10:00 27.04.2021

Author YURII VLASENKO

Centrenergo’s path: profit maximization, cost minimization

4 min read
Centrenergo’s path: profit maximization, cost minimization

Yurii Vlasenko, Acting Director-General, PJSC Centrenergo

 

Taking a leaf from American presidents’ book, it has become a common thing for the business environment to give some feedback to the public after being a hundred days in a new position. However, the situation across the Ukrainian energy market is changing every couple of minutes. Keeping this in mind, it is not unreasonable to give a short report of the current situation in a state company and do it more often than the leaders of the White House.

 

Before we go any further, I would like to mention a positive development in electricity sales. Centrenergo has started participating actively in the market of bilateral contracts at the auctions of CE Ukrainian Energy Exchange, changing the past habit of selling all the electricity volume to one customer at a low price.

 

From now on, we sell small lots but stick with our sales strategy and price policy to keep the price above the bar set and no lower than the market price.

 

This allowed to attract way more companies, sometimes dozens, to participate in the auctions. This kind of competition contributes to rising prices, which, of course, results in Centrenergo’s higher profit.

 

For instance, Centrenergo sold 420 base load lots with a total volume of 991.200 MWh at the UEEX. The resource is expected to be supplied in different periods but mainly in summer. Weighted average prices range from UAH 1273 to UAH 1385 per MWh. Still, they have one thing in common – they are much higher than the prices for the same period last year. The difference runs from 19,4% to 34%, while inpayments from concluded transactions are to reach UAH 1,1 billion.

 

The issue of debts repayment, both accounts payable and accounts receivable, is essential for the company. SE Energorynok has a debt of almost one and a half billion, NPC Ukrenergo also owes money to Centrenergo, and the latter owes more than UAH 900 million to Gas Supply Company Naftogaz Trading. All the abovementioned raises serious concerns over the company’s investment attractiveness.

 

Currently, together with Naftogaz Trading, we are considering an option of gas debt restructuring. That gas was used in winter to support the Ukrainian power system. We kindly hope for a positive decision on this issue, since it was not our initiative to convert power units of thermal power plants to gas, but the government’s in order to protect the power system.

 

Another sensitive issue for the company is coal. The current purchase price of coal, UAH 1650 per ton, does not allow PJSC Centrenergo to receive profit, which is crucial during its preparation for the privatization process.

 

One of the ways to deal with the problem is to establish a vertically integrated company through the merger of PJSC Centrenergo with several potentially prospective state coal mines.

 

As of March 31, a joint commission, including the members of PJSC Centrenergo, has finished its remote desk audit and the physical inspection of coal mines to estimate their potential. As a result, several mines were considered potentially attractive to establish a vertically integrated company, but only in case of proper investment. The experts of the joint commission are currently evaluating the investment volume.

 

Marginal assets are also excessive for the company. Centrenergo is working on transferring such assets to the local authorities or, in some cases, on their sale.

 

Besides, we also plan some changes in the structure of the company. We decided to reconsider our staffing tables, reform the management, and cut expenditures. Our company is going through a difficult period, so we have to be both cost-effective and efficient.

 

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