DTEK's production performance in 1 quarter 2015

OREANDA-NEWS. June 16, 2015. DTEK, the largest energy company in Ukraine, has announced its performance results for 1Q 2015. DTEK’s enterprises produced 6.8 million tonnes of coal (-34.6% YoY), generated 11.0 billion kWh of electricity (-14.4%), transmitted 12.2 billion kWh of electricity via networks (-17.6%), and produced 258 million cubic metres of natural gas (+55.5 %).

“We see that the situation in the sector remains difficult,” said DTEK CEO Maxim Timchenko commenting the company’s performance in 1 quarter 2015. “Delivery of anthracite from the anti-terrorist operation zone remains constrained, debts due to whole thermal power generation are already over UAH 9 billion, while the tariffs set do not cover cost of thermal power production. DTEK’s miners and power sector workers have been stretched to the limit trying to stabilise the operation of the United Energy System of Ukraine to prevent the repetition of rolling black-outs. Despite huge debts of SE ‘Energorynok’ and loss-making tariff for thermal generation the miners have scaled up the production of gaseous coals, which helped the power sector to increase the utilization of thermal power plants. The completed modernization of unit nine at DTEK Kurakhovska TPP will also contribute to improved sustainability of the United Energy System of Ukraine. I am extremely grateful to all employees of the plant and contractors for their successful completion of works in the situation of military operations. Unfortunately, only the current situation has made Ukraine realise that the development of the national energy sector is the only way to ensure the country’s energy security and independence. In ten years of it activities, DTEK has invested over 5 billion US dollars in the Ukrainian energy sector, which enables the company to operate with utmost efficiency to maintain the energy system’s stability.”

Key production indicators

Indicators	Unit	1Q 2015	1Q 2014	Variance (+/-)	Variance (%)
Coal mining	ths tonnes	6,831.5	10,439.8	-3,608.3	-34.6
Coal processing:
ROM coal processing	ths tonnes	4,686.7	8,556.8	-3,870.1	-45.2
Concentrate production	ths tonnes	2,785.2	5,590.7	-2,805.5	-50.2
Electricity generation (net output)	mln kWh	11,008.7	12,864.2	-1,855.5	-14.4
including DTEK Renewables	mln kWh	194.7	182.6	12.1	6.6
Electricity transmission by networks	mln kWh	12,185.4*	14,796.8	-2,611.4	-17.6
Electricity exports	mln kWh	844.0	2,121.9	-1,277.9	-60.2
Coal exports	ths tonnes	264.9	1,212.9	-948	-78.2
Coal imports	ths tonnes	414.9	-	414.9	100
Natural gas production	mln cub m	258.0	165.9	92.1	55.5
Gas condensate production	ths tonnes	9.3	6.3	3.0	47.6

*net of DTEK Krymenergo.

DTEK ENERGY

Coal mining and processing

In 1Q 2015, DTEK Energy’s coal mining companies reduced coal production by 34.6% YoY to 6.8 tonnes. The processing of run-out-mine coal at the coal processing plants dropped by 45.2% to 4.7 mln tonnes and, consequently, production of concentrated decreased by 50.2% to 2.8 mln tonnes.

Main factors influencing the production performance:

— DTEK Pavlogradugol and DTEK Dobropolyeugol increased the production of gaseous coal grades by 4.1%, or 210.1 ths tonnes, despite the underestimated fuel component in the tariff of thermal power plants and large debt of state enterprise Energorynok to thermal generators, which significantly increases non-payments for supplied coal;

— the Obukhovskaya mine group increased production by 20.5%, or 90 ths tonnes;

— DTEK Rovenkyanthracite, DTEK Sverdlovanthracite and DTEK Mine Komsomolets Donbassa decreased the production of anthracite and lean coal by 83.8%, or 3.9 mln tonnes. The mines are underutilised as the destroyed infrastructure in Donbas region constraints the delivery of all required materials and equipment for mining operations and shipment of produced coal in full. About 2.45 mln tonnes of coal remain blocked at the storages of the above companies.

Key projects in progress in the reporting period:

Equipment was supplied for the second stage of the modernization of the Pavlogradska coal processing plant (CPP). The plant’s re-equipment will increase the processing of ROM coal to 7 tonnes per year, optimise logistics and cut costs for coal processing by external CPPs. The project budget totals over UAH 360 mln.

The Yuvileina mine is installing a winder as part of the construction of an air shaft. Over the time of its operation, the mine has almost depleted the coal reserves available within the mine take boundaries. New reserves are located far from the main shaft. The fresh air shaft will provide the mine with required amount of air, which will allow sustainable operation and scaling up of annual coal production to 1.4 tonnes by 2036. The project budget totals UAH 235 mln.

The Geroiv Kosmosu mine continues the project on increasing the conveying capacity of the winder set. The project is aimed at debottlenecking the mine’s process chain. Its completion will increase the capacity of the coal winder by 3 mln tonnes per year since 2016. The project budget totals over UAH 150 mln.

Electricity generation

In January to March 2015, DTEK Energy’s generating companies reduced net electricity output by 14.7% YoY to 10.8 bln kWh.

