Ukraine officials question new coal pricing approach that benefits DTEK

Ukrainian Prine Minister Volodymyr Groysman ordered a study of the validity of the newly adopted pricing methodology of Ukrainian steam coal, he told journalists on June 21, as cited by Interfax-Ukraine. He added that the pricing of steam coal and electricity is arranged by the Electricity and Utility Regulation Commission, which is beyond the Cabinet’s control. Recall, the commission approved in March and April a new approach to calculate the wholesale electricity price, which includes the coal price calculated based on the API2 Index (CIF Amsterdam-Rotterdam-Antwerp), plus delivery costs from Rotterdam to Ukraine. The new approach, if fully enacted, should increase the price of steam coal from UAH 1,100-1,200 per ton to about UAH 1,500-1,600 per ton.

In other news, Ukraine’s Energy Minister Ihor Nasalyk went further in openly criticizing the new coal pricing formula, as reported by the epravda.com.ua news site. He said that coal pricing “needs a balanced approach.” Nasalyk proposed creating a commodity exchange in Ukraine as one of the ways to establish the market price of coal.

Alexander Paraschiy: The new attention of Cabinet members to this issue adds some risk – but not much – that the new coal pricing approach, which is beneficial for DTEK (DTEKUA), will be revised. The risk is limited not only because this issue is beyond the Cabinet’s scope of power, but also because the ministers don’t have a clear alternative to such an approach. Nasalyk’s idea to create an exchange to determine coal prices looks like an attempt to put off this discussion. Meanwhile, Groysman’s plan to study this issue won’t go beyond rhetoric. Therefore, we expect the new coal pricing method will remain and we confirm our neutral view on DTEK Energy’s Eurobonds.