SBU warns of threats posed by July power market launch

30 May 2019

The Security Service of Ukraine (SBU) directed a letter to Parliamentary Speaker Andriy Parubiy listing the threats to national security posed by the planned launch of a new electricity market in July, the epravda.com.ua news site reported on May 29. The letter was signed by Ivan Bakanov, the acting SBU head, who was appointed last week to the position of first deputy SBU head by his close friend, President Volodymyr Zelenskiy.

 

In the letter, the SBU warned the sector is not ready for the launch of the new market, as many regulatory issues haven’t been addressed and some of the hardware and software infrastructure is not ready for securing the market's stable operation under the new rules. For these reasons, the SBU sees a high risk of crisis in the electricity sector and a threat of “significant damage to the interests of the state and society”. The SBU head asked Parubiy to account for such threats when the parliament will consider amendments to the law on electricity market. Prime Minister Volodymyr Groysman was also informed of the letter, the Interfax-Ukraine news agency reported.

 

Recall, the new market should start functioning in July 2019, according to the current law. Under its conditions, power producers will be allowed to sell their electricity by bilateral contracts with consumers, based on the day-ahead market, an intraday market and a balancing market. This new market model should replace the existing one, in which power producers are selling their electricity to a single buyer based on predetermined prices. During the last week, representatives of the EU and EBRD called for postponement of the launch of the new market and designing a detailed plan for the recovery of existing inefficiencies.

 

To make the postponement effective, the Ukrainian parliament has to amend the law by changing the date of the new market's launch. On May 28, the parliamentary committee on fuel and energy failed to gather and approve draft amendments to the law, which is necessary before parliament can vote. Among the options under consideration were a three- and six-month postponement.

 

Alexander Paraschiy: As we expected, Rinat Akhmetov, whose DTEK Energy (DTEKUA) is a key beneficiary of the new market’s launch, will do all his best to lobby against postponement of the new market. The parliamentary committee's failure seems to be a consequence of Akhmetov's lobbying. However, given the intensified pressure against a timely launch of the new market, it is still likely that parliament will vote to postpone it, even if the energy committee won’t pass a draft bill.

 

As we highlighted before, the new market's launch would benefit DTEK Energy, whose power plants’ average achieved price for electricity won’t be regulated any more and will likely increase considerably. The delay of the new market would mean not only a postponement of DTEK's electricity price upgrade, but also create the risk that prices will fall for DTEK, provided the new power brokers are able to cancel the Rotterdam Plus approach in calculating such a price.

 

Our base-case scenario is that the launch of the new market will be postponed – as parliament will have two session weeks in June to approve the amendments – but the Rotterdam Plus approach will be preserved. Under a negative scenario, the Rotterdam Plus approach could be replaced with some new method that will decrease DTEK Energy’s power prices until the new market's launch (in 3-18 months). At the same time, we see that even the worst case scenario won’t undermine DTEK Energy’s ability to generate enough cash flow for the smooth servicing of all its debt obligations. That said, we remain bullish on DTEKUA Eurobonds.

Upcoming Events

Oct 5
Kernel:
FY2020 annual report
Oct 6
Ferrexpo:
3Q20 trading update
Oct 9
Economy:
Inflation data for September
All Events →