The Ukrainian energy sector is rarely without scandal and controversy, and this can also be said of the country’s largest private energy company, DTEK.
Owned by a holding company called SCM, DTEK ultimately belongs to Ukraine’s richest man, the controversial billionaire Rinat Akhmetov. He is known as a king-making oligarch with a scandalous past that includes support for ex-President Viktor Yanukovych, who fled to Russia amid the EuroMaidan Revolution in 2014.
DTEK itself, which generates more than 20% of the nation’s power and has huge holdings in coal, oil and renewables, is accused of having a ruthlessly monopolistic approach to the Ukrainian energy sector.
The firm has been accused of creating artificial energy shortages and engaging in practices that increase electricity costs for consumers.
It also drew criticism for allegedly helping to create the controversial Rotterdam Plus pricing formula for coal, which cost Ukrainian energy consumers $750 million between 2016 and 2017, according to analysts and state investigators.
DTEK says everything it does is above-board and transparent, and its CEO of almost 15 years, Russian-born Maksym Tymchenko, defended his company in a combative and confident interview with the Kyiv Post.
Tymchenko said the firm is unfairly targeted by politicians and opponents who have a vendetta against DTEK, that Rotterdam Plus is the best deal for Ukraine and that DTEK will continue to aggressively expand its energy holdings.
Transformative times
Tymchenko was born in northwestern Soviet Russia in 1975 and was schooled in Donetsk in eastern Ukraine around the time that the country was gaining independence from the U.S.S.R.
Later he studied economics at Manchester University in England before returning to Ukraine, joining Akhmetov’s SCM Holdings in 2002 and eventually taking the helm of DTEK in 2005. He is both CEO and chairman of the company’s management board.
When Russia began its war against Ukraine in 2014, Tymchenko said that his firm, as well as the country, faced a battle for survival. He had to protect the company but also the lives and livelihoods of its employees, he said.
“When the conflict in Donbas started, about 30% of our assets were located in this territory, and we had to make very difficult decisions, starting with our people,” Tymchenko said.
DTEK relocated its headquarters to Kyiv and brought as many of its workers as it could, the CEO said, but in 2017 it had to cease coal mining and other activities in uncontrolled territories where Russian-backed militants and Kremlin-installed authorities held power and levied taxes.
“As a result of this, people lost their jobs, more than 30,000,” said Tymchenko.
The challenges of recent years also meant that DTEK was forced to adapt, innovate and aggressively expand. “Today my priority is the transformation of DTEK,” Tymchenko added.
Gradual greenification
DTEK, and Ukraine more broadly, have certainly not turned away from fossil fuels. After nuclear energy, which provides between 55% and 60% of the nation’s electricity, coal and oil are still dominant.
By comparison, renewables only fulfill just over 3% of Ukraine’s energy needs, and DTEK contributes about one-fifth of that amount.
“We were quite visionary by starting investment in renewables 10 years ago, now I think we are one of the most experienced companies in the renewable sector, in the full spectrum,” said Tymchenko, “starting from development, through to construction and circulation. Now we operate 950 megawatts of installed capacity.”
On Nov. 15, DTEK opened another large wind farm on the eastern Azov Sea coastline, bringing its total installed wind capacity in that area to 500 megawatts, enough to power nearly a million households.
A couple of weeks earlier, the company opened a giant, 240-megawatt solar power station nearby. It’s the largest in Ukraine, and the second-largest in Europe after a slightly bigger facility in the south of France.
The launch of the new facilities came hot on the heels of DTEK successfully placing Ukraine’s first-ever green bond offering, valued at $360 million, on the international market. The bond has proved popular, Tymchenko says, and is earmarked only for financing or refinancing the firm’s solar and wind projects.
“With the green tariff and green energy bonds, I think it was a great achievement for our team,” Tymchenko said of his firm and its growing renewable portfolio.
“That we convinced investors to trust Ukraine and our company and to invest in DTEK… the bond is performing well so far, and I think that the performance of this bond will be a very good indication of what’s happening in the sector of renewable energy in Ukraine,” he added.
Even though it had to close Donbas coal mines and relocate its offices, DTEK has not abandoned eastern Ukraine, and remains one of the region’s most significant backers and investors. But the eastern oblasts, which were long dominated by coal mining and heavy industry, won’t join the green revolution overnight.
“Transformation in terms of the coal sector and coal business is a challenge and we need to address it,” Tymchenko said. “But not simply by replacing coal business with renewables. We are responsible for the territories and the people who work in this sector, and we see that the coal industry will stay in Ukraine for quite a while.”
