Akhmetov flexes his muscles over the energy sector

Volodymyr Zelensky’s presidency raised fears that he would serve the interests of his old business partner, Ihor Kolomoisky. 

But it is now billionaire Rinat Akhmetov, Kolomoisky’s frequent rival, whose interests are ascendant. 

A targeted lobbying campaign by Akhmetov’s companies is starting to bear fruit. His most recent victory is the energy ministry’s planned cut to nuclear power in favor of renewables and coal. Akhmetov’s company DTEK stands to gain — it controls two-thirds of coal power and close to a fifth of renewable power in Ukraine. 

“Oligarchs try to assert their control over the country without being formally involved in the political process,” said Andriy Gerus, head of the parliamentary energy committee and DTEK’s fierce critic. 

In late April, the energy ministry ordered the shutdown of three out of 11 active nuclear energy blocks in Ukraine and a reduction in capacity for seven nuclear blocks. 

This decision means energy prices will rise. Nuclear power is the cheapest in the country — Petro Kotin, the head of state nuclear operator Energoatom, estimated it at Hr 0.65 – 0.70 per kilowatt hour. Renewables are the costliest, with a feed-in tariff of 0.15 euros per kilowatt hour (about Hr 4.41).

Ukraine’s energy costs are already the highest in the region — about 50 euros per megawatt hour, compared to 30 euros in Poland and 17 euros in Hungary. 

This can also deepen losses for Energoatom, which will cost the state billions of hryvnias to bail it out. A state company already owes billions of dollars to the enterprise, which makes more than half of Ukraine’s electricity. Kotin described the debt as “catastrophic.” Parliament has approved a plan to issue government bonds to cover the debt. 

There are multiple factors at play behind the energy ministry’s projection, including lower energy demand and soaring renewable energy supply. But DTEK’s lobbying also appears to have played a role. The company’s financial performance has been plunging due to low competitiveness, low energy demand, warm weather and the COVID-19 quarantine.

The company has been accused of ties with major officials. Ukraine now has a prime minister who used to work at DTEK and an acting energy minister that had lobbied in the company’s interests. 

DTEK has also been implicated in numerous alleged schemes to give it an unfair advantage in the coal and energy markets. These included the Rotterdam+ coal pricing scheme, which by some estimates cost taxpayers an extra $1 billion. It is also suspected in the creation of artificial energy shortages and hiking energy prices in western Ukraine on the so-called “Burshtyn energy island,” where it maintains a monopoly. 

A DTEK spokeswoman took the Kyiv Post’s questions by email but did not immediately respond by press time. 

Familiar faces

However, a DTEK internal document seen by the Kyiv Post revealed an alleged multi-pronged lobbying plan to lift energy price caps, reduce public service obligations on coal power, do away with antimonopoly investigations against DTEK, stop energy imports from Russia and Belarus. 

DTEK didn’t respond to an inquiry asking about the existence of such a plan by the time of publication. 

It wouldn’t be the first time when DTEK was alleged to have a takeover plan like that.

In 2015, then-lawmaker and former investigative reporter Mustafa Nayyem published a similar document that outlined DTEK’s plan to cement its dominance over the energy sector. It was known as the “Krepost” (“Fort”) plan. DTEK denied its authenticity. 

“They are trying to make the key authorities loyal to them,” said Gerus. 

DTEK’s stroke of good luck came at the same time when some of the energy ministry’s former top employees took high posts in the government. 

Shmygal, the prime minister, rose to prominence by working for DTEK. Last month, Shmygal said he was not close to Akhmetov and never talked with him. 

The Schemes investigative reporting project found that his new energy adviser, Ihor Maslov, also previously held a senior role in DTEK.

Shmygal was also instrumental in getting acting Energy Minister Olga Buslavets into her current role. Buslavets didn’t have the parliamentary votes for confirmation, according to a source in government, who did not wish to be named because of lack of authorization to speak with the press. Previously, Buslavets directed energy markets at the ministry. 

Former Energy Minister Oleksiy Orzhel told Novoye Vremya that Buslavets was against price caps on energy, which DTEK wants to remove. Nashi Groshi reported that she unsuccessfully lobbied for a reduction of gas prices for Akhmetov’s Luhansk-based thermal plant. 

The energy ministry did not immediately respond to requests for comment. 

According to the source, Buslavets’ new energy plan is making her unpopular among lawmakers, making it unlikely that she will ever get enough votes to be confirmed as a full-fledged minister. 

