Kommersant (Ukraina)

 

by Oleg Gavrish

 

Last week the second largest Ukrainian energy company, DTEK, owned by Rinat Akhmetov accomplished its restructuring process. The Chief Executive Officer of DTEK, Maxim Timchenko, told a special correspondent of Kommersant, Oleg Gavrish, what the restructuring was about and how the changed state regulation of the energy market would influence the Company performance.

 

Please, tell us about the latest changes in the corporate structure of DTEK.

 

By improving the principles of DTEK corporate governance structure, we have completed an important stage of our development. We have also established Dutch holding company (DTEK Holdings B.V.), and built a three-level management: the parent company, the corporate center (DTEK LLC) and our operating companies. Besides, we lined up our corporate standards. Now we have a structure in place that is transparent and clear for western business community.

 

What is the role of the Dutch company in the new structure?

 

This is a parent company with the supreme management body being the General Meeting of Shareholders. The Supervisory Board operates at the level of DTEK Holdings B.V. The Dutch jurisdiction, independent directors on board and the new structure itself allow positioning the Company in the international arena and raising external financing on much better terms. Nevertheless, our operating companies pay taxes in Ukraine.

 

Do you intend to obtain loans soon?

 

Everything will depend on the rating of Ukraine. Even three weeks ago, there was a good chance to enter the markets of debt capital, but now the situation has changed. Today they are looking rather at Ukraine than at DTEK. Meanwhile we keep tracking the situation at the external markets and looking forward to a better moment.

 

Who are the members of the Supervisory Board of the Company? Aren’t their functions limited to representative ones only?

 

The Supervisory Board performs the strategic management of DTEK’s business. It is chaired by the CEO of SCM Company, Oleg Popov. We have two independent directors: Bob Sheppard, previously employed by TNK-BP and having 35-year experience of work in oil companies, and Pierre Daures, previously working for Electricite de France. Mr. Daures chairs the Strategy and Investment Committee; he has a good knowledge and feeling of the energy market. Mr. Sheppard chairs the Health, Safety and Environment Committee and it is important that he has the experience of working in Russia and is aware of the peculiarities of business in CIS countries. In addition to the aforesaid there are two more committees – Audit Committee and Nomination and Remuneration Committee. The Supervisory Board also includes the representative of ‘Voropayev and Partners’ law firm, Ms. Irina Mykh, who is responsible for legal risk assessment. Stanislav Shekshnia, Professor of Entrepreneurship at INSEAD, and Natalya Izosimova, who worked in McKinsey & Company as Professional Development Director in Eastern Europe and is one of the best HR specialists, are in charge of HR management issues.

 

What is the role of FTC Trust?

 

This company is a member of the Board of Directors of DTEK Holdings BV and performs the administrative functions of the holding company in our interests.

 

What are the authorities of the corporate center in the new structure?

 

From the very beginning we positioned relations between the corporate center and operating companies based on the principle of strategic holding company: we do not interfere with daily operations, but we do prepare the company’s development strategy, deal with its implementation in terms of new assets acquisition and we are the center of knowledge and methodology. Some functions, e.g. those related to treasury operations and raising financing, are centralized. This is especially important during the economic crisis. The directors of our operating companies make decisions within the limits determined by the Supervisory Board.

 

Do you plan to set up separate companies dealing with prospective business lines?

 

We have already established Wind Power company to deal with development of all our alternative energy projects. We have Power Trade company incorporated for participation in electricity auctions and sales. And after market reforming it will sell electricity at the internal market. DTEK Trading deals with coal sales (including export operations).

 

The Ministry of Fuel and Energy has recently declared that electricity export is unprofitable now, that is why there is no sense in auctions for export transmission capacity. Do you agree?

 

No, of course not, and I’ve already told that to the representatives of the Ministry of Fuel and Energy. Yes, spot prices have fallen down. But they can go up the same way they fell. Speaking about futures contracts it should be noted that prices for 2010-2012 in European countries are higher than the wholesale market price in Ukraine. That is why I can say with full responsibility that export is worth dealing with.

 

According to the Deputy Minister of Fuel and Energy, Oleg Bugayov, the holding company Korlea Invest belonging to Vasiliy Danyliv, is the best partner for Ukrinterenergo for exporting electricity, since it has highly-qualified staff, who no other competitor has.

 

I did not hear about that, but if it is so, another question appears immediately: whose interests does Oleg Bugayov represent? Vasiliy Danyliv’s or those of the Ministry? On the other hand, if there is such confidence in Vasiliy Danyliv’s team, why don’t they come to the market and start competing? Why to procrastinate with the start of auctions?

 

What will you do if auctions do not start in December?

 

We’ll apply to court to enforce the corresponding law.

 

 Now the Ukrainian electricity is re-exported via Belarus to Lithuania. Do you think such a scheme is transparent and profitable?

 

This scheme again was proposed by Ukrinterenergo and Korlea Invest, but it has not been implemented yet. Until the law of Ukraine (stipulating the auctions for the total transmission capacity to be held, adopted by the Verkhovna Rada) is complied with, it makes no sense to talk about export transparency in general.

 

How do you assess the Ministry’s initiative and NERC’s resolution concerning the mandatory stocking of anthracite at TPPs?

 

Of course, we’ve met this requirement, once the Ministry decided so. But let’s see what its purpose was. All coal supplies to the power plants of the state-run Energy Company of Ukraine are performed via the state-owned company ‘Coal of Ukraine’. And the Ministry could have distributed coal by its own decree without interference into the market’s operation. The only purpose why this decision was passed is to make the largest private energy company buy excessive amounts of anthracite. It could have been justified if our plants were failing due to coal shortage. But there have been no failures, so this is not about the uninterrupted operation of TPPs in the autumn-winter period. Unfortunately the ‘hands-on’ approach to the sector control is rather a rule than an exception. I would also like to note that DTEK is always willing to and renders assistance if cooperation is proposed in the form of a constructive dialogue, and not in the form of the pressing administrative measures.

 

Late November the government froze the electricity tariffs until 2013. What will it result in?

 

If we do not raise household tariffs next year we can simply forget about the modernization of the thermal energy sector. The thermal power generation sector in general will not be attractive for investors. When comparing household electricity prices in Ukraine and neighboring CIS countries one can see that the electricity here is cheaper than in Russia, Belarus and Moldova, though in terms of living standards these countries are comparable to Ukraine. That is why the attempts to retain the current prices are rather irresponsibility than care for people. If you ask a consumer what would be better: to pay UAH30 per month for electricity or to pay UAH20 for the same, but to run a risk of blackouts, the majority, most likely, would choose the first option.

 

How much should the tariff increase?

 

More than twice within the next year. This is the minimum, which enables reducing the subsiding component in the tariff from 32% to 16%. And still, this does not ensure a level of TPPs’ profitability enabling them to invest into own upgrading.