OREANDA-NEWS. In January to March 2016, DTEK Group companies produced 7.2 mln tonnes of coal (+5.8% YoY), generated 9.8 bln kWh of electricity (-10.9%), transmitted 12.1 bln kWh of electricity via networks (-0.5%), and produced 381.1 mcm of natural gas (+47.7%).

“Recently, the progress of the energy sector reforms has become more tangible: gas and electricity pricing has been brought closer to the market principles, efforts to update Ukraine’s energy strategy have been stepped up, and key draft laws of the industry—the law on the electricity market and the law on the national regulator—are expected to be approved soon. These positive signals raise hopes that the energy sector would finally see system-wide changes, and we would move from administrative to market mechanisms, with clear and transparent rules applicable to all. During the first quarter, the generating units at the TPPs were idle or operated at the minimum generation level, but we hope that in the second quarter, the industry would feel the first results of the concerted effort by all branches of government and market players to revitalize the fuel and energy sector,” DTEK’s CEO Maxim Timchenko said, commenting the company’s performance in Q1 2016.

Key production indicators

Indicators

Unit

1Q 2016

1Q 2015

Change,

(+/-)

Change, (%)

Coal production

ths tonnes

7,228.7

6,831.5

397.2

5.8

Coal processing:

          

ROM coal processing

ths tonnes

5,401.5

4,686.7

714.8

15.3

Coal concentrate production

ths tonnes

3,356.7

2,785.2

571.5

20.5

Electricity generation

(net output)

mln kWh

9,803.3

11,009.2

-1,205.9

-10.9

including DTEK RENEWABLES

mln kWh

184.5

194.7

-10.2

-5.2

Electricity transmission by networks*

mln kWh

12,126.1

12,185.4

-59.3

-0.5

Electricity exports

mln kWh

1,146.0

844.0

302.0

35.8

Coal exports**

ths tonnes

280.7

263.1

17.6

6.7

Coal imports

ths tonnes

0

404.1

-404.1

-

Natural gas production

mln cub m

381.1

258.0

123.1

47.7

Gas condensate production

ths tonnes

12.5

9.3

3.2

34.4

*Excluding Krymenergo due to lack of operational control.

**Including trading operations outside Ukraine.

DTEK ENERGY

Coal production and processing

In the first quarter of 2016, DTEK miners produced 7.2 million tonnes of coal, which is a 5.8% YoY growth, enabling processing plants to increase their ROM coal processing and, respectively, concentrate production volume: 5.4 and 3.4 mln tonnes.

Main factors influencing the production performance:

  • The production of anthracite and lean coals at DTEK Rovenkyanthracite, DTEK Sverdlovanthracite and DTEK Mine Komsomolets Donbassa grew by 120.4%, or 908.5 mln tonnes during the reporting period. At that in January to March 2016, the companies increased the production by 20.1% or 278.7 ths tonnes vs 4Q 2015.

DTEK Mine Komsomolets Donbassa, which had been repeatedly shelled in 2014, contributed most to the production growth. It was made possible by the restored power supply to the fresh air shaft and operations of the ventilation facility in 2015, which helped resume coal production.

Furthermore, the company’s active participation in the restoration of the railway section Mykytivka-Maiorsk (traffic restored in August 2015) made it possible to ensure smooth supply of anthracite and lean coal from those companies. It helps increase the production volume.

In January to March 2016, coal mining companies supplied 1.3 mln tonnes of coal to Ukrainian thermal power plants (TPPs), which is by 200%, or 900 ths tonnes more than in 1Q 2015. In general, higher anthracite and lean coal supply helped eliminate shortage at TPPs, balance the electricity production by the thermal generating units and create required preconditions to approve the electricity generation mix in Ukraine for 2016.

  • During the reporting period, output of DTEK Pavlogradugol and DTEK Dobropolyeugol dropped by 7.7%, or 412.1 thousand tonnes.

Under-financing of the coal-fired generating capacities during the entire 2015 had its impact on the coal industry. Breakdown rate increased at the internal mine transportation chain, breakage and tunnelling equipment, resulting in coal production drop and lower tunnelling rate. Furthermore, capacity surplus in the Unified Energy System of Ukraine influences the high-volatile steam coal production.

