OREANDA-NEWS.   DTEK, Ukraine’s largest energy company, announced its performance results for 1Q 2014. DTEK’s enterprises produced 10.4 million tons of coal (+1.7% YoY), generated 12.9 billion kWh of electricity (-3.1%), transmitted 14.8 billion kWh of electricity via grids (-4%), and produced 165.9 million cubic meters of natural gas.

Industrial production in Ukraine continued to decline, resulting in a decrease in electricity consumption. In 1Q 2014, electricity consumption by industrial companies dropped by 3.4% YoY to 16.4 billion kWh. Overall demand for electricity in Ukraine decreased by 2.2% to 49.3 billion kWh.

„We understand that an economic recession in the country in the near future is inevitable,” said Maxim Timchenko, DTEK’s CEO, about the Company’s performance results in 1Q 2014. „Our next task in difficult times like these is to adhere to our plans in terms of our companies’ operations in order for the country’s budget to get taxes regularly and for people to be able to work and receive their salaries on time. We are not suspending our strategic investment projects to develop our companies. Modernization for us is not only about increasing technical and economic targets, but about extending the life of our companies, which will ensure the stable employment of thousands of our employees and the implementation of social programs in the regions where we operate and the development of Ukraine’s economy.”
Coal mining and processing

DTEK increased coal production by 1.7% to 10.4 million tons in 1Q 2014. Coal processing plants followed suit: ROM coal processing grew by 3.1% and concentrate output by 0.6%.

Main factors influencing the production performance:

• DTEK’s coal supplies to external markets went up by 68.1% or 477,100 tons;

• Coal production at the Obukhovskaya Mine (Russia) grew by 77.3% or 191,400 tons;

• Ukraine’s TPPs and CHPPs reduced electricity generation by 6.2% or 1.4 billion kWh YoY.

Capital investments:

DTEK allocated UAH 270.8 million to purchase equipment for breakage faces in 1Q 2014; investments in the replenishment of tunnelling equipment and upgrading the transportation chain exceeded UAH 75 million. The Company has been consistently implementing modern equipment and advanced methods to improve the working conditions of miners and enhance the efficiency of underground operations. The average annual labour productivity at DTEK’s mines is four times higher than the average productivity at state-run mines.

Key projects in progress in the reporting period:

• work to increase the hoisting capacity of the winder set at the Geroiv Kosmosu mine (total project budget: UAH 153.5 million) to three million tons per year starting from 2015;

• the replacement of the main fan at the Komsomolets Donbassa mine (total project budget: UAH 63.8 million); the construction of fresh air shafts at the Vakhrusheva mine and Frunze mine (total project budgets: UAH 127.7 million and UAH 214.7 million, respectively); the construction of return air shafts at the Yuvileina mine and Dobropilska mine (total project budgets: UAH 235 million and UAH 70 million, respectively). The implementation of these projects will enhance the safety of miners’ work and secure current coal output with sufficient air supply to the mines;

• technical re-equipment of section 2 at the Pavlogradska coal processing plant (total project budget: UAH 133.8 million). The project is aimed at increasing the plant’s capacity for processing of run-of-mine coal, which will reduce costs for processing by external processing plants and streamline the „mine-coal processing plant-thermal power plant” logistic chain.

Electricity generation

DTEK decreased electricity supply by 3.1% to 12.9 billion kWh in 1Q 2014.

Main factors influencing the production performance:

• Decreased total electricity consumption in Ukraine by 2.2% or 1.1 billion kWh YoY in 1Q 2014;

• Increased market share of nuclear power plants (from 44.0% to 46.2%), municipal combined heating power plants and isolated generation plants (from 4.9% to 5.6%), and renewables (from 0.5% to 0.9%) in the Ukrainian electricity generation market;

• Reduced electricity exports by DTEK by 6.2% or 139.1 million kWh;

• Increased electricity generation by the Botievo wind farm by 132.4% or 104.1 million kWh, due to the commissioning of the second stage of the farm.

Key projects in progress in the reporting period:

In 1Q 2014, DTEK continued retrofits to power unit #3 at DTEK Zaporizka TPP, power unit #1 at DTEK Kryvorizka TPP, power unit #13 at DTEK Luhanska TPP, and power unit #8 at DTEK Dobrotvirska TPP. The Company plans to allocate UAH 2 billion for the upgrades.

In early April, DTEK took unit #3 at DTEK Zuivska TPP and unit #9 at DTEK Kurakhovska TPP out of service for retrofitting. Total investments will exceed UAH 1 billion.

The technical re-equipment of these units will prolong their service life by at least 15 years, increase their capacity, and expand their flexibility range. The modernisation will reduce specific fuel consumption for electricity generation, resulting in lower production costs. Since 2012, as part of retrofits, electrostatic precipitators at all DTEK’s TPP units have been reconstructed to comply with the dust emission level stipulated by Directive 2001/80/ЕС.

The Botievo wind farm is completing the commissioning of second stage wind turbines with a total capacity of 107.6 MW. The total capacity of the Botievo wind farm will be 200 MW.

Electricity transmission via grids

DTEK decreased electricity transmission by networks by 4% to 14.8 billion kWh in 1Q 2014.

Main factors influencing the production performance:

• Ukrainian industrial enterprises decreased power consumption by 3.4% or 0.6 billion kWh YoY in January-February 2014;

• Electricity supply to DTEK Power Grid and DTEK Dniprooblenergo decreased by 6.0% and 5.6%, respectively, as a result of reduced demand from metals manufacturers.