New energy balance

Ukraine is facing lower energy demand, partly due to the COVID-19 pandemic and quarantine.

On April 29, the energy ministry released its new energy balance projection that will see big cuts to nuclear power. Hydroelectric power will also decrease — the unusually warm and snowless winter led to low river water levels. 

Coal power will see a sharp boost in May compared to April but will see an overall cut, smaller than the cuts to hydro and nuclear.

According to a letter from Energoatom Director Valeriy Kravets to Vitaliy Zaichenko, head dispatcher at Ukraine’s grid operator Ukrenergo, the plan is to take down three nuclear energy blocks out of the 11 that are currently active. One block will be shut down for three months and the other two for four months. Seven blocks will run at reduced capacity.

Ukraine has a total of 15 nuclear reactors across four power plants with a total capacity of up to 13,000 megawatts. Several months ago, that output was over 11,000 megawatts but has now been reduced below 7,000. At its lowest output this year, nuclear power will go as low as 4,900 megawatts. 

Zaichenko stated on Facebook that, right now, 11,000 megawatts of nuclear energy is excessive and dangerous. Too much energy is flowing from other sources including renewables, which will produce much more power under the summer sun. Kotin also reportedly stated that Energoatom has dropped its objections to the plan. 

Gerus said that, without Energoatom, DTEK’s renewable and coal plants can work without interruption and make more money at the consumers’ expense. 

The green problem

Ukraine’s renewable feed-in tariffs are very high, despite having relatively short terms. Last year, the country passed a law that would replace fixed tariffs with auctions starting in 2020.

This led a wave of developers to enter Ukraine in 2019. In one year, total renewable generation tripled to almost 8% of the country’s energy mix, leading to soaring costs for Guaranteed Buyer, the state enterprise in charge of buying all renewable power. While the renewable generation brings Ukraine some 8% of its energy, it takes up some 20% of the costs. 

Guaranteed Buyer is funded by transmission fees collected by the grid operator, Ukrenergo. It also gets money by reselling a fraction of Energoatom’s and Ukrhydroenergo’s power, which has brought shrinking revenues in recent months.

But the other problem is that industrial consumers are simply not paying their full transmission costs, explains Dmytro Sydorov, an electricity market analyst at the ExPro consultancy. As of January, the biggest debt, over Hr 500 million ($18.7 million), was owed by DTEK’s companies.

Debt to the green sector ballooned. The problems led prior Energy Minister Orzhel to consider retroactively cutting the green tariff. This worsened the standoff with the renewable industry, whose players said they would have no choice but to go to international arbitration courts. The two sides have been in negotiations for months without reaching an agreement. 

Gerus said that Akhmetov’s DTEK has taken a leading role in lobbying in favor of renewable producers, using other players in the market to help push its agenda. 

Renewable producers have responded that government officials are focused on fighting against the oligarch-owned DTEK while ignoring reputable companies that entered Ukraine fairly and expect to receive their feed-in tariffs as agreed. The energy ministry projected that the debt to green energy producers can grow to Hr 19 billion ($710 million) in 2020.

But the state enterprise Energorynok also owes Energoatom a lot of money. In just the first three months of this year, the state debt before Energoatom has swelled to Hr 4.7 billion ($174.5 million), according to Kotin. In total, Energorynok owes almost Hr 12 billion to Energoatom. Energorynok filed for bankruptcy in January. 

Speaking to the publication Censor.Net, Kotin said that even though the nuclear producer makes electricity eight times cheaper than green power plants, the greens get first priority for payments.

On April 30, parliament voted in favor of legislation that would cover the debt via the issue of government bonds. 

Costs and balancing

Green energy output is high by day and low by night, requiring other sources to balance it out. The energy ministry stated that it is difficult and dangerous to frequently switch nuclear power on and off to make up the difference.

This leaves coal power, which Gerus expects to benefit from the projected energy mix. 

DTEK mines close to 90% all the coal in Ukraine and produces two-thirds of all its coal energy. It also imports a lot of coal from Russia.  

Coal stockpiles have gone unused due to the warm winter, which added to the company’s previous financial troubles. DTEK announced in April it was shutting its mines, effectively laying off 30,000 employees. The energy ministry is coming to its defense.  

“Tens of thousands of families have lost more than half of their income,” the ministry wrote. “The coal industry is one of the most important elements of Ukraine’s energy independence and it is therefore essential to ensure the smooth operation of domestic coal enterprises.”

Political observers said many times over the years that DTEK was using its miners to blackmail the government into giving the company what it wants. DTEK always denied such claims.