SPF put up for sale 10% of Centrenergo

The last state-owned power company is up for sale in the most critical times for the domestic energy sector

Photo: PHL

The State Property Fund (SPF) has decided to start privatization of the last state-owned thermal power generating company in Ukraine. The timing for the sale is quite poor, but experts believe that there is a high demand for the company’s shares.

Exchange incentive

Yesterday, the SPF stated that 10% of Centrenergo would be put up for tender on the Ukrainian Interbank Currency Exchange on December 24. The starting price is UAH 257.6 mn. Overall the state owns 78.3% of the company, but the main stake of 68.3% will be sold next year.

Centrenergo consists of three thermal power plants - Zmiyiv, Trypillya and Vuhlehirska, but the latter is located on the territory of the self-proclaimed DPR. The total installed power capacity of the stations is 7,660 MW, which is approximately 14% of the total capacity of all power plants in Ukraine. The company is ranked second in the domestic thermal power generating sector. The company’s TPPs have 23 power generating units with a capacity from 175 to 800 MW, of which 18 operate on coal and the rest are designed for the use of gas-oil fuel. Centrenergo accounts for almost 8% of the total amount of electricity generated in Ukraine.

Centrenergo’s TPPs, as well as TPPs of other companies, were built during the Soviet era. “Centrenergo’s TPPs put into operation in the period 1960–1980 have exhausted the economic life envisaged by power generating plants and came close to the limit of use. For this very reason, the need for repair of their equipment increases dramatically,” writes the company’s website.

Waiting for buyers

In addition to the 10% stake of Centrenergo, at the end of the year the State Property Fund will put up for sale 25% stakes of two other companies – DTEK Dniproenergo and Donbasenergo. Experts believe that the sale of Centrenergo will attract the most interest of all proposed lots. “Both DTEK Dniproenergo and Donbasenergo have majority shareholders, so there will be no surprises during the sale of their shares. Therefore, the tender for Centrenergo will be the busiest, even though only a small stake is up for sale,” says Head of the Analytical Department at Concorde Capital Oleksandr Parashchiy.

Senior Analyst at Dragon Capital Denys Sakva also believes that the tender for the sale of 10% of Centrenergo will be the most interesting. “Today, there is no sense for investors to buy 25% of the company, which already has an owner controlling all the cash flows. Centrenergo, the bulk of which is yet to be privatized, in this particular case is a more interesting target, including minority shareholders, because almost 22% of the shares of this company are in free circulation and they are in demand. For example, less than 2% of DTEK Dniproenergo’s shares are in free circulation and in the case of Donbasenergo – only 14% are in free circulation,” Sakva explained.

Bad timing

Now is not the best time for the privatization of energy companies. After all, due to the military operations in the east of the country many thermal power plants were cut off from sources of fuel.

Two of the three Centrenergo TPPs (Trypillya and Zmiyiv) operate on anthracite coal, which is difficult to find these days. The Vuhlehirska TPP runs on coal and while there is enough of it in Ukraine, it is located on the territory controlled by the militants.

Nevertheless, Parashchiy did not associate the price of the company’s shares with the problem of coal supplies. “Speaking of the company’s value, it is not assessed by the present day, but by the opportunity to operate in the future. Obviously, everything will depend on a potential buyer’s vision of the solution to the situation,” he said.

The expert added that the participation of foreign investors in the privatization of Centrenergo is undecided. “Many foreign investors tested the waters, but now our country is in a situation where only few of them will consider buying industrial assets in Ukraine,” he said.

At the same time, Sakva said it would very difficult for the Ukrainian stock market to digest 10% of Centrenergo’s stocks. This is why the expert doubts that the sale will take place. “The sale is possible if major foreign investors are interested, but there is no guarantee,” he said, adding that the chances of this are 50/50.

President of the Energy Association of Ukraine Vasyl Kotko said that it would be advantageous for Ukrainian energy if Centrenergo was bought by some western company. “The more European and American companies in our country, the better the EU and the U.S. will defend the interests of Ukraine. And since we have always pursued the policy of selling companies to domestic players, there are only a few western companies showing interest and hence the low interest of foreign governments,” he concluded.