090309 investors presentation ukraines power sector

7/28/2019 090309 Investors Presentation Ukraines Power Sector

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BENCHMARK FOR UKRAINES POWER SECTOR

March 2009


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Sector Overview


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4

Ukrainian Market: Opportunities for Growth

0

2,000

4,000

6,000

8,000

10,000

12,000

2005 2006 2007 2008 2009 2010 2011 2012

GDP/Capita

Country info

Ukrainian

energy policy

Security of energy

supply

Environmental

concerns

Modernisation

National, social

and politicalconstraints

The Ukrainian economy has seen the

fastest growth among CEE countries in

recent years

Investment needs are driven by thedemand to modernise outdated existing

production capacities and introduce

energy saving technologies

Energy policy is driven by these

investment needs as well as security ofsupply for both commodities and

electricity

Source: EIU

GDP per capita (USD PPP)

Slovakia

Poland

Hungary

Romania

Belarus

Ukraine

Moldova

Russia

Donetsk

KYIV

Slovakia

Poland

Hungary

Romania

Belarus

Ukraine

Moldova

Serbia

Russia

Donetsk

KYIV

Slovakia

Poland

Hungary

Romania

Belarus

Ukraine

Moldova

Russia

Donetsk

KYIV

Slovakia

Poland

Hungary

Romania

Belarus

Ukraine

Moldova

Serbia

Russia

Donetsk

KYIV

Area: 603,700 km3

Population: 46.3 mln GDP (PPP): USD 324 bln

Local currency: Ukrainian Hryvnia (UAH)

USD 1 = UAH 7.7 (30/01/09)


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5

Fuel and Energy Resources Consumption in Ukraine

TOTAL 205 mil toe including

oil and gas 112 mil toe (55%)

coal 48 mil toe (23%)

uranium and other

types of fuel 45 mil toe (22%)

Imported fuel

Own fuel resources

112.4 mil toe(55%)

92.8 mil toe(45%)

26%74%

47%53%

89% 11%


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6

Current Electricity Market Model

Benefits of the existing model:

Simplest in terms of organisation, pricing and market management

Actual guaranteed purchase of electricity by the single wholesale supplier (bilateral contracts market does not have such a guarantee)

Flaws of existing model:

High level of administrative interference in tariff-setting

Imperfect system of contractual relations and price-setting, cross-subsidising Absence of system and ancillary services market

As part of ECU NJSC45.58 TWh

DTEK: Eastenergo12.61 TWh

Market operator:Energorynok PE

As a part of

NJSC ECU76.41 TWh

DTEK:

Servis-Invest

PES Energougol

7.48 TWh

Export

Export Operator:

PE Ukrinterenergo8.38 TWh

Independentsuppliers

13.74 TWh

NPPs83.31 TWh

HPP

11.95 TWhCHPP

5.58 TWh

Other generators,

wind power plantsinclusive

0.16 TWh

AES

6.28 TWh

Energy Standard

8.46 TWh

VSE12.61 TWh

Ukrenergoconsulting13.23 TWh

System and Main

Network Operator:Ukrenergo NJSC

Other suppliers at regulated tariff

7.84 TWh

Suppliers at regulated tariff

132.30 TWh

Generation Electricity supplyRegulator/market operators

NERC

Ministry of Fuel and Energy

146.05 TWh159.19 TWh

Consumersin Ukraine

Export

Consumption


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2008 2009 2010

Power supply companies privatisation

Stage-by-stage switching to incentive tariff setting for power distribution

Thermal generation privatisation

Implementation of the target model of electricity market

Revising the concept of WEM development. Preparation

of legal and technical base for the new model

Passing the Law on

State Regulation

Switching to competitivecoal market model

Passing the Law on privatisation in Coal SectorMines privatisationProduction

Generation

Distribution

2011

Key Stages and Expected Timelines of SectorReformation

7


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BUSINESS OVERVIEWBUSINESS OVERVIEW


