Donbasenergo may join wave of reprivatization

| Kyiv Post
Another of the company’s power plants, Slovyanska, is not currently working because of shelling from the war. Both plants urgently need modernization, Dragon Capital investment company said in the report.

Previously state-owned assets sold to private investors may soon become government property again, including Donbasenergo.

Donbasenergo runs two coal-fired power stations in war-torn Donetsk Oblast. The government is talking about regaining majority control and then reprivatizing the energy firm.

On Feb. 3 the Higher Administrative Court partially satisfied the state prosecutors’ claim that the Aug. 21, 2013 sale of the 61 percent stake in Donbasenergo to Igor Gumenyuk’s Energoinvest Holding was illegitimate.

Gumenyuk held the chief executive officer position at ARS, a coal trader founded by billionaire Rinat Akhmetov, a major player on the energy and steel scene.

The sale of the company was not cancelled, but instead returned to a court of lower jurisdiction, while the hearings there could take many more months.

TehNova, Energoinvest Holding’s competitor for Donbasenergo, was also suing the privatization auction results in court.

Energoinvest Holding paid only Hr 719 million for a 61 percent stake in the Donbas-based electricity producer. This is the cheapest price in relation to production capacity paid for any power generating company, said Oleksandr Parashchiy, head of analysis at Concorde Capital, an investment house in Kyiv.

Dutch Energoinvest Holding B.V. has majority 92 percent stake in Kyiv-based Energoinvest Holding. The ultimate ownership of the Dutch company is hidden behind a foundation Stichting Administratiekantoor Whitebridge Resources of unclear country origin.

Energoinvest itself declares Gumenyuk as its beneficiary. However, many doubt that he is the ultimate majority shareholder of the company.

Serhiy Leshchenko, a member of parliament with the Bloc of President Petro Poroshenko, said it’s Oleksandr Yanukovych, son of former president Viktor Yanukovych, who controls the company. Mako, Oleksandr Yanukovych’s holding that manages his assets, denied this.

Kyiv Post’s sources say Kub-Gaz, a gas developer operating in Ukraine, also has a stake in the company, while Kub-Gaz is associated with former energy minister Yuriy Boyko and member of parliament Yukhym Zvyagilsky.

Meanwhile, the state has a 25 percent stake in Donbasenergo and 14.2 percent are traded on the Ukrainian Exchange, nation’s leading equity trading platform. Share price dropped by 10 percent since the beginning of the year amid the war in the Donbas region.

The energy market regulator prohibited Energorynok, a trading monopoly, from paying for power produced on the territory occupied by Russian forces and their proxies. Donbasenergo’s Starobeshevska plant is a subject to this ban since it is located in insurgent-held area.

Another of the company’s power plants, Slovyanska, is not currently working because of shelling from the war. Both plants urgently need modernization, Dragon Capital investment company said in the report.

For the first nine months in 2014, Donbasenergo reported Hr 725 million in net profit, 12.4 percent up year-on-year.

While re-privatization may seem to be a good idea to some, like Dnipropetrovsk billionaire governor Igor Kolomoisky, others are getting nervous.

Taking away assets sold through auctions threatens a further loss in investor confidence.

However, some experts think re-privatization of former government-owned assets acquired at rock-bottom prices will benefit the country. Most of those non-transparent, non-competitive sales took place under the corrupt crony capitalism of ex-President Leonid Kuchma and Yanukovych.

Michael Jager, managing director of the European Economic Senate, a Brussels-based group that lobbies business interests with European Union authorities, said any reprivat-izations should be done quickly and transparently.

Ukraine’s Justice Ministry, in a note on re-privatization, says: "This term is often used by politicians, journalists and experts while discussing the future of privatization process. In the conscience of an ordinary citizen, re-privatization is associated with the forced return of privatized assets to state property."

The most famous re-privatization took place in 2005, when the government of ex-Prime Minister Yulia Tymoshenko undid the sale of Kryvorizhstal, a steel maker, to Akhmetov and Viktor Pinchuk for $800 million. Later that year, global steel giant ArcelorMittal bought the plant for $4.8 billion.