Following major investment bank's advice, Cabinet approves directive it believes will make Ukraine's debt-ridden energos more attractive to investors
binet of Ministers approved a directive that officials believe will make Ukraine’s energy sector more attractive to foreign investors.
According to First Deputy Prime Minister Yury Yekhanurov, the Cabinet originally planned to deliver a statement on the steps it would take to create more favorable conditions for the purchase of the country’s debt-ridden power supply companies, or oblenergos.
However, following the advice of Credit Suisse First Boston, the government’s adviser on power company privatizations, the Cabinet instead decided to issue a twelve-point directive outlining measures the government said it will take to meet conditions investors have set if they are going to take part in the privatization of Ukrainian power companies, Yehanurov said.
In the directive, which Cabinet members signed in the presence of CSFB representatives, power supply companies will have the right to suspend electricity supplies to consumers if consumers fail to timely pay for electricity.
It also says that the government guarantees settlements with regional power supply companies for electricity supplies to the various categories of electricity consumers to whom the government has granted privileges or subsidies.
The directive stipulates that if 100 percent of the subsidy costs is not paid from the state budget, the debt resulting from the subsidies will be transferred to the Energorynok wholesale electricity enterprise, which will offset the debt against payments for electricity bought by the power companies.
The Cabinet of Ministers also agreed to restructure the debts of the regional power supply companies that are intended for privatization. The debts owed by these power companies as of the date that an agreement is signed for their sale will be restructured instead of the debt they owed as of Jan. 1, as was previously planned.
The directive also approves procedures drafted by the National Electricity Regulation Commission for determining electricity transmission and supply tariffs.
These procedures provide for raising the current tariffs by an average of 10-11 percent and raising the profitability rate of power companies to 17 percent.
CSFB representatives present at the signing said that the investment bank was unable to predict to what extent investors would be pleased with the directive’s measures.
“It is difficult to say. Further consultations with [investors] are necessary,” said Serhy Sivoplias, one of the bank’s representatives.
At the same time, Sivoplias said that the new method for determining tariffs for electricity supply and transmission only partially meets with investors’ demands. One of the main demands of investors has been the adoption of new procedures for determining such tariffs and raising their amounts.
Other investor demands are the abolition of all bans on disconnecting electricity supplies to debtors and restructuring power company debts.
The state has thus far relinquished control of seven out of Ukraine’s 27 power supply companies.