DTEK’s wind turbines operate at sunset in Zaporizhia Oblast on Nov.15, 2019. (Kostyantyn Chernichkin)
Rotterdam Plus
The controversy around coal does not end with the fact that it’s extremely polluting and carcinogenic. It also, according to many experts, results in high electricity costs for Ukrainian consumers. Or at least it did under the Rotterdam Plus pricing formula.
The pricing scheme, adopted by Ukraine’s energy regulator in May 2016, set Ukrainian coal energy prices by averaging an international coal index used in the coal hub of Rotterdam. The “Plus” is an added cost of the coal’s delivery from Rotterdam to Ukraine. That is problematic because not much of Ukraine’s coal actually comes from the Rotterdam hub.
Supporters of the formula claim that it is transparent, superior to the government’s subjective pricing and prevents corruption. Critics disagree and say the formula has forced Ukrainian consumers to pay Rotterdam prices for coal that is usually from eastern Ukraine or Russia. This coal is inferior and should cost less than coal sold in the Rotterdam hub, they argue.
DTEK has been accused of colluding with the Ukrainian energy regulator to introduce the formula and benefiting from high energy prices while continuing to import cheaper coal. Tymchenko strongly defends the formula against such criticism, blasting those who he said “manipulate the story” to attack his company.
“All the stories with the Rotterdam Plus formula, this is the example of… manipulation,” Tymchenko said. “You will never buy coal cheaper than the Rotterdam Plus formula… It is impossible to bring coal cheaper than this.”
“I want to spend less time explaining (this) and more time building new wind farms,” he added, complaining that the “manipulation” and “false information” around the subject harm DTEK and the energy sector in general.
“I want to change the attitude of Ukrainians to energy companies. They should feel that they get very high quality of service, and I want to feel like a European when I consume electricity services here. And I would rather do that than be answering questions about manipulative information,” Tymchenko said.
Gerus vendetta?
As a member of parliament and chair of the Verkhovna Rada Committee on Energy and Housing, Andriy Gerus has been outspoken against DTEK.
As Zelensky’s representative to the Cabinet of Ministers, he wielded even more power, but he was removed from that position on Nov. 11.
Gerus has regularly criticized Rotterdam Plus, saying it benefits DTEK and not consumers and alleging that it has cost Ukraine about $1.2 billion. He also told the Kyiv Post that he found it difficult to believe that the Ukrainian energy regulator came up with the formula without outside assistance.
State investigators have been probing alleged collusion between the regulator and people linked to DTEK, the investment bank ICU and former President Petro Poroshenko, who was said to have benefitted from DTEK’s soaring Eurobonds following the introduction of the formula.
Tymchenko fears that Gerus has a vendetta against DTEK. “At some point, you should switch from being a Facebook guy to a politician who is moreover appointed to one of the most important committees in parliament,” he said dismissively.
“And in your activity, you should be very much in a neutral position – not only towards DTEK but also about consumers and producers of electricity, investors and households.”
Gerus has also alleged that DTEK fixes energy prices, has a monopoly in Ukraine and has created artificial shortages in some energy market segments in order to drive profits.
DTEK has repeatedly denied the allegations and says its activities are totally transparent.
Gerus also points to the company having an unfair advantage in the most expensive energy market segments as only larger, state-owned energy producers have been limited by regulations.
Tymchenko dislikes the scandals and says he is focused on building relationships, not settling scores. “You cannot build success without building good and constructive relationships with the government,” he said. “We always try to build constructive and balanced relationships with all ministers… and that’s what I would like to see from all counterparts from the government or from the parliament.”
Future growth
Put politics aside, and Tymchenko is a more relaxed speaker. He is especially happy when talking about his company, which he is obviously proud of, and the future, which he is clearly excited about.
“The Ukrainian energy sector is one of the most underinvested sectors on the European continent… we need up to $90 billion in investment… with much of that into infrastructure and generation,” he said. “I think that we have a lot of opportunities.”
And DTEK is ready for more partnerships, Tymchenko says, “in all segments where we operate.”
Tymchenko confirmed that his company is looking to increase its energy holdings and to further expand across Ukraine.
“More and more, we are thinking about partnerships with other players. So we want to invite other companies, not only as investors but also as equity partners, with us,” he said. “This is one of our dreams: developing new, big projects, big partnerships with foreign companies.”
With renewable energy auctions about to kick in for Ukraine and the lucrative green tariff set to expire, Tymchenko says that DTEK will also increase the size of its portfolio and cement its position as a leader of the country’s gradual greenification. “Our position is to continue, to be competitive.”
Kyiv Post staff writer Igor Kossov contributed to this story.