Key projects in progress in the reporting period:

  • Tunnellers of the Samarska Mine made the first step to develop a new mine field with the coal reserves of 10 mln tonnes. They successfully drove through the largest West Donbas geological fault — Bohdanivskyi fault. This fracture discontinues the horizontal coal seams: the depth difference between the parts is about 300 meters vertically. Later three more workings will be driven through the Bohdanivskyi fault, and after that, miners will start cutting coal. It was the first successful experience of driving through such a large tectonic fault in the world.

  • Construction of an air shaft at the Yuvileina mine continues. The mine is assembling the electrical part of the hoisting machine at air shaft No.3, while also constructing the mine yard and headframe. The air shaft provides the mine with a sufficient amount of air for its stable operation.

  • We continue upgrading of the first section at Pavlogradska CCM. The project is aimed at increasing the plant’s capacity for processing of run-of-mine coal to 7 mln tonnes per year, which will reduce costs for processing by external processing plants and streamline the logistic chain “mine-coal processing plant-thermal power plant”. After the upgrading completion the plant will be able to stop using its sludge pond, which is vital for the region’s environmental situation.

Electricity generation

In Q1 2016, DTEK’s thermal power plants supplied 9.6 billion kWh of electricity, which is 11% down compared with the first quarter of 2015.

Main factors influencing the production performance are:

  • a declined electricity consumption in Ukraine in the reporting period: the demand in the industrial sector dropped by 9.8%, or 1,342 mln kWh, and from households and public utilities by 5.4%, or 718 mln kWh;

  • a shrinkage of the domestic electricity market due to terminated supplies to the Autonomous Republic of Crimea;

  • an increase in electricity output by hydro power plants and pump storage power plants in March 2016 by 37.9%, or 263.6 mln kWh, due to the higher water level in the rivers of Dnieper and Dniester.

The domestic market does not stimulate electricity generation: industrial production remains low, while the demand from household and public utilities dropped due to higher ambient temperatures compared with those in 1Q 2015.

Since 4Q 2015, the Unified Energy System of Ukraine has seen a surplus of capacities. This has reduced coal consumption by thermal power plants and put some generating units on standby. In particular, in 1Q 2016, DTEK Energy’s TPPs decreased coal consumption by 9%, or 504 ths tonnes, YoY. In this period, about 10 to 12 generating units of DTEK Energy’s TPPs did not produce and remained on standby.

Key projects in progress in the reporting period:

  • DTEK Energy has started a repair campaign of its units to get ready for the 2016-17 heating season.

  • We are completing a retrofit at unit 5 of Burshtynska TPP. Majority of unit upgrade works were done in 2012-13. This year, the plant has conducted a medium repair with some retrofitting activities (replacement of the generator stator). The following results are expected: an increase in capacity from 208 MW to 215 MW, efficiency improvement and better equipment reliability. Since 2012, we have started revamping electrostatic precipitators at all DTEK’s generating units being upgraded to comply with the dust emission level stipulated by Directive 2001/80/ЕС.

  • We began preparations to complete the retrofit at unit 1 of DTEK Kryvorizka TPP. We plan to increase the unit’s capacity from 282 MW to 315 MW and reduce fly ash emissions in the air to 50 mg/m3.

Electricity transmission by networks

Our distribution companies transmitted 12.1 bln kWh through networks from January to March 2016, which matches the level of the similar period of the last year.

Main factors influencing the production performance are:

  • electricity transmission by Kyivenergo and DTEK Dniprooblenergo in the reporting period remaining at the last year’s 1Q level — 8.2 bln kWh (+0.7%, or 54.4 mln kWh);

  • decreased electricity transmission by DTEK Donetskoblenergo by 10.3%, or 173.7 mln kWh, due to the military hostilities and unstable social and economic situation in the region.

Key projects in progress in the reporting period:

  • DTEK Donetskoblenergo. As part of restoration efforts, the company has installed a temporary by-passing 110 kV overhead transmission line to ensure reliable power supply to the town of Krasnohorivka, which is close to the line of contact.

  • DTEK Dniprooblenergo. The company continues the implementation of an automated electricity metering system in the cities of Dnipropetrovsk, Kryvyi Rih, Dniprodzerzhinsk, Novomoskovsk and Nikopol. The system has already covered over 108 households’ metering points.

  • A design is being developed to construct a 150/10/6 kV Naddniprianska substation, which will create an additional capacity for connecting new consumers and improve reliability of power supply to the current and planned substations powering an underground railway system. By 2020, the second underground stage is planned to be commissioned from the Vokzalna station to the Zhovtneva station.

