The first week of privatization of big energy industry went under the influence of Rinat Akhmetov who bought stocks in enterprises that were anyway under his control. The most probable candidates to receive the controlling stakes in other regional power plants – are the President’s friends.
Ukraine turned back to privatization. After the fiasco with selling Odessa Port Plant and failure to announce large scale sale of state property authorities received a great chance to rehabilitate – to conduct transparent tenders for sale of the so-called big energy industry.
Last week the State Property Fund sold minority – 25 percent – stakes in companies “Donetskoblenergo”, “Zapadenergo” and “Kyivenergo”. Privatization of at least other two packages – “Dneproblenergo” and “Dneprenergo” – is planned on this week.
In both rounds the success of tenders will be ensured by one and the same stakeholder – energy group DTEK of Rinat Akhmetov. The businessman has received control over these companies long before these tenders and therefore was considered as almost the only candidate to purchase stock of the abovementioned enterprises.
According to the information received from market participants EP talked to, owner of DTEK managed to avoid competition because of the position of President’s friends and the government – the latter refused to support the idea of the State Property Fund not to sell energy enterprises before the so-called stimulating system – RAB tariffs – is introduced on the market.
The new RAB-regulatory system allows energy companies to increase profitability and modernize production facilities by charging higher tariffs on transfer of electric power which in its turn has to stimulate potential investors to take part in tenders.
At the moment, the issue of introduction of RAB-tariffs is on hold. The justification of the new method that has recently been approved by the National Regulatory Commission on Energy and Utilities caused a flurry of criticism. Thus, the Prime-Minister Volodymir Groysman made a public statement that he does not support such a decision of the Commission having called it “unfair and biased”.
Such a problem can also become a case with more significant energy facilities that are yet under control of the state but are also being put on sale. In particular, these are “Mykolayiv-” (70% of shares), “Kharkiv-” (65%), “Khmelnitsk-” (70%), “Cherkassy-” (71%), “Ternopil-” (51%) and “Zaporozhoblenergo” (60%). According to the information of EP, these assets are of interest to the team of People’s Deputy from “Block of Petro Poroshenko” Ihor Kononenko who is close to the President.
The illusion of competition for these assets to President’s friends can be created by DTEK that has formally already confirmed its interest to these enterprises. Thus, energy group of Akhmetov addressed the State Property Fund to receive the information about the most of the indicated enterprises and concluded a Non-Disclosure Agreement with the State Property Fund.
However, these lots are of interest to not only Ukrainian oligarchs. More than a dozen foreign companies addressed the Fund confirming their readiness to take part in the tender. But can they really compete with the team of Akhmetov-Poroshenko.
How first privatization tenders for big energy industry were conducted, and what awaits investors in future tenders, reads the article of EP.
Akhmetov’s buy up
“The Fund invites all interested parties to take part in a transparent privatization of energy companies”, – informed the State Property Fund on 24 July on its website and published a list of lots: 25 percent equity stake in eight companies.
They have long been under control of big financial and industry groups for which purchase of these lots was not changing anything. That is why all market participants interviewed by EP forecasted that there would be no interest to the stock exchange auctions of the fund. “Starting from 2015 nobody was showing interest in 25 percent equity stakes”, – a source in the State Property Fund confirmed this information to EP.
At first events were rolling out as forecasted: on 15 August 25 percent equity share of “Odessaoblenergo” was not sold, and on the very same day because of the lack of bids cancelled were the tenders for “Donbassenergo” and “Sumyoblenergo” scheduled on 16 August.
But that was the point when forecasts stopped matching the reality: on the last working days of last week 25% equity shares of “Donetskoblenergo”, “Zapadenergo” and “Kyivenergo” were sold on stock exchanges “Innex” and PFTS.
They were bought by a company with foreign registration Ornex Limited that belongs to Rinat Akhmetov for 143,8, 417,1 and 759,6 million UAH accordingly.
These three energy companies have already been under Akhmetov’s control for a long time. Actually, other unsold companies are in the same situation: “Odessaoblenergo“ is managed for a long time by a Russian group “Luzhniki“ owned by Mykhail Voevodyn, “Donbassenergo“ – by the team of Alexander Yanukovych, and “Sumyoblenergo“ – by managers of Konstantyn Grygoryshyn.
Such similarity raises a logical question: why Akhmetov buys and others don’t? There is no simple answer to this – everyone has his own individual situation.
For example, “Donbassenergo“ has not been sold now, and most probably, will not be sold during the scheduled for August 23rd re-bidding because of the inflated price. State equity stake in this company was evaluated by specialists of the State Property Fund together with its two stations (Slaviansk and Starobeshevsk Thermoelectric Power Stations) when de-facto the company does not control the second one since Spring when it was seized by pro-Russian separatists.
“Sumyoblenergo“ has its own story: according to the information of EP, its majority owner Mr. Grygorishyn does not have free funds now.
For Rinat Akhmetov this is not that big of a problem. First of all, he is the beneficiary of the well-known coal formula “Rotterdam+“ that is now being investigated by the National Anti-Corruption Bureau of Ukraine. Secondly, certain energy companies which shares were in end bought by DTEK were very undervalued.
The best example is “Zapadenergo“ generating station. Evaluated price of 25% of its charter capital was two times less than the one of the stake in a similar company – “Dneprenergo“.
Representative of one of the valuating companies believes that the reason is in the new valuation method used by the State Property Fund to establish the value of energy companies.
Under former authorities evaluation of an asset to be put for privatization was conducted using the formula: equity capital of a company was multiplied by the size of the stake. Under the current government rules became more complicated. In 2016 the “Order of Defining Estimated Value of Equity Stake” was radically rewritten turning from a three-page document into a document with two dozen pages. The new method consists of two stages.
