Ukrzalizanytsia warns of risk of stoppage of biggest Donbas enterprises

Обзоры по компаниям и отраслям 04.08.2014 The largest enterprises located in the Donetsk and Luhansk regions have lost their railway connection with the rest of the country due to the war, said on August 1 Mykola Topchiyev, a representative of the nation’s railway monopoly Ukrzaliznytsia (RAILUA). Among those affected are Metinvest’s (METINV) assets Azovstal (AZST UK), Yekakiyeve Steel (ENMZ UK) and Avdiyivka Coke (AVDK UK), he said. He also mentioned Alchevsk Steel (ALMK UK) and Donetsk Steel Plant (DOMZ UK), as well as chemical giants Stirol (STIR UK) and Severodonetskiy Azot. Donetska Railway (servicing Donbas) decreased its freight turnover 13% yoy in May-July 2014, Topchiyev reported. About 45% of freight railway traffic in Ukraine begins or terminates in the Donetsk and Luhansk regions (collectively known as Donbas), and 28% of export traffic comes from these regions, he said. Alexander Paraschiy: Topchiyev’s statement looks more like a vision on what can happen in Donbas if the fighting continues rather than a present-day assessment. Indeed, some locations in Donbas have lost railway connections and some routes have become much longer due to the need for bypassing damaged railway sections. It takes much more time and costs much more to transport goods to and from Donbas, eventually leading to a possible stoppage of many enterprises. Thus far, we see the most risky locations are those where Alchevk Steel, Stirol, Donetsk Steel, Khartsyzk Pipe (HRTR UK) and Yekakiyeve Steel are based. A lack of a reliable connection to the eastern part of the Luhansk region, where Metinvest’s key coking coal producer Krasnodonvyhillia is located, puts at risk all the steel factories of Metinvest, including Azovstal and Ilyich Steel (MMKI UK), which are located in cities freed from terrorists. The instability in Donbas may also influence the stability of operations of thermal power plants located outside the region, including two out of three power plants – Centrenergo (CEEN UK) and Dniproenergo (DNEN UK) – that depend heavily on coal that is mined in the most war-afflicted regions of Donbas.