Key projects in progress in the reporting period:

In 1Q 2014, DTEK’s distribution companies continued to implement projects for upgrading and constructing new power substations. All projects were aimed at improving the sustainability of electricity supplies to industrial and household consumers and related licensees.

The Company also continued to implement a project to construct a SMART power consumption measuring system to decrease excessive losses.

To improve the quality of its services, the Company continued to develop online payment services for electricity consumers and opened modern Customer Service Centres (CSC), which operate on the basis of a „one-stop shop” principle. In 2014, DTEK’s distribution companies plan to open about 16 CSCs in Kyiv, Selydove, Nikopol and other cities.

Major investment projects:

• retrofitting of the Lvivska, Sviatoshynska and Olenivska substations (Kyivenergo) to improve the sustainability of electricity supplies to consumers in Kiyv and create reserve capacities to be able to add new entities;

• construction of the Kuban substation (DTEK Krymenergo) to ensure electricity supplies to rapidly developing districts of the city of Simferopol;

• retrofitting of the Yalta and Alushta substations (DTEK Krymenergo) to eliminate capacity shortages in the Greater Yalta area and ensure electricity transit along the southern shore of Crimea;

• opening of an automated call centre (DTEK Donetskoblenergo), which became the first call centre of its kind in the energy sector of Donetsk region.

Production of natural gas and gas condensate

At the end of 2013, DTEK finalized the acquisition of 50% of the shares of PJSC Naftogazvydobuvannya, Ukraine’s largest private gas producer. In 1Q 2014, the Company produced 165 million cubic meters of natural gas and 6,300 tons of gas condensate, which exceeded its production in 2013 by 56.6% and 101.1%, respectively.

Main factors influencing the production performance:

• completion of the drilling of well #8 at the Semyrenkivske field;

• completion of the workover of wells #60 and #4 at the Semyrenkivske gas condensate field;

• optimization of the operational modes of the wells at the Semyrenkivske gas condensate field.

Capital investments:

The capital investments of PJSC Naftogazvydobuvannya amounted to UAH 400.7 million in 1Q 2014. These funds were used to continue drilling operations, develop infrastructure at the three new wells, build the Olefyrivska Central Gas Processing Plant, gas pipelines and other infrastructure facilities, and perform geological prospecting.

Commercial operations

Coal exports

DTEK increased coal exports by 68.1% YoY to 1.17 million tons. In March 2014, DTEK exported its largest monthly volume of coal.

Indicative world indexes fell due to decreased basic demand in the Eurozone and China. In 1Q 2014, European prices for coal (API2 index) decreased by 9% YoY. Price quotations for Australian Hard Coking Coal (FOB Australia), which define world prices for anthracite, declined by 26% YoY.

DTEK entered the international freight market in 2013 and continued chartering vessels under optimal market conditions in 1Q 2014. We concluded agreements for chartering more than 1 million tons of coal in 1Q 2014, which exceeded the overall volumes chartered in 2013.

Main factors influencing the indicators:

• Expansion of cooperation with countries to which shipments were made in 1Q 2013: India — 106,500 tons (exports more than doubled), Russia — 213,000 tons (+44.9%), Turkey — 203,900 tons (more than four times higher), USA — 48,800 tons (exports more than doubled). Renewal of exports of A-grade coal to India.

• Entering new coal export markets: Brazil — 55,000 tons, Morocco — 71,000 tons, and Great Britain — 250,000 tons;

• Raising the efficiency of export transactions and increasing the share of direct sales to end consumers.

Electricity exports

Electricity exports decreased by 6.2% to 2.1 billion kWh in 1Q 2014 due to the rescheduling of supplies to Belarus to 2Q and 3Q 2014.

The downward trend in European electricity prices resulted from a reduction in the average spot price by 12% YoY in 1Q 2014.

Electricity sales to the domestic market

Sales of electricity generated by DTEK’s TPPs (apart from Kyivenergo) reduced by 0.3 billion kWh (-2.3%) in 1Q 2014. The decrease in electricity supplies was caused by lower consumption by industrial enterprises. In 1Q 2014, the electricity selling price (taking into account the investment component) in the domestic market increased by 0.6 % YoY.

Coal sales to the domestic market

Coal supplies to Ukrainian industrial consumers rose by 9.2% YoY to 310,000 tons in 1Q 2014. The growth was related to an almost double increase in coal shipments for coking (151,000 tons).

Reference

DTEK is the largest energy company in Ukraine. It is part of the financial and industrial group System Capital Management (SCM). The shareholder of the group is Rinat Akhmetov. Maxim Timchenko is the Chief Executive Officer of DTEK. Currently, DTEK employs 140 thousand people.

Electricity is the core product of DTEK. The assets portfolio is represented by 10 thermal power plants and two combined heat and power plants with 18 GW of total installed capacity; one wind farm with the designed installed capacity of 200 MW; five electricity distribution and sales enterprises, which provide services to over 5.2 million customers — both individuals and legal entities; 31 mines and 13 coal-processing plants; oil and gas extraction assets.

In 2013, DTEK’s enterprises generated 53 TWh and purchased 56.9 TWh of electricity for further supply to consumers; coal output equalled 41.4 million tonnes and coal processing amounted to 29.3 million tonnes. DTEK exports electricity to four countries and coal to 31 countries worldwide. DTEK’s consolidated revenues in 2013 amounted to UAH 92.8 billion; the Company’s net profit totalled UAH 3.3 billion.