Ukraine repeatedly puts major power generating Centrenergo up for sale, revises 2019 privatisation list

Ukraine repeatedly puts major power generating Centrenergo up for sale, revises 2019 privatisation list
Ukraine repeatedly puts major power generating Centrenergo up for sale, as one of the most attractive assets in the 2019 privatisation list
By bne IntelliNews January 18, 2019

The Ukrainian government is going to repeatedly put up for sale a controlling stake in state power producer Centrenergo until it gets sold, following December's failure to conduct a privatisation tender. A new tender will be offered this year on the same conditions and at the same price, according to the Cabinet decision made on January 16.

The quickness of the government's decision making is due to the need to announce a tender before the end of the appraisal period of Centrenergo (until March 31, 2019). According to Interfax-news agency, the tender may be announced before the end of January.

Earlier, the Ukrainian cabinet approved a starting price for the sale of the 78.3% stake in Centrenergo of UAH5.98bn ($210mn).

In a separate resolution, the Ukrainian government approved the conditions for the sale of the company. Specifically, the conditions provide for Centrenergo’s payment of dividends to the national budget in the amount of 30% of net profit for 2018, while the draft resolution contained the text on the payment of dividends in accordance with the standard approved by the government, which in 2017 was 75%, and 2016 50%.

According to an earlier statement of the State Property Fund (SPF), the first tender was cancelled due to the fact that two participants - Ukrdoninvest and the production unitary enterprise Oil Bitumen Plant - are not allowed to participate in the tender, "since the documentation submitted by them does not meet the requirements of the legislation".

Amongst the companies that announced an intention to bid were Ukraine’s largest private gas producing companies Ukrnaftoburinnia that is controlled by Ukraine’s richest man Ihor Kolomoisky.

Kyiv-based company Forbes and Manhattan Ukraine, headed by member of the advisory board of the Canadian bank Forbes & Manhattan Mykhailo Spektor, also announced its intention to participate in the tender.

In addition, Belarusian unitary enterprise Neftebitumen Plant, owned by one of the largest Belarusian oil traders Interservice; Tbilisi-headquartered Georgian International Energy Corporation; and, Kyiv-registered Balance Group (its ultimate beneficial owner is ex-people's deputy Dmytro Kriuchkov, detained in Germany in July and suspected of embezzling Zaporizhiaoblenergo funds), were expected to take part in the tender.

Centrenergo consists of three thermal power plants – Vuhlehirska, Zmiivska, and Trypilska. Their combined installed capacity is 7.665 GW, which is 14% of Ukraine's overall power generation capacity. Centrenergo supplies electricity to Kyiv, Kharkiv, and Donetsk regions.

Revised privatisation list

Meanwhile, the Ukrainian government also approved on January 16 a revised list of other large companies for possible privatisation in 2019.

The list has been reduced to 16 names from last year's list of 23 companies. Other carryovers from 2018, for which the government has already selected privatisation advisers, include titanium ore producer United Mining & Chemical Company, coal mine Krasnolymanska, producer of power generators ElektroVazhMash, fertilizer producer Odesa Portside Plant, pharmaceutical company Indar and the President Hotel.

Other companies are financial company UkrAgroLeasing, chemical company SumyKhimProm, the remaining assets of machinery giant Azovmash and the remaining assets of chemical giant Oriana.

Also, the government is planning to sell its controlling stakes in five power generation companies: Ternopiloblenergo, Zaporizhiaoblenergo, Kharkivoblenergo, Mykolayivoblenergo and Khmelnytskoblenergo. The government excluded from the privatisation list four small heat & power plants, Kyiv-based brokerage Concorde Capital wrote in a note on January 17.

Ukraine’s planned proceeds from privatisation in 2019, as foreseen by the state budget, are UAH17.1bn (about $600mn), while the International Monetary Fund (IMF) estimates the proceeds will be UAH10.5bn ($360mn), according to its recent memorandum, Concorde's Alexander Paraschiy said in the note.

"The smoothness of privatisation will depend on the political will to privatise, which is not exceptional," he added.

According to the expert, currently, only three firms are close to completion: Centrenergo, Azovmash and the President Hotel, while the process of preparing for the sale of United Mining & Chemical Company, Krasnolymanska, ElektroVazhMash, Odesa Portside Plant (OPP) and Indar has been blocked in the courts.

"It’s possible that a court will unblock the privatisation of these companies next week, on the appeal of the State Property Fund (SPF). The preparation of other assets should begin with the selection of financial advisers, a process that has yet to start," he added. 

Paraschiy sees "a good chance" that this year’s privatisation proceeds will exceed last year’s result of about UAH400mn