Ahead of Ukraine’s long, energy-consuming winter, coal reserves in the country’s power plants are dangerously low.
As of Sept. 8, reserves in the nation’s coal-fired plants were at 759,000 tons, less than half of the 1.8 million tons the government planned to have this time of year, according to the parliamentary energy and utilities committee.
Stockpiles at every plant owned by state energy company Centrenergo are below the legal minimum. Centrenergo burned through much of its supply after being asked to step up generation by the government throughout 2021.
This has now led to a crisis at the enterprise, which is short on coal and lacks funds to replenish its supply. Centrenergo’s only hope to work through the winter is to receive emergency government funds to purchase coal.
However, Oleksandr Kharchenko, managing director of energy consultancy Energy Industry Research Center, believes that the crisis can be blamed on the company’s poor governance.
“The quality of management is very low. I don’t see Centrenergo’s management team doing the right things at the right time,” he told the Kyiv Post.
“Coal is a huge market, it’s very open, you have a lot of logistical options, it’s not a problem at all,” he said. “It’s just a question of how you manage your supply.”
Troubled history
Centrenergo is no stranger to scandal. From July 2019 to May 2020, it was run by Volodymyr Potapenko, whom the media linked to controversial oligarch Ihor Kolomoisky.
A Radio Free Europe/Radio Liberty (RFERL) investigation revealed that two companies linked to Kolomoisky overcharged Centrenergo by 20% when selling it $150 million worth of coal.
Kolomoisky denied that Potapenko was under his control, but told reporters that Potapenko is a director he “understands.”
Investigative outlet Bihus.Info wrote in April how a company called Ukrvuhlezbahachennya Group, also linked to Kolomoisky, made at least $4.5 million in the first two months of 2021 by buying coal from Ukrainian mines at $45 per ton and selling it to Centrenergo at $61 per ton.
In the fall of 2020, D.Trading, part of Rinat Akhmetov’s DTEK Group, which owns most of the coal power plants in Ukraine, sold coal to Centrenergo for 10-20% more than what DTEK’s own plants were paying. D.Trading refused to comment to RFERL.
In May 2020, Dmytro Sennychenko, the head of the State Property Fund, which owns 78% of Centrenergo, told reporters that $3.75 billion had been “siphoned off” from the company since 2004. That month, the Fund appointed Oleksandr Korchinsky, an industry veteran, to replace Potapenko.
Korchinsky didn’t last long. Acting CEO Yuriy Vlasenko replaced him in February 2021. In spite of all these management changes, Centrenergo lost $22 million in the first half of this year.
In August, the enterprise requested financial assistance from the government and is likely to receive it soon.
Deputy Energy Minister Yuriy Vlasenko, who is not related to his namesake at Centrenergo, announced on Sept. 8 that his ministry is adding provisions to the state budget to purchase 1 million tons of coal for the beleaguered energy company.
Energy Minister Herman Halushchenko said the country will need to import a total of 3.5 million tons during the upcoming heating season.
State railway operator Ukrzaliznytsia makes Centrenergo’s problems worse. Ukrzaliznytsia does not have enough functioning coal trucks to make all the necessary deliveries, Andriy Gerus, the head of the parliamentary energy and utilities committee, told the Kyiv Post.
“It’s a crazy situation, when coal gets stuck at mines instead of being taken to power stations,” said Gerus.
Overall, Kharchenko believes that the State Property Fund is short-sightedly trying to find a buyer without first fixing its governance and procurement structures.
In its current state, Centrenergo will be waiting a long time for a takeover bid. “I can’t see how any private investor in their right mind would buy it,” Kharchenko said.
The town of Ukrainka, with a population of 16,000, stands in the foreground of Centrenergo’s Trypilska Thermal Power Plant in Kyiv Oblast on Sept. 8, 2021. (Oleg Petrasiuk)
Low electricity prices
Centrenergo’s coal shortage can be traced back to DTEK. Centrenergo had to pick up the slack when DTEK decided not to run its plants at full capacity due to low energy prices.
The nadir came at the beginning of July when D.Trading suddenly halted almost all activity on the day-ahead energy market, where grid operators and traders can bid on electricity for the following day.
This caused energy prices on the day-ahead platform to crash by 70% in a week, forcing the National Energy and Utilities Regulatory Commission to step in and set a price floor.
An investigation into the crash is ongoing, but officials have suggested that D.Trading crashed the market to squeeze out competitors and put pressure on the Commission.
“The price collapse in July, which was caused by the excessive market dominance of certain companies, made life more difficult for other companies,” Gerus said.
Gerus emphasized that Centrenergo isn’t the only operator breaking regulations with its low coal stockpiles: DTEK and Donbasenergo, the other two coal-power operators, are also running deficits.
Without replenishment, the stockpiles of G-grade coal — the main type used in Ukrainian power stations — will currently last for an average of 18 days at DTEK’s plants; far below the government’s schedule, but still higher than the Centrenergo average of seven days.
The difference is that DTEK has plenty of funds to buy emergency supplies of coal on the global market if necessary, while state-owned Centrenergo doesn’t.
Despite having the eighth-largest proven coal reserves in the world, Ukraine has been a net importer of fossil fuel for years due to the deteriorating quality and high cost of coal being dug up by badly run, unprofitable mines.
Ukraine now imports almost half its coal, and 70% of that comes from Russia, according to the U.S. Energy Information Administration.
Future phaseout
Coal currently produces about 30% of Ukraine’s electricity, but the Energy Ministry plans to significantly lower this proportion within the next decade due to the global shift away from fossil fuels towards renewable energy.
Under the terms of the Paris Climate Agreement, Ukraine has pledged to cut emissions to 65% of 1990 levels by 2030. The government has also promised carbon neutrality by 2060.
From 2026, the European Union plans to introduce a Carbon Border Adjustment Mechanism, a form of carbon tax on imports that will punish goods from countries with ‘dirty’ energy sources.
The need to switch to alternative power is all the more urgent because Ukraine’s coal plants are 50 years old on average, well over their 40-45 years technical lifespan.
“I don’t believe that the Ukrainian government can prolong the lifespan of coal power stations any longer,” said Kharchenko.
