Regulator foresees at least 16% power price hike for DTEK in 2018

Ukraine’s power sector regulator, the NERC, ruled on
Dec. 28 to increase  by 15.6% yoy its forecasted wholesale electricity
price in Ukraine to UAH 1,565/MWh, on average, in 2018. This would be the result
of an increase of power price for nuclear power plants by 15% yoy, for hydro
power plants by 20% yoy and a 16% increase of expected power prie for thermal
power plants (TPPs). Out of 12 TPPs in Ukraine, eight are controlled by DTEK
Energy (DTEKUA), three by Centrenergo (CEEN UK) and one by Donbasenergo (DOEN
UK).

The regulator also hiked coal costs to be covered by
TPP rates in 2018 by 28% yoy to UAH 2,860/t. The increase is based on 26%
growth in the average benchmark coal price (API2 index) and 4% higher USD/UAH
exchange rate. The regulator assumes that in 2018 thermal power plants will
consume 22.8 mmt of domestically mined coal (of which DTEK mines almost 90%)
and 4.2 mmt of imported coal.

Alexander Paraschiy: While the
regulation was approved with a procedural breach (it should have been approved
ten days before the new year), we do not expect any trouble with its
implementation. The regulation is encouraging for DTEK Energy, which is the
major beneficiary of the expected electricity rate hike. But a 16% hike for TPPs
in 2018, as declared by the NERC, is uner-estimated, in our view. The announced
coal price hike suggests that the subsequent increase in TPPs’ electricity
price could reach as much as 24% yoy in 2018.

From DTEK’s point of view, we estimate that the
holding will generate additional revenue of UAH 13 bln next year due to higher
prices of own coal being covered by power plants’ electricity prices. The net
effect of the new regulation on DTEK’s next year EBITDA growth is hard to
estimate right now. So far we see the holding will be able to generate
additional EBITDA of UAH 4 bln in 2018, or about 20% more yoy.