OREANDA-NEWS. January 15, 2008. The energy division of Rinat Akhmetov consortium (DTEK) continues increasing its presence in the coal industry of Ukraine. The companies owned by Mr Akhmetov have been long since controlling Krasnodonugol in Lugansk region, specialized in coking coal production. A year ago, Rinat Akhmetov “put an eye” on mines producing energy coal for thermal power stations, which is connected with his interest in power industry and perfectly correlates with his recent “purchase” of Dniproenergo.

The next assets of DTEK may become Sverdlovskantratsit and Rovenkiantratsit state-owned companies, which are managed by former officers from DTEK, UFC-Capital reports.The fact is that more than a year ago, the Coal Ministry organized a huge “cleansing” among the coal “generals” of the Lugansk region. Five general directors of coal holdings and head of Luganskugolrestructurizatsia were fired in one go. Thus, the “coal managers” from Lugansk were replaced mainly by newcomers from Donetsk region. Thus, Vladimir Lutsenko, former board chair of Octiabrugol (Khartsyzsk. Donetsk region), was appointed to manage the mines closing process, and accordingly – to control the multimillion cash flows allocated for these purposes. Of 5 new CEOs of Lugansk-based coal associations only 2 are the former managers of local companies. And the most lucrative holdings – Sverdlovskantratsit and Rovenkiantratsit, which for the last 10 years increased their coal output almost twofold, were de-facto transferred to managers of System Capital Management owned by Rinat Akhmetov.

Alexander Vivcharenko, former CEO of Pavlodarugol OJSC (now owned by SCM), was appointed as CEO of the state-owned Rovenkiantratsit. Sverdlovskantratsit state-owned company also changed its head – now it is managed by Alexander Koval, who earlier headed Zapadno-Donbasskaya Mine from the same Pavlogradugol association. In fact, these associations and the state-owned Dopropolieugol from the top-10 largest coal producers in the country are considered to be the most attractive for the buyers. The state-owned companies belong to the most attractive coal companies, which are still owned by the state and managed by the Ministry for coal industry of Ukraine. From 1997, the annual output of Rovenkiantratsit was at the level of 8-8.5 mn tonnes. The designed capacity of the company amounts to 18-20 thousand tonnes per day, and de-facto it produces 10-12 thousand tonnes. In 2007, the company reduced its coal output by 35.6% as against 2006 – to 5.237 mn tonnes. Sverdlovskantratsit in 2007, increased its output by 1.17% as against 2006 – to 6.414 mn tonnes.

For six months DTEK supplied to Sverdlovskantratsit and Rovenkiantratsit machines, equipment and materials for mining for more than UAH 1 bn. According to the info-bulletin of the Tender Chamber of Ukraine, the total cost of agreements signed on December 28, 2007, between Sverdlovskantratsit and DTEK, amounted to UAH 120.302 mn. In June 2007, Sverdlovskantratsit signed an agreement with DTEK for UAH 197.698 mn.

Rovenkiantratsit recognized DTEK as the winner of 4 in 5 lots of the tenders held in November 2007. The cost of agreement, signed on December 3, 2007, amounted to UAH 99.507 mn. In July 2007, DTEK also signed with Rovenkiantratsit a contract for supply of machines, equipment and materials for UAH 598.791 mn. According to the well-informed sources, the prices for machines, equipment and goods are overstated 2-3 times. Sometimes, “DTEK supplies equipment first, and only after that announces its price, which turns out to be sky-high.” In such a manner these both state-owned companies are pushed to bankruptcy.

However, this is still not the end. In Ukraine, an issue related to the coal industry privatization was raised for many times. So far, all we know about the mines (which will be sold) appraisal system, is just that it will take into account both the property complex cost and the financials of the companies. It is unknown how exactly will profit or loss of the company be extrapolated at the mine worth. This way or another, the subjectivity risk will remain. It is important to know for which period they will take into account the financials of the mine: you may well understate the financials for the last year or two – and you will have this mine in your pocket. Precisely, this is what happens to the coal producers of Lugansk region. The salt of the situation is also that Sverdlovskantratsit and Rovenkiantratsit are the second- largest (after the State Reserve) creditors of Centreenergo generating company.