SPF announces Oblenergo privatization conditions

The State Property Fund printed in its official publication yesterday the privatization agreement that should be signed by every buyer of a controlling stake in an Oblenergo. According to the agreement, the investor will be obliged to pay off the Oblenergo’s overdue debts, government-guaranteed debts and decrease its payables in amounts set specifically for each Oblenergo. Moreover, they will have to adhere to an SPF-determined schedule for improving electricity transmission losses over the next five years. The agreement also requires a minimum 30% reinvestment of profits and at least 15% financing of Oblenergo’s investments from their own sources for five years. Yegor Samusenko: In our view, the terms of this agreement supports the idea that the state will only privatize several Oblenergos this year, to local investors. Additional privatization conditions in this agreement are rather vague in general – there is enough empty space to create favorable terms for the privatization of one particular Oblenergo or unrealistic terms for another. Though this agreement does not lay out any qualifications for potential bidders (as was done in 2000), we believe it will discourage foreign investors from participating due to their lack of knowledge of local regulatory bodies, which will be necessary for compliance with the agreement. For minority investors, the prohibition on the share dilutions in the agreement is an extremely positive sign. We recommend watching Cherkasyoblenergo (CHON), Dniprooblenergo (DNON), Donetskoblenergo (DOON), Kharkivoblenergo (HAON), Vinnytsyaoblenergo (VIEN) and Volynoblenergo (VOEN) as the most likely candidates to be privatized this year.