  • Kyivenergo. The company continues a retrofit of the 110 kV kV Zhovtneva-Mototsykletna cable line, supplying power to the Mototsykletna and Tatarska substations. This year, we plan to complete the replacement of the oil-filled cable with a cross-linked polyethylene (XLPE) cable and perform land improvements along the cable run. The project will enhance the line’s reliability and transmitting capacity, which will allow power consumption growth.

  • We started the project on a retrofit of engineering infrastructure for the new airport terminal in Kyiv (Zhuliany). In the course of the project, we plan to conduct a technical renovation of the Nikolska and Harnizonna substations, to build the 35 kV Nikolska-Harnizonna cable line and the 10 kV Harnizonna-RP-267 cable line.

  • The mobile phone company’s coaches have trained the specialists of DTEK Dniprooblenergo’s and Kyivenergo’s specialists. The experience sharing sessions were aimed at improving the efficiency and prompt response of the call centres as well as the quality of servicing clients during peak hours.

Commercial activities

Coal supplies

In 1Q 2016, we supplied 281 ths tonnes of coal to external markets, which is 6.7% up YoY.

Regular deliveries of coal from the Ukrainian companies located in the anti-terrorist operation zone and persistent surplus of flexible capacities in the Ukrainian grid resulted in the availability of some coal for sale in both domestic and international markets.

Coal supplies to industrial consumers in Ukraine increased four times to 203 ths tonnes YoY. Coal sales under international business contracts were mainly from the Mine Office Obukhovskaya.

Electricity supplies

In January to March 2016, the company increased electricity exports by 35.8%, or 302 mln kWh.

Uninterrupted coal supplies from DTEK Rovenkyanthracite, DTEK Sverdlovanthracite and DTEK Mine Komsomolets Donbassa and coal stocks accumulation on our thermal power plants in accordance with the schedule ensured balanced operation of the Ukrainian grid. This made it possible to resume electricity supplies to Poland.

With Ukraine’s macroeconomic indicators staying low and electricity consumption by all consumers declining, the export supplies could help maintain production in the coal and generation sectors. But for this, it is necessary to make Ukrainian electricity competitive in external markets.

DTEK RENEWABLES

In 1Q 2016, the actual supply by the Botievo wind farm amounted to 184.5 mln kWh, which is by 5.2%, or 10.2 mln kWh, less than in 1Q 2016 due to a slower wind speed.

The wind farm’s availability factor was 99.5%. We managed to achieve such availability thanks to some organisational and technical measures, including the implementation of one of the most advanced turbine diagnostics systems in 1Q 2016. The system makes it possible to detect potential mechanical flaws in turbine operation before they become apparent. Its implementation enabled more accurate determination of the type, location and cause of the wear on mechanical parts at an early stage and preparation of a report with recommendations on how to eliminate the defect and prevent an emergency.

DTEK Oil & Gas

In 1Q 2016, Naftogazvydobuvannya produced 381.1 million cubic metres of natural gas and 12.5 ths tonnes of gas condensate, which exceeds YoY indicators by 47.7% and 34.4%, respectively.

Main factors influencing the production performance are:

• completed drilling of deep well No.18 in the Semyrenkivske gas condensate field

• completed workover of wells 10 and 70 in the Semyrenkivske field

• well flow rate stimulation measures.

Key projects in progress in the reporting period are:

• continued drilling of three deep wells, which started in the first half of 2015.

DTEK is a strategic holding company that manages three operational sub-holding companies with the assets in the coal production, thermal energy generation and distribution as well as alternative energy and gas production. 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 118 thousand people.

The assets portfolio of DTEK in coal production, thermal generation and distribution sectors is represented by 31 mines and 13 coal processing plants; ten thermal power plants and two combined heat and power plants with 18 GW of total installed capacity; and six electricity distribution companies, which provide services to over 4.4 million customers. The alternative energy sector is represented by one wind farm with the designed installed capacity of 200 MW. The proven reserves of natural gas (С1, С2) at three fields amount to 26 billion cubic meters.

In 2015, DTEK’s companies generated 38.3 bln kWh, including 634 mln kWh generated by the wind farm, transmitted 45.1 bln kWh of electricity, and produced 28.7 mln tonnes of coal and 1.3 bln cubic meters of natural gas.