Energy Ministry initiates law on temporary administration on electricity companies

3 December 2021

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.

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