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9

Companys Business Development

9

A group of 15 enterprises ranging from coal production and enrichment to electricity supply is combined asDonbass Fuel-Energy Company (DTEK)DTEK Group is formed by three key companies: power generating company Vostokenergo, power supplycompany Service-Invest, and coal mine Komsomolets Donbassa

DTEK acquires State Holding Company Pavlogradugol OJSC comprised of 10 mines and 2 coalenrichment plants in the Western Donbass region

DTEK Corporation is officially registered on July 6, 2005, and the vertical integration of Donbass Fuel-EnergyCompanys enterprises is completed

DTEK acquires PES-Energougol OJSC, a company supplying power to 25,500 consumers, with more than1,000 km of overhead transmission lines and 380 step-down sub-stations

First credit ratings from Moodys (B2) and Fitch (B+). Both ratings are one notch belowUkraines sovereign rating. Company buys two coal enrichment plants: Oktyabrskaya CEP andDobropolskaya CEP

2002

2005

2006

2007

2008 DTEK successfully places its first public syndicated loan of US$150 millionDTEK publishes its first Social Responsibility Report

Signs first ECA Finance deal

2004

2009


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DTEK INTEGRAL PART OF SYSTEM CAPITAL MANAGEMENT

10

Coking coalproduction

Coke production

Metal production

Energy and cokingcoal production

Electricitygeneration

Electricitydistribution

Banking

Insurance

Telecommunications Real estate

Construction


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DTEKs Assets

11


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12

Market Share

Total for Ukraine in 2008:

Coal production 77.8 Mt

* excluding export

DTEK market share:22.6 %

Source: DTEK, Energobusiness




Production 72.4 TWh


Transmission* 161.3 TWh

COAL GENERATION DISTRIBUTION

DTEK is the largest privately owned company in the Ukrainian power sector

DTEK controls significant market share in key segments, second only to the state owned enterprise

Energoatom


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13

OPERATING STRUCTURE

2008 Revenue Structure (unaudited)

(in USD* MM)

COAL GENERATION DISTRIBUTION OTHER

Source: DTEK

Komsomolets Donbassa, OJSC(1 mine)

Pavlogradugol, OJSC(10 mines)

Enrichment plants(5 plants)

Vostokenergo, LLC(3 TPPs)

PES-Energougol, OJSC

Service-Invest, LLC

Sotsis, LLC(social infrastructure maintenance)

Service Enterprise, LLC(transportation and security services)

Ecoenergoresurs, LLC(processing of colliery waste and tailing

storages)

1378(41.8 %)

1079(32.6 %)

78(2.4 %)

765(23.2 %)

*-the average annual exchange rate is 5.27


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BUSINESS OVERVIEW


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15

Overview of Business Divisions

CoalProduction

Generation

Distribution

Assets Operating statistics Historical

Pavlogradugol OJSC

KomsomoletsDonbassa Mine

Pavlogradskaya CEP

Mospinskoye CEP

Kurakhovskaya CEP

Eastenergo

Zuevskaya TPP

Kurakhovskaya TPP

Luganskaya TPP

Tehrempostavka

Service-Invest

PES-Energougol

Historical coal production (ths. t)

Historical electricity generation (GWh)

Historical electricity transmitted (GWh)

unit 2008

Generation GWh 18,519

Utilisationrate

% 51,7

Market share % 25.4

unit 2008

Transmission GWh 13,510

Losses % 1,6

Market share % 6,5

unit 2008

Coal

production ths. t 17,594.6

Coalenrichment

ths. t 11,729.3

Market share % 22.6


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COAL BUSINESS

DTEKs two coal enterprises are locatedin the eastern part of Ukraine

Pavlogradugol OJSC is the largest coalmarket player in Ukraine and includes10 fully operational mines

