The National Electricity Regulatory Commission (NERC) has issued a license to generate electricity to Skhidenerho Ltd. Founded by two natural persons, this firm acquired control over the Starobesheva, Kurakhivka, and Luhansk thermal power plants in a transaction that eventually touched off a scandal in Ukraine. In conformity with a typical shadow economy scenario, last year these plants were taken prior to privatization out of Donbasenerho, Ukraine’s largest state-run electricity generating enterprises, and put up for auction to pay off the debt of a mere UAH 200 million to the little known Tekhrempostach Co. In an attempt to protest the sale, State Property Fund of Ukraine Deputy Head Yury Hryshan declared that the market value of power plants is UAH 1 billion. Still, courts in Donetsk ruled that the sale was legitimate, while the Supreme Arbitration Court refused to consider the case at all. An audit of Donbasenerho assets begun by the State Property Fund in a bid to prove that the auction price was deliberately understated yielded no result. Strangely, the authorized assets evaluator, the National Network of Auction Centers, failed to complete its work on time because Donbasenerho did not take stock. To sell the state-run thermal power plants into private hands at below the market price no one needed the inventory.
Late last year, Tekhrempostach tried to obtain a license to generate electricity, but the NERC rejected its application. Moreover, in an official statement NERC called the sale of a part on Donbasenerho assets dubious. As the result, Tekhrempostach was forced to lease its three such plants to the same Donbasenerho. Quite interestingly, the cost of this contract was not disclosed despite the fact that one of the parties was a state-run company. However, private owners of these power plants were quick to realize that it would be more profitable to sell electricity not via the state enterprise. It was at this point that Skhidenerho came into the picture. Registered only four months ago, the new energy company took special pains to prepare all the documents needed to obtain a license, and these were duly appreciated by NERC. Its name (Eastern Energy – Ed.) is definitely more in line with the nature of its business than Tekhrempostach’s (Technical Repair Supplies – Ed.) but their proximity is quite transparent.
Skhidenerho is headed by Ihor Hlushchenko, former executive director of Tekhrempostach. Prior to obtaining the license he told journalists that the official startup of Skhidenerho will take place on April 1. Judging by this, Skhidenerho means business and on April Fool’s Day the three thermal power plants will be finally alienated from state-run Donbasenerho. Currently, Skhidenerho is negotiating a loan to buy fuel and offering jobs to Donbasenerho experts. With 7000 jobs on offer, Skhidenerho is viewed as a lucrative employer by many. Skhidenerho’s staff believe that private owners will manage the power plants more effectively than the state. Ihor Hlushchenko has already announced plans to cut electricity production costs by 20%, while promising that the staff will not be downsized. Interestingly, no one is making a secret of the terms of the agreement between Tekhrempostach and Skhidenerho, with Skhidenerho owners to pay UAH 2.7 million monthly to use the three power plants.
Meanwhile, the Prosecutor General’s Office continues its investigation of the dubious privatization of Donbasenerho, with Prosecutor General Mykhailo Potebenko pledging to wind it up before the election. This is quite a strange deadline but not very distant. So far, it is unclear on what grounds the prosecution can render the sale illegal since the stock taking of Donbasenerho has been stalled. In the Donbas region the new owners of the three electrical plants have complete support from the local governments. The fact that Kyiv has not stepped into the conflict is evidence that they also have the support of Ukraine’s heavyweights, making it difficult for the prosecutors to cash in on such a favorable situation as the general elections provide.
Meanwhile, Donbasenerho has said goodbye to its three power plants but remains face to face with its old debts, with the two remaining power plants also likely to come under the hammer for debts. Paradoxically, the state must take most of the blame for the loss of its property and for putting its privatization program in a bad light. Donbasenerho ran into debt because the state-run Enerhoatom failed to pay it for electricity supplies. To date, Enerhoatom owes Donbasenerho over UAH 1.5 billion.
Caught unawares by the blitz sale of the Starobesheva Thermal Power Plant, the European Bank for Reconstruction and Development might now think twice before going on with its program to modernize it, now that the bank does not know who will repay the loan. With the government looking the other way, the impending threat of a scandal concerning the loan and the current developments in the Donetsk saga will have a negative effect on experts reporting on the risks for potential investors in Ukraine. The privatization of oblenerhos is slated for this summer. It remains to be seen whether the Prosecutor General’s Office will be able to untie this knot and thus save the reputation of Ukrainian privatization.
