Ukraine moves to privatize 15 energy distribution oblenergos (Detailed Summary)

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In a move perhaps motivated in part by the desire to raise pre-January election funds for the government, Ukraine’s Cabinet of Ministers has recently taken steps to open the way for near term privatization and auctioning of 15 regional power distribution companies (called “oblenergos”). See Cabinet Resolution Number 894-р of July 29, 2009.

Specifically, Prime Minister Yulia Tymoshenko has instructed the Ministry of Fuel and Energy to transfer controlling stakes in these state owned oblenergos from the National Energy Company to the State Property Fund – which thereby opens the way for subsequent privatization through auctions.

So far there has been no positive or negative feedback from President Viktor Yushchenko on this recent Cabinet Resolution. Earlier in the year President Yushchenko had attempted block a similar Cabinet resolution allowing privatization of the state owned power generating companies Dniproenergo, Donbasenergo, Zakhidenergo and Centrenergo – only to have his decree overruled by Ukraine’s Constitutional Court on April 30, 2009.

If there is no blocking attempt by the President then controlling shares of the 15 oblenergos in the table below could be set for auction before year end. The government has specified controlling share amounts for auctioning in order to maximize potential investor interest. However, market analysts nonetheless have expressed no estimation about whether these shares actually can or will be purchased by investors prior to the Presidential elections in 2010.

Cabinet Resolution Number 894-р specifies the following 15 oblenergos for privatization. Each oblenergo name is listed below, followed by the shareholding percentages being offered for future sale, the amount of registered shares in the offered amount, the nominal value of the shares in Ukrainian Hrivnas.

Vinnytsiaoblenergo
60% plus 1 share
1,858,421 shares offered (nominal value UAH 18,584,210.00)

Volynoblenergo
60% plus 1 share
286,365,601 shares offered (nominal value UAH 14,318,280.05)

Dniprooblenergo
60% plus 1 share
3,594,971 shares offered (nominal value UAH 35,949,710.00)

Zakarpattiaoblenergo
60% plus 1 share
74,761,946 shares offered (nominal value UAH 18,690,486.50)

Khmelnytskoblenergo
60% plus 1 share
80,730,817 shares offered (nominal value UAH 20,182,704.25)

Krymenergo
60% plus 1 share
103,780,513 shares offered (nominal value UAH 25,945,128.25)

Mykolaivoblenergo
60% plus 1 share
95,184,001 shares offered (nominal value UAH 23,796,000.25)

Chernivtsioblenergo
60% plus 1 share
34,068,409 shares offered (nominal value UAH 8,517,102.25)

Donetskoblenergo
60% plus 1 share
39,310,306 shares offered (nominal value UAH 49,137,882.50)

Kharkivoblenergo
60% plus 1 share
153,924,457 shares offered (nominal value UAH 38,481,114.25)

Zaporizhiaoblenergo
60.25%
108,060,002 shares offered (nominal value UAH 27,015,000.50)

Luhanskoblenergo
60.06%
125,001,287 shares offered (nominal value UAH 31,250,321.75)

Ternopiloblenergo
51%
31,154,360 shares offered (nominal value UAH 7,788,590.00)

Kyivoblenergo
50% plus 1 share
54,182,141 shares offered (nominal value UAH 13,545,535.25)

Cherkasyoblenergo
46%
68,260,989 shares offered (nominal value UAH 17,065,247.25)

Regardless of its timing, the further privatization Ukraine’s aging and outdated energy infrastructure is a positive and important step for Ukraine. Ukraine has roughly one third the energy efficiency of its European neighbors, and it even trails Russia in this regard. Privatizing the regional power distribution companies and raising them to market efficiency will benefit Ukraine’s commercial and private sectors, and it can also pave the way for the country’s future ability to become a more significant energy exporter.

The Foundation for the Development of Environmental and Energy Markets will continue to monitor these developments and provide updates as they occur.

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