Komsomolets Donbassa mine is thelargest steam coal producing mine in

Ukraine with a total annual output of3.4 Mt

KomsomoletsDonbassa minePavlogradugol

for 2008 PavlogradugolKomsomolets

DonbassaTOTAL

Coal output (in Mt) 14,2 3,4 17,6

# of mines 10 1 11

Ash content (%) 36,9 33,7 35,3

Market share (%) 18,2 4,4 22,6

Recoverable reserves (in Mt) 716,6 123 874

Reserves useful life span (years) 61 36 56

Labour productivity (t/worker) 62,7 71,7 64.3

Headcount (# of ppl) 28308 5 194 33502

Coal grade* G, DG T

DTEK

* G, DG grades High volatile thermal coal ; T grade - Low volatile thermal coal16

KIEV

KEY STATISTICS

GEOGRAPHICALLOCATION


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4 673 4 611

4 231

4 0293 784

3 566 3 5603 319

3 1742 92 9 2 97 2

Krasnoarmeyskaya-Zapadnaya

Donbassminegroup

Krasnolim

anskaya

KomsomoletsD

onbassa

Nadiam

ine

Pavlogradugol

Anthracite

Rovenkianthracite

Sverdlovanthracite

Krasnodonugol

Dobropolyeugol

Market Position in 2008

Production of ROM coal, thou.tons and ash content, %Production cost of 1 ton of ROM coal, UAH/ton

Average monthly productivity of extraction miner, ton/minerAverage monthly wages of personnel, UAH/month

