DTEK reports increased output for all products in 2013

Макроэкономика 27.03.2014 Integrated energy and utility holding DTEK (DTEKUA) reported yoy improvement in all its outputs in 2013, according to the company’s March 26 release. That contrasted with declines in coal and power production for Ukraine as a whole. DTEK’s coal production increased 4.3% yoy to 41.4 mmt (vs. 2.6% yoy decline for Ukraine), which the holding attributed to its non-organic nature (as it started consolidating some of its mining assets in mid-2012 only). The same non-organic nature was responsible for 10.8% yoy growth in electricity purchases by DTEK’s distribution companies (vs. an electricity consumption decline of 2.5% yoy for Ukraine). The holding’s power production increased 3.1% yoy to 53.0 TWh, despite a 2.3% yoy decline in Ukraine’s total output. DTEK’s growth was mainly a result of higher demand for electricity from thermal power plants (TPP) (as supplies from a nuclear producer fell 7.7% yoy) and idling of Centrenergo’s Uglegorsk TPP, which caught fire in 1Q13. DTEK’s power export increased 1.2% yoy to 9.8 TWh in 2013, responsible for the nation’s export growth since DTEK remained the only exporter of electricity. The holding’s coal export increased 73% yoy to 4.7 mmt, which it attributed to active development of its customer base in traditional and new markets. DTEK also reported natural gas imports of 0.63 bcm in 2013 (compared to no imports in 2012). Alexander Paraschiy: The only result that’s worthy of attention is DTEK’s increased coal exports, which demonstrates the holding’s efforts to market its coal and promise for increased coal supplies for export in the future. All its other indicators will most likely decrease in 2014, as industrial production, and therefore demand for electricity, is falling in Ukraine. At the same time, we expect the company will be able to preserve its 2014 profit, mainly due to expected stability in power prices in Ukraine, some savings related to a possible increase in imports of cheaper natural gas, in-house gas production (by a company that was recently acquired), and boosted coal exports. The core 2014 risks for DTEK lay in the political arena. First, there could be some questions regarding its ownership rights for DisCo Krymenergo, the monopoly supplier of electricity in Crimea. The Russian government may insist that the Crimean energy system should work according to Russian rules, and Ukraine may insist on the opposite, which will put the company’s owner between a rock and hard place. Secondly, there could be some tensions between Ukraine’s new government and DTEK’s owner, Rinat Akhmetov, who was the key backer of ousted President Viktor Yanukovych, and whose close allies in parliament have yet to support the new majority. Additionally, Akhmetov has yet to renounce calls for federalization in his native Donetsk Oblast.