Forced into involuntary bankruptcy by creditors, Luhanskobenergo has lost its grid at an auction
Ukrsotsbank may have purchased Luhanskoblenergo’s entire electricity grid at a fire-sale price during a controversial auction held March 24.
The auction was precipitated by the involuntary bankruptcy of Luhanskoblenergo, Ukraine’s fourth-largest electricity distributor. Ukrspetsyust, a division of the Justice Ministry responsible for holding such auctions, sold the grid. Ukrsotsbank spokeswoman Marina Holub said the bank paid $21.2 million for the grid – far less than the $50 million to $100 million analysts say the grid is worth.
The grid, or the electric cables that connect an oblenergo to its customers, is an oblenergo’s principal asset. Without it, an oblenergo is an oblenergo on paper alone.
The sum Ukrsotsbank paid for the grid also falls far short of the $130 million Luhanskoblenergo owes Energorynok, Ukraine’s wholesale energy market. Energorynok initiated the bankruptcy case against Luhanskoblenergo last October, and in November the High Arbitration Court ordered the grid’s sale.
Luhanskoblenergo shareholders have filed suit in a Luhansk oblast court challenging the asset sale.
Before Ukrsotsbank can operate the grid, it must be licensed by the National Energy Regulatory Commission. Luhanskoblenergo continues to supply electricity and collect payments from customers.
Collecting from customers has proved difficult for Luhanskoblenergo in the past.
Luhanskoblenergo’s customers have been paying for around 50 percent of the electricity supplied to them in recent months. As a result, Luhanskoblenergo has one of the worst cash payment and collection records in Ukraine.
A 35 percent stake in the company was privatized during the mid-1990s and sold to an influential business group headed by 26-year-old Konstantin Zhevago, now a parliament deputy. The group’s stake in Luhanskoblenergo was revoked by a government-initiated court ruling in June. The debts that accumulated during the group’s reign at the oblenergo remain, however.
Despite Luhanskoblenergo’s problematic history, Kamil Goca, research director at Dragon Capital, opposes the asset sale.
“All of these oblenergos have the same problem … lots of receivables and lots of debts,” Goca said. “But this is not the way to solve the debt problem. What you are left with is a state company that is up for privatization, but there is nothing left of it to privatize.”
The government owns 60 percent of Luhanskoblenergo’s shares.
“Many of these debts are from state-owned companies. The government could easily offset them,” Goca added.
Oleksandr Pecherytsyn, chief of research and analysis at Alpha Capital, voiced similar opposition.
“There should have been a different mechanism for settling the debt, like restructuring it, for instance,” Pecherytsyn said. “Maybe someone didn’t want to find such a mechanism. This is a bad precedent.”
Prime Minister Viktor Yushchenko has vigorously opposed asset sell-offs. His government successfully prevented a similar sale earlier this year involving thermoelectric generator Donbasenergo.
Yushchenko recently launched a commission to look into the Luhanskoblenergo sale to determine whether it was legal. But he admits that he may be unable to prevent the sale.