Main factors influencing the production performance:

— declined electricity consumption in Ukraine by 10.5% due to the recession, hostilities in Donbas, an applied schedule for limiting capacities due to lack of required amount of coal for electricity generation;

— reduced electricity generation by the TPPs of DTEK Skhidenergo and DTEK Donetskoblenergo, and the Myronivska TPP in total by 35.2% or 2.7 bln kWh due to hostilities in Donetsk and Lugansk regions;

— increased electricity output by DTEK Zakhidenergo by 23.4%, or 891.2 mln kWh, to make up for the shortage of capacities and maintain the stable operation of the Ukrainian grid.

Key projects in progress in the reporting period:

In 1Q 2015, the Kurakhovska TPP completed installation and started commissioning activities as part of the retrofit of unit 9. The retrofit will increase the installed capacity of the unit by 15 MW to 225 MW, and expand the flexibility range by 40 MW, while reducing specific fuel consumption for electricity generation by 10%. The project budget totals over UAH 635 mln.

Starting from 2012, electrostatic precipitators at all power units of DTEK TPPs have been retrofitted as part of the upgrading to reach the dust emissions level prescribed by Directive 2001/80/EC.

Electricity transmission by networks

In 1Q 2015, DTEK Energy’s distribution companies reduced electricity transmission by networks by 17.6% YoY to 12.2 bln kWh.

Main factors influencing the production performance:

— DTEK Krymenergo was excluded from the production results due to the lack of operational control over the company (electricity transmission by DTEK Krymenergo in 1Q 2014 was 1.2 bln kWh);

— DTEK Power Grid and DTEK Donetskoblenergo decreased electricity transmission by 24.7%, or 1.3 billion kWh, due to the military operations, which entailed reduced production by industrial and municipal enterprises, suspended activities of small and medium-sized businesses, people leaving the ATO area.

Main projects implemented in the period:

— DTEK Dniprooblenergo: in 1Q, the company continued the modernisation of some substations and high-voltage electricity transmission lines in Dnipropetrovsk region aimed at improving the reliability of electricity supply and reducing losses;

— They started the implementation of an automated electricity commercial metering system in the cities of Dnipropetrovsk, Kryvyi Rih, Dniprodzerzhinsk. By the year end, the system will cover over 100,000 households’ metering points;

— in March, the company opened a Customer Service Centre (CSC) in the town of Pidhorodne of Dnipropetrovsk region operating as “one-stop shop”. The CSC renders services to over 40,000 households and 1,000 legal entities.

— Kyivenergo: The retrofit of the 330 kV outdoor switchgear continues at combined heat and power plant (CHPP) No. 6 aimed at covering the capacity deficit at the power centre in the central districts of Kyiv and creating a reserve for connecting new consumers. The project budget totals UAH 190 mln;

— The company continues the retrofit of outdoor switchgears with the replacement of power transformers at the ST-2 and Stankozavodska substations, which will ensure uninterrupted power supplies at increased loads. The total budget of the projects is UAH 23 mln;

— Kyivenergo continues the retrofit of an installation in the chemical workshop of CHPP-6; the project implementation will reduce the corrosion of the main heating and mechanical equipment and improve steam qualitative parameters. The project budget totals UAH 30 mln.

Commercial activities

Coal supplies in domestic and external markets

In 1Q 2015, DTEK reduced coal supplies to external markets by 78.2% YoY to 264.9 mln tonnes.

Main factors influencing the production performance:

— to cover the shortage of flexible capacities in the Ukrainian grid to go through the autumn-winter heating season, the company redirected produced coal to in-house TPPs, and imported 415 ths tonnes, mainly from the RSA and Australia;

— destructions of the railway infrastructure caused by military activities resulted in the limitation of shipment of anthracite and lean coals from DTEK Rovenkyanthracite, DTEK Sverdlovanthracite and DTEK Mine Komsomolets Donbassa. In 1Q 2015, the company managed to delivery 420 ths tonnes of coal from the above companies to TPPs.

Electricity supplies in domestic and external markets

In 1Q 2015, electricity exports was down by 60.2% to 844 mln kWh.

The main factors influencing the production performance are no electricity supplies to Belarus, Moldova and Poland (since August 2014, the decision of the Ministry of Energy and Coal Industry has been in force limiting electricity exports).

DTEK RENEWABLES

In 1Q, the Botievo wind farm increased electricity generation by 6.6% to 194.7 mln kWh as the farm reached the designed capacity in 2014. The net output was above the target by 1.7% due to favourable weather conditions and efficient planning of wind turbine and farm infrastructure maintenance.

DTEK OIL & GAS

In 1Q 2015, Naftogazvydobuvannya PrJSC produced 258.0 million cubic metres of natural gas and 9.3 ths tonnes of gas condensate, which exceeds YoY indicators by 56% and 48%, respectively.

Main factors influencing the production performance:

— completed drilling of three wells at the Semyrenkivske gas condensate field;

— implemented measures on stimulation of hydrocarbons production at the wells of the Semyrenkivske and Machukhske fields.

Main projects implemented in the reporting period:

The Company continued drilling new wells which started in the first half of 2014 and conducted geological exploration. Yet, in April 2015, Naftogazvydobuvannya had to suspend production at two wells due to groundless restraints of the company’s activities by the Prosecutor General’s Office of Ukraine.