14163

6181 61106000

50874095

3432

2063 1830 1561

41,9%36,9%

39,1% 39,3%

36,1%38,3%

33,7%34,4%

39,7%

35,3%

Pavlogradugol

Krasnodonugol

Sverdlovanthracite

Rovenkianthracite


Dobropolyeugol

KomsomoletsD

onbassa

Antra

cite

Krasnolim

anskaya

DonbassMineG

roup

530,9

377,9

329,4 328,9

267,4 250,1222,2 21 8 211,9

DonbassMinegroup

Krasnolim

anskaya

Antra

cite


Rovenkianthracite

KomsomoletsD

onbassa

Pavlogradugol

Sverdlovanthracite

Dobropolyeugol

72,1 71,7

62,7

55

41,4 40,1 35,9

33,9 30,2 29,2

Krasn

oarm

eyskaya-Za

padn

aya

KomsomoletsDonba

ssa

Pavlog

radu

gol

Sverdlovan

thracite

Krasnolim

anskaya

Rovenkianthr

acite

Krasno

donu

gol

Anthracite

Dob

ropoly

eugol

Donba

ssmin

egrou

p

17


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GENERATION BUSINESS

Vostokenergo Ltd includes 3 TPPs Kurakhovskaya, Zuyevskaya andLuganskaya

All three TPPs are located in theeastern part of Ukraine

Total installed capacity of DTEKpower generation in 2008 was 4,058

MW

DTEK

for 2008Zuyevskaya

(TPP)Kurahovskaya

(TPP)Luganskaya

(TPP)Vostokenergo

Installed capacity (MW) 1 200 1 460 1 398 4 058

Available capacity (MW) 1 200 1 400 1 261 3 861

Electricity generation (GWh) 5,1 5,8 5,9 16,8

Thermal generation market share (%) 7,7 8,8 8,9 25,4

ICUR* (%) 51,79 50,45 53,11 51,77

Equivalent fuel consumption (g/kWh) 354,6 398,5 413,7 390,6

Coal grade** G, DG G, DG T, A

Headcount (# of ppl) 1 800 1932 1922 5799

* ICUR Installed Capacity Utilization Rate

** G, DG High volatile thermal coal T Low volatile thermal coal A - Antracite

LuganskayaTPP

ZujevskayaTPP

KurahovskayaTPP

18

KIEV

KEY STATISTICS



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Vostokenergo

18,1

27,0%

Dneprenergo

15,3

22,8%

Donbassenergo

6,19,1%

Zapadenergo

13,7

20,5%

Centerenergo

13,920,6%

NPPs

84,6

49,0%

TPPs

66,0

HPPs and

HPSPs

10,8

6,2%

Others

11,1

6,5%

NPPs

87,3

49,8%

TPPs67,1

38,3%

HPPs and

HPSPs

9,6

5,5%

Others

11,3

6,4%


Electricity supply structure in Ukraine, TWh

Total supply

volume

TPP supply

2007175.3 TWh

2008172.5 TWh

2007 2008

Vostokenergo

16,8

25,4%

Dneprenergo

14,7

22,3%

Donbassenergo

6,59,8%

Zapadenergo

13,620,6%

Centerenergo

14,4

21,9%

19


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22 24

3136

56

Dneprenergo Centerenergo Donbassenergo Zapadenergo Vostokenergo

386

402

421

406

391

Dneprenergo CenterenergoDonbassenergo Zapadenergo Vostokenergo

5,9

14,1

6,3 6,3

1,1


Installed capacity utilisation rate, % *Specific fuel consumption, g/kWh

Share of gas in fuel structure, %

31,13 32,2634,10

35,5433,75

30,4331,26 31,10

34,43

27,12


Supply tariff and production cost ofelectricity, c/kWh

*Vostokenergo ICUR net of unit 12 and turbine -100 (1ststage) ofLuTPP

Vostokenergo ICUR including this equipment 51.7%

20


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DISTRIBUTION BUSINESS

In the power supply market DTEK isrepresented by two companies:Service-Invest LLC and PES-Energougol OJSC

Both distribution companies arelocated in the eastern part of Ukraine,near a number of big industrial

customers

DTEK

PESEnergougol

Service-Invest

for 2007 Service-Invest PES Energougol TOTAL

Transmission of electricity (GWh) 12 492,8 1 038,5 13531,3

Market share (%) 5,8 0,7 6,5

Losses: (%)

- allowed

- actual

2,2

1,1

8,6

4,9

2,67

1,39

# of customers 900 26 620 27 520

Network length (km) 2 576 1 215 3 791

Revenue per customer (in US $000) 4007 16 147

Collection rates (%) 100 101 100

21

KIEV

KEY STATISTICS



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Tradable electricity supply from the wholesale market (WEM) to electricity suppliers, TWh

2007 2008

ECU NJSC AES VSE Privat+DK LEO

VinnitsaoblenergoTernopoloblenergoKhmelnitskoblenergoChernovtsyoblenergo

DneproblenergoZaporozhyeoblenergoDonetskoblenergoKievenergoCherkassyoblenergoKrymenergoVolynoblenergoZakarpatyeoblenergoNikolaevoblenergoKharkovoblenergo

KievoblenergoRovnoenergo

KirovogradoblenergoZhytomiroblenergoSevastopoloblenergoOdessaoblenergo

Khersonoblenergo

ChernigovoblenergoPrikarpatyeoblenergoLvovoblenergoPoltavaoblenergo

Sumyoblenergo

Lugansk EnergyUnion

Tradable electricity supply

from the wholesale market

in 2008 decreased by 1%

compared to 2007

Share of state-owned

companies in the totalvolume of purchased

electricity reduced to 47%

of total electricity supply

from the market

Share of DTEK distribution

companies in the total

volume of electricity

purchased from WEM

increased to 6.5%

ECU

NJSC(control

ling stakes)

81,8

47%

Independen

t suppliers

19,7

12%

LEO

7,8

5%

Privat+DK

11,4

7%

VSE

13,9

8%

AES

7,14%

Other

16,4

10%

DTEK

11,0

7%

ECU

NJSC(controllin

g stakes)

85,3

50%

Independent

suppliers18,5

11%

LEO

8,3

5%

Privat+DK

11,6

7%

VSE

13,4

8%

AES7,1

4%

Other

17,3

10%

DTEK

9,2

5%

22


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Equivalent fuel consumption (g/kWh)