- Evaluation is carried out in three steps: “net assets evaluation” (assets minus liabilities), “profit evaluation” (net profit is summed up with depreciation and divided by the capitalization rate), “comparative evaluation” (takes into account the price of former sales of shares in the privatization object).
- Numbers received as a result of these three calculations (after multiplying by the coefficients in the form of the ratio of each calculation) are summed up which in the end gives the starting value of state equity stake.
“The new method has items, manipulations with which can change the price. For example, if an enterprise finished a year with net loss, then when calculating the value of its shares the “profit evaluation” is not taken into consideration. This leads to decrease in estimated value of an enterprise“ – one of the evaluators on the market explained to EP.
According to him, net financial result is a number which can be “drawn“. It depends only on the qualification of a chief accountant.
Thus, estimated price of 25% of shares of “Zapadenergo“, that produced 13,3 billion kWh in 2016 making 16,1 billion UAH of revenue, having represented along with this 300 million UAH of net loss, amounted to 347 million UAH. Among other things, this is the only company that can export Ukrainian electric power to Europe.
For comparison: estimated by specialists of the State Property Fund price of 25% of “Dneprenergo“, that in 2016 generated 11,7 billion kWh for 14,1 billion UAH and finished the year with 2,2 billion UAH of net profit, amounted to 728 million UAH.
And even though portfolio investors decided to compete with Akhmetov for 25% of “Zapadenergo“, in the end this did not change the situation. The main competitor of Ornex Limited in this tender was the investment company “Concorde Capital“ owned by Ihor Mazepa, which increased the price of the starting package by 69 million UAH – up to 417,1 million UAH.
Another example is “Kyivenergo“, which 25% of equity stake was sold to Akhmetov for 760 million UAH.
“Judging from the price one shall assume that the whole company, including Kyiv Thermoelectric Power Station and the rented thermoelectric networks, costs not more than 3,2 billion UAH. At the same time, within the framework of the RAB-regulation, Kyivenergo was valued at UAH 9.5 billion. It is a threefold difference“, – underlines the former member of the National Regulatory Commission of Ukraine on Energy and Utilities Andriy Gerus.
Another question is why Akhmetov is so actively buying out minority shares in companies that is anyway under his control. Judging from opinions of participants of the market interviewed by EP, there can be several reasons for that.
First of all, because this is a unique possibility to balance liabilities and assets of DTEK. This will become possible because costs for privatization of energy companies will in fact be covered by SCM which owns Ornex Limited, but it’s DTEK that will be managing the bought shares.
Secondly, energy market is undergoing radical reforms. One of the most interesting of them is the introduction of RAB-tariff – a system of tariff formation, which implies guaranteed income generation by the investor with invested funds.
One of the participants of the market also assumes that Akhmetov acquired the corresponding shares in three power companies in the interests of the President.
404 not found
It was only a few months ago that sales of state equity packages in energy companies before introduction of RAB-regulation seemed impossible. “Under Bilous (ex-head of the State Property Fund – EP) 25% packages were not being put on sale because of the awaited RAB“, – a source in the State Property Fund explained to EP.
“There is such a “Working group on Preparation of Proposals to the Draft Decisions of the Cabinet of Ministers on Privatization“. In 2016, it recommended not to sale big equity packages of regional power plants before RAB-tariffs are introduced, because foreign investors can be now attracted only by them“, – he explained.
According to him, the Cabinet of Ministers agreed with this proposal, creating a direct dependency: first Ukraine has to introduce RAB-tariffs and only after that – privatize controlling stakes in energy companies. But this did not happen.
“In March, a month before his resignation from the office of the Head of the State Property Fund, Bilous had a meeting with Poroshenko after which Administration decided to “stop” RAB introduction”, – a source of EP says.
An interviewee from one of the energy groups, owning regional power stations, supposes that tenders on sale of majority stakes in “Mykolaiv-”, “Kharkiv-”, “Cherkassy-”, “Khmelnitsk-”, “Zaporizhzhya-” and “Ternpoloblenergo” can also be conducted before introduction of RAB-regulation.
“Grounds for such a position come from plans of “supporters” of Petro Poroshenko Block to get energy companies in which state has controlling equity stakes”, – a person interviewed by EP assumed.
As EP found out, several months ago state distributors were transferred under unofficial control of Poroshenko’s friends.
“In Spring CEOs of regional power plants were summoned by Vladymir Derzhavyn (deputy head of the State Property Fund who was an assistant to Ihor Kononenko in Ukrainian Parliament, – EP) who told them that they would be integrated into a new group. Meetings have already been held with “Kharkiv”, “Cherkassy”, “Mykolaiv” and “Khmelnitsk”, – an interviewee says.
According to him, people of Kononenko create an unofficial “central office” that will unofficially be controlling assets and prepare them for privatization.
To buy controlling stakes in regional power plants from the state without competition is a particularly hard task for Poroshenko’s friends. According to EP, under the management of the former head of the State Property Fund Ihor Bilous the fund signed non-disclosures agreements with 15 investors on getting information about regional power plants and their participation in tenders.
One can make sure that it’s real market players that showed interest in the energy sector by going through part of the list that EP has.
According to the source in the State Property Fund, most of these companies are still interested in participation in tenders on sale of state regional power plants.
Meaning, Ukraine has now, for the first time in its history, all chances to conduct a real international privatization of energy sector. And the second wave of privatization of majority stakes in six regional energy plants can become such an example. If there won’t be another “stop” command from Presidential Administration.
by Dmytro Ryasniy, Ekonomichna Pravda