative level) and the decrease of the aggregate supply of
generating capacities below a safe level.

The daft bill stipulates that in case the activity of
an electricity producer, distributor or supplier threatens the stability of the
energy system, the ministry and the Cabinet might introduce temporary
administration at such electricity company. The temporary administration is
introduced for no more than six months, but its tenure can be extended in order
to fully remove identified threats. During the temporary administration, all
governing bodies of such companies lose their power. Temporary administration
will be performed by a company controlled by the state.

Alexander Paraschiy: This legal
initiative, beyond doubt, is aimed at intimidating the biggest private
electricity holding DTEK Energy (DTEKUA), which controls 8 of 12 coal-fired
thermal power plants in Ukraine. Besides DTEK, Donbasenergo (DOEN UK, owning
one power plant), Kyivteploenergo (owning two heat and power plants), other
large power producers are controlled by the state. As of Dec. 1, 13 of 14
thermal power plants in Ukraine (including 7 owned by DTEK, 1 owned by
Donbasenergo and 3 owned by state-controlled Centrenergo) have coal stockpiles
below the normative level, meaning if such law worked now, they might fall
under a temporary administration.

Even though this legal initiative falls under the
recent trend, namely the increase of pressure on Akhmetov-related assets, we
see the likelihood of its approval as low. Primarily, this is because the law
is discriminating against private companies (e.g. if a state company fails to
prove market security, nothing will change in it). Moreover, a theoretical
introduction of state administration over a private company is unlikely to
improve its activity (state companies and state managers are much less
efficient in the sector). Still, there is some chance for its approval – in
which case it will force DTEK and Donbasenergo to significantly increase its
coal stockpiles in order to avoid the risk of state administration.