ZAEN & CEEN EGMs: The NC ECU Optimizes Control

The EGMs at Zakhidenergo (ZAEN: HOLD) on Nov. 21 and at Centrenergo (CEEN: HOLD) on Nov. 22 both voted for changes in the companies’ supervisory boards and audit commissions. In addition, amendments to the charters were adopted, so that the charters of both companies are now almost identical. The new charters give supervisory boards the power to fire and appoint CEOs, and reduces the number of supervisory board members to five (from seven in ZAEN and nine in CEEN). Alexander Paraschiy: CEEN and ZAEN’s board members are all representatives of the National Energy Company (NC ECU), and the representatives from Fuel and Energy Ministry and local administrations formerly present on their boards are gone. By increasing the unity of the companies’ boards and charters, the NC ECU has increased its independence from Fuel and Energy Ministry policy in both GenCos, making it easier for the NC ECU to govern the companies. We expect similar changes will be implemented today for Donbassenergo (DOEN: BUY) at the company’s EGM. Overall the changes are mainly negative for GenCos, as now they are less independent in their policy, which may hurt competition on the wholesale market. Additionally complete control of the board by one share holder is likely to lead to poor corporate governance.