16:59 28.08.2020


Open market with equal conditions will be the energy industry

6 min read
Open market with equal conditions will be the energy industry

Oleksandr Korchynsky, acting head of "CENTRENERGO" PJSC


Duties for the state generation, and rights for the private companies?

Nowadays, state-owned energy companies in Ukraine are forced to face a situation when the financial results expected from them are nullified by the restrictions imposed upon them, and the excessive regulation. Delegating these social functions and responsibilities to these companies by the state prevails over economic justifications. For example, in Energoatom these justifications exist in the form of "Specific Duties List" and the minimum price per unit of electricity; in Centerenergo it is an overcharged purchase price for coal from the state mines, and for all state-owned companies, including Ukrhydroenergo, it is a requirement to sell electricity on the market of bilateral contracts only at open auction. At the same time, the private power generation does not have such obligations, which disables the state-owned companies to compete with them in an equal manner.

They accuse us of selling electricity cheaper than its net cost. Let's face it: we sell electricity at its market price, at open auctions. We sell to all buyers who come to us and make their adequate price offers. For example, on August 14th, we sold electricity at an auction in amounts until the end of the year: a total of 11 lots of different volumes to different contractors at different prices. In particular, 2100 MWh of peak loads were presented at auction at a starting price of UAH 2150 / MWh. After a long auction, they were bought in lots of different volumes at a price from 1350 UAH / MWh, 1272 UAH / MWh to 1220 UAH / MWh.

To compare, at the auction on August 20th, Ukrhydroenergo started with UAH 1600 / MWh, selling a total of 300 MWh of peak loads at a weighted average price of UAH 1239 / MWh.

Note that the weighted average price of peak loads sold by Centerenergo PJSC was UAH 1222 / MWh, which is only UAH 17 cheaper per 1 MWh (or 1.7 kopecks per 1 kWh), while the volume of electricity sold by us is 7 times higher. On August 26th, Energoatom sold 600 MWh of base load for UAH 1120.

At the same time, we cannot know at what prices private companies sell.

We have repeatedly drawn the attention of the National Energy and Utilities Regulatory Commission to establishing a level playing field in the electricity market, and have already provided the Parliament, Verkhovna Rada with a proposal to revise the legislative norm that would oblige all companies, regardless of ownership, to enter into bilateral agreements.

State-owned mines – government guarantees

The main reason we put such large amounts of electricity up for auction on August 14th, is the state-owned mines and our obligations to them. Thanks to the payment guarantees received from customers, we settled payments with the miners, having paid them over UAH 600 million in August.

At the same time, today's price for coal from state-owned mines had completely nothing to do with the market realities. UAH 1950 per ton is an unsuccessful compromise that does not solve any problems, but only creates new ones.

First of all, such price certainly does not cover the cost of coal, because in many mines it is many times higher, and sometimes ten times higher. The difference is covered by subsidies from the budget, and this is a considerable burden for the state.

On the other hand, such a price is much higher than the market one, and higher than the economically justified one, it creates an illiquid unit cost of electricity. Because of a significant gap between cost and market price, new losses keep accumulating. And this process will not be endless. Without a systemic solution to the problem, Centerenergo will die and drag down the entire coal industry with it, because today we are the only buyer of coal from Ukrainian state-owned mines.

We are now suggesting the Government to make more commitments to the miners, to reduce the price of coal by increasing the amount of subsidies. Yes, this is an additional burden on the budget. But this is nothing compared to the burden that will fall on the state's shoulders in the case of a shutdown of Centerenergo and the entire coal industry. Not to mention the cities that will be left without heating from thermal power plants. This is what we highlighted in our address to the Prime Minister.

Keeping our heads high

Meanwhile, Centerenergo's anti-crisis management is taking its own definitive steps to bring the company to an investment-attractive level.

In particular, we are actively working on the problem of non-core assets. This is a sensitive area, which is also related to an entire set of social obligations. After all, people also work at the many non-core facilities inherited by the company since Soviet times. However, today the hotels, canteens, sports centers ans such result in UAH 10 million of loss per month. So we analyze the situation in detail for each of them, together with the heads of TPPs, we look for opportunities to reduce costs, transfer facilities to the balance sheets of local councils, or close them entirely. And we offer people who work there the opportunity for retraining and employment at our specialized facilities.

Another important area is public procurement. We have changed the essential conditions of tenders to prevent one-player rules.

We also take very seriously complaints from bidders who believe their rights have been violated. For that purpose, the official website has the contacts of the anti-corruption commissioner and the address of the appeal box. By the way, there are already real results of such work. In particular, just the other day, due to a letter from the "trust box", the purchase of personal respiratory protection equipment with an expected value of UAH 1 234 050 was canceled. New bids will be announced according to the procedure after the preconditions for abuse are eliminated from the technical documentation. And we constantly invite potential partners to join us, submit their proposals and win in an open fair competition.

In addition, trying to reduce costs, we are constantly looking for the best value for money. Currently, in addition to the purchase of coal from state-owned mines at a price of UAH 1950 per ton and a contract with D.Trading at a price of UAH 1660 per ton, we also have an active contract at a price of UAH 1480 per ton. They have already received the first batch of high-quality Ukrainian coal at the Vuhlehirska TPP.