OREANDA-NEWS  On 01 October was announced, that since 15 September Ukraine has been importing electricity from Russia. The country which has significant overcapacity in the thermal segment of its power industry has contracted 500MW of capacity from Inter RAO ES. The contract price has not been made public but a spokesperson of the Ministry of Fuel & Energy said the price is about 12% lower than the exit wholesale price of the Ukrainian energy market.

The situation has been brought about by decreased coal reserves at listed thermal GenCos which is due to several factors. Nuclear power plants which provide the bulk of the country’s output have reduced supplies this year because of several minor breakdowns at the large 6,000MW Zaporizhya NPP and the breakdown of the rotor at the unit No.2 at Khmelnytsk NPP which is out of service since June. Also the privately owned Skhidenergo Ltd. has been reducing output due to decreasing output of its sister coal mine Komsomolets Donbasu <  SHKD UZ N/R   > and also, we believe, because of its displeasure with the new wholesale market rules designed to pay the marginal system price to gas-fired blocks only. Some of the bituminous coal mined this year has been diverted from the thermal power market to metallurgy which enjoyed buoyant market conditions in 1H2008. Imports of foreign coal proved to be more problematic than expected because of soaring spot prices, rail carriage scarcity and some moisture and volatiles levels concerns in the case of Russian bituminous coal imports. Gas-fired blocks have been put into service since August but Gaz Ukrainy has been tight in supplying producers preferring to pump gas into storage ahead of the expected gas price hike for next year. Out of all these, the problems with nuclear producers were the most instrumental in triggering electricity imports. We see this news as NEUTRAL for the listed GenCos as the move by the government solves a downstream supply problem which thermal GenCos could not solve themselves because of the their own upstream problems. Imports are not displacing domestic production as further use of depleted coal reserves would have put the winter heating season at risk while GenCos have already increased production by more than 7% this year.