BENCHMARKING AGAINST UKRAINIAN PEERS*

POWER GENERATION

Production of ROM coal, thou.tons and ash content, %

COAL MINING

ICUR** (%)

POWER DISTRIBUTION

23

* for 2008** installed capacity utilization rate

Average monthly productivity of extraction miner,

ton/miner

72,1 71,7

62,7

55

41,4 40,135,9

33,930,2 29,2

Krasnoarmeyskaya-Za

padn

KomsomoletsDonba

ss

Pavlo

gradugo

Sverdlovanthracit

Krasnolim

anskay

Rovenkianthracit

Krasnodonugol

Anthracite

Dobropolyeugo

Donba

ssminegrou

14163

6181 61106000

50874095

343220 63 1830

1561

41,9%

36,9%39,1% 39,3%

36,1%38,3%

33,7%34,4%

39,7%

35,3%

Pavlo

gradu

gol

Kras

nodonu

gol

Sver

dlov

anthra

cite

Rove

nkian

thracit

e

Kras

noar

mey

skay

a-Zapad

naya

Dobr

opolyeu

gol

Kom

som

olet

sDonba

ssa

Antracit

e

Kras

nolim

anskay

a

Donb

assM

ineGro

up

386

402

421

406

391

Dneprenergo CenterenergoDonbassenergoZapadenergo Vostokenergo

22 2431

36

56


Tradable electricity supply from the wholesale market (WEM) to electricity suppliers, TWh

ECU

NJSC(control

ling stakes))

81,8

47%

Independent

suppliers

19,7

12%

LEO

7,8

5%

Privat+DK

11,4

7%

VSE

13,98%

AES

7,1

4%

Other

16,4

10%

11,0

7%


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24

MANAGEMENTMANAGEMENT


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OPERATING STRATEGY OVERVIEW


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2008 2009 2010 2011 2012 Total

$240

$226

$250

$240

$165

$1,121

2007 2008 2009 2010 2011 2012

37.636.9

35.634.9

34.332.8

33.131.5

31.3 31.0 30.6

30.6

Pavlogradugol Komsomolets Donbassa

Production ConsumptionProduction Consumption

10.5

6.0

15.4

6.7

3.5

2.7

4.0

2.4

T g rade G grade*

Risks

Competition from Russian coal imports

Unfriendly regulatory environment

Cost increase

Key initiatives

Introduction of plough technology

Mechanization of coal sorting

Increasing efficiency of existing equipment

Reducing downtimes for commissioning-decommissioning oflongwalls

Increasing lengths of longwalls

Designing, together with state bodies, a programme for coalmarket transformation, switching to the direct contracts model

COAL BUSINESS

20082012

Fuel supply to own TPP (in Mt)

* - Mining & consumption of steam coal G grade

Capital expenditure programme (US $MM)

Ash content (%)

Strategic goals

Provide sustainable supply of fuel to support growth of DTEKgeneration business

Maintain strategic growth reserves

28


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2008 2009 20102011 2012 Total

$73

$149

$145

$170

$120

$657

2007 2008 2009 2010 2011 2012

388 389386

378

369

363

2007 2008 2009 20102011 2012

18.1

16.4 16.5 16.6 16.8

17.9

GENERATION BUSINESS

Electricity output (TWh)


Equivalent fuel consumption (g/kWh)

Strategic goals

Extensive units retrofitting and replacement programme

Increase fuel efficiency

Increase installed capacity

Risks

Unfriendly regulatory environment

Increased competition post privatisation of power generationsector

Construction of new nuclear power plants

29

Key initiatives

Component-by-component reconstruction of TPPs:

Upgrading all units of Zuevskaya TPP, # 5-8 ofKurakhovskaya TPP, # 10, 11, 13 of Luganskaya TPP

Designing reconstruction projects for other units,

including new construction (unit # 8 of Luganskaya TPP) Optimization programmes:

Optimization of maintenance programme

Optimization of operating & non-operating costs


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2008 2009 2010 2011 2012

14.014.2 14.3 14.4 14.5

2008 2009 2010 2011 2012 Total

$23

$15

$14

$12

$11

$75

Allowed ActualAllowed Actual

2.21.5 2.1

1.5

6.5

4.2

6.2

4.0

Service-Invest PES Energougol

DISTRIBUTION BUSINESS

Electricity transmission (TWh)


Electricity losses (%)

20082012

Strategic goals

Growth in electricity consumption volumes

Expansion of consumer base

Change of tariff system improving the incentive tariffs(revenue/price cap)

Increasing the reliability of energy supplies to end customers

Risks

Administrative tariff regulation

Increase of costs

30

Key initiatives

Implementation of investment programme

Raising the level of marketing function

Participate in tariff reform with NERC and other interestedparties


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Investment and Growth Programme

DTEK I t t P


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32

DTEK Investment Programme

Direction Unit2007

(fact)

2008

(fact)

2009*

(plan)

Deviation

2009/2008, %

Coal mining USD mln 132.6 227.8 132.5 -41.8

Enrichment USD mln 6.0 7.9 0.9 -88.6

Generation USD mln 23.6 69.2 32.3 -53.3

Distribution USD mln 13.7 20.9 11.6 -44.4

Others USD mln 5.9 13.4 3.3 -75.3

TOTAL USD mln 181.8 339.3 180.9 -46.6

After a remarkable rise in investments during 2008 the company is planning to cut its

internal investment programme for 2009. There are three main reasons for this decision:DTEK is currently accumulating its liquidity to be better prepared for the upcoming

privatisation of government-owned enterprises in Ukraine

The company is expecting a further decrease to capital expenditure in its main

investment areas, thus considerably lowering its liquidity needs for internal investment

projectsIn todays quickly changing business environment, DTEK is adopting a selective

approach to investment opportunities and has postponed a number of its non-critical

investment projects until a later date

*Revised investment plan.

Pl d d P t


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33

Pledged Property

The trend in reducing the share of pledged property is

consistent with the Companys policy of switching to

unsecured crediting

01.01.2007 01.01.2008 01.07.2008

Pledged property value, USD mln 452.5 745 365

Credit volume, mln USD mln 169.5 452 684.1

Pledge ratio 2.67 1.65 0.53

The share of unsecured loans inthe credit portfolio, % 0 26.5 50.7

01.01.2009

197.43

524.9

0.38

74.8

R t P i d L I B h k


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34

Recent Priced Loan Issues Benchmark

Borrower Signingdate

Country Loancurrency

Deal value$m

Rating Maturity,years

Interestrate

Lenenergo 04.2008 Russia USD 200 - 3 Libor+125

SUEK 05.2008 Russia USD 267 - 5 Libor+150



Inter RAO UES 03.2008 Russia USD 130 - 1 Libor+125

DTEK 05.2008 Ukraine USD 150 B+ (Fitch),

B2 (Moodys)

2 Libor+300


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Investment Potential

Main Trends & Forecasts: Ukrainian Energy Industry


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36

Main Trends & Forecasts: Ukrainian Energy Industry

Source: Companys estimates

DTEK Debt Track Record


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37

DTEK Debt Track Record

1 year term loanEUR 16,400,000

2008

4 months term loanUAH 7,580,000

2008

3 years credit line

USD 55,000,0002008

3 years credit lineUAH 200,000,000

2008

5 years credit lineUAH 150,000,000

2008

5 years credit lineUSD 20,000,000

2008

1 year term loan

USD 45,000,0002008

3 years credit lineUSD 50,000,000

2008

1 year term loan

EUR 11,830,0002008

1 year term loan

EUR 85,000,0002008

2+1 years syndicatedloan

USD 150,000,000

2008

5 years credit line

EUR 12,957,2102009

1 year term loanUSD 100,000,000

2007

090309 investors presentation ukraines power sector

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