Why oligarch Akhmetov snatched control of Ukraine's critical infrastructure

Author : Andriy Gerus

Source : 112 Ukraine

About 50% of the transmission and supply of electrical power in Ukraine would soon end up in the hands of Akhmetov's DTEK
15:00, 15 January 2019

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In early January, DTEK, Ukraine’s strategic holding company that develops business streams in the energy sector, announced that it was buying two regional energy production companies (oblenergos) from the Russian VS Energy Group: Kyivoblenergo and Odesaoblenergo. According to my information, the purchase price is $ 250 million: $ 180 million for a 94% stake in Kyivoblenergo and 70 million for 68% of Odesaoblenergo.

This is the next step of Akhmetov’s (Rinat Akhmetov, famous Ukrainian oligarch, DTEK founder and owner, - 112 International) takeover of the Ukrainian energy sector (after the purchase of 25% of state shares in five energy companies in August 2017). In that situation, only the Dniproblenergo shares were sold at the market price.

Shares of the other companies (Kyivenergo, Donetskoblenergo, Dniproenergo, and Zakhidenergo) were sold at a clearly underestimated price, much cheaper than privatization under President Yanukovych.

Related: Akhmetov's fortune could keep Ukraine functioning 36 days, - Bloomberg

But privately owned Kyivoblenergo and Odesaoblenergo are expensive. That is, their shareholders, Russian businessmen Voevodin (authoritative leader of the “Luzhnikovska group”), Giner (president of FC CSKA), and Babakov (Russian Duma deputy, who voted for the annexation of the Autonomous Republic of Crimea) will receive $ 250 million.

In 2013, VS Energy bought Kyivoblenergo shares for $ 90 million. Today, they are sold for $ 180 million. As we see, Ukraine seems to be problematic for the European business, and Russian businessmen are making good money here.

$ 70 million for 68% of Odesaoblenergo means a lot, considering that in March, the State Property Fund put out a state package of 25% of the shares of this entity for sale at a price of $ 5 million (that is, 68% = $ 15 million).

Related: Akhmetov rose in Bloomberg rating of billionaires placed 393rd

Back in early 2016, DTEK was bankrupt, its debts were traded at 35% of the nominal. But then "Rotterdam +" formula and the tariffs were artificially raised. That is, the Ukrainians are the ultimate payers for these purchases. Under the "Rotterdam +" scheme, more than $ 1,25 billion was withdrawn from the consumers.


This purchase brings some benefits for Akhmetov. With the purchase of the regional power entity, they gain political influence in Odesa and Kyiv regions. They also receive an additional monopolization of the electricity supply market (collecting money from consumers) and additional interest in lobbying RAB-tariffs.

Related: Court of Amsterdam freezes assets of Akhmetov

And they will also control the conditions for new "green" stations, which are competitors for DTEK's business, on joining the energy networks.

The Ukrainian consumer, who paid higher tariffs, but did not receive energy independence or better quality services, remain duped. Energy workers and miners, who did not receive a corresponding high salary, are also left holding the bag.

According to my information, after the closing of this transaction, another deal is being prepared. DTEK plans to swallow up the remaining 5 power companies that remain in Russian ownership – Khersonoblenergo, Kirovogradoblenergo, Zhytomyroblenergo, Chernivtsiblenergo, Rivneoblenergo will come under Akhmetov’s control.


Related: Mass rally at Akhmetov’s house in London,- blockade HQ

Today, DTEK owns 15% of all distribution electric networks (120 thousand km), and with the purchase of two more oblenergos, it will get 25% of all retail networks (208 thousand km). And after the absorption of the remaining five oblenergos, 42% of all Ukrainian retail electric networks will be gained (344 thousand km).

Today, DTEK’s oblenergos control the transmission and sale of 37% of all Ukraine's electricity. After buying two more oblenergos, this share rises to 48%. After the acquisition of another 5 regional power companies, DTEK will control 57% of all electricity transmission and distribution. This is an unprecedented situation, when one oligarch owns such a number of networks that are part of the critical infrastructure.

Related: DTEK Dniprooblenergo sees net profit drop 13.5-fold in 2017

All in all:

- monopolization of the market in the segment of energy resources, 85% of all Ukrainian coal production belongs to Akhmetov’s DTEK;

- monopolization of the electricity generation segment (80% of all power plants are coal-fired, and without these stations, it is impossible to survive in winter);

- monopolization of networks and the retail segment; about 50% of the transmission and supply of electricity will also go into the hands of DTEK.

A "perfect" monopolized vertical integration would be formed.

What do such events mean for the Ukrainian consumer?

Related: Rotterdam+ case: NABU raids energy committee

When DTEK bought all the coal mines and coal-fired power plants, the tariffs of coal-fired power plants rose rapidly. They have become 3 times higher than the tariffs of nuclear power plants, 75% higher than tariffs in Russia and 40% higher than those in Europe.

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This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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