Strategic Considerations: Ukraine’s Cabinet of Ministers issued a decree that will allow the state to guarantee up to UAH 11.3bn worth of loans made by state-owned banks to pay unpaid bills in the renewables sector.
Source: REDD Intelligence
The move smooths the way for DTEK Renewables to collect a portion of the UAH 3.8bn it is owed by the state. While the precise amount DTEK Renewables is inline to receive will depend on which electricity producers are included for payment under the loans, the amount could be in the region of USD 60m if the full amount of guaranteed loans are allocated to renewable energy producers.
DTEK Renewables has received a boost in its efforts to collect substantial unpaid receivables, after the Cabinet of Ministers approved the provision of up to UAH 11.3bn (USD 404m at today’s exchange rate) worth of state guarantees for loans to repay unpaid debts in the energy sector, according to market participants.
The loans are set to be made by state-owned banks to transmission system operator Ukrenergo, noted Oleksandr Paraschiy, head of research at Concorde Capital. Ukrenergo will then use the funds to repay its debts to Ukraine’s SE Guaranteed Buyer, which will in turn pay down its unpaid obligations to electricity producers.
SE Guaranteed Buyer is the state entity that purchases 100% of the electricity produced by renewable energy producers in Ukraine. As of 19 November, DTEK Renewables is owed some UAH 3.8bn (USD136m) by SE Guaranteed Buyer, according to a Fitch report.
The total debt of SE Guaranteed Buyer to renewable energy suppliers is roughly UAH 25.5bn (USD912m) as of 8 December, according to media reports, meaning DTEK Renewables is likely entitled to aroughly 15% portion of any backpay made to renewables companies, according to a London-based analyst.
However, it is unclear if the entire UAH 11.3bn will be utilized for repayment just to renewable energy suppliers, or whether it would also be used to compensate non-renewable energy producers as well, noted Yaroslav Petrov, partner at law firm Asters.
SE Guaranteed Buyer also owes around UAH 8bn to nuclear-focused Energoatom and hydro-focused Ukrhydroenergo, according to media reports, accounting for around one-third of SE Guaranteed Buyers total debt.
If the money is solely allocated to renewable energy suppliers, DTEK Renewables could be in line to receive in the region of USD 60m, noted the London-based analyst. But even if the sum also goes toward non-renewable producers, the company will still get “a good chunk of change” that would alleviate immediate liquidity concerns at DTEK Renewables, said the analyst.
As reported, investors earlier flagged concern that DTEK Renewables would need to dip into its green bond proceeds to fund its day-to-day running, although the company said this would not be the case. The company's EUR 325m 8% 2024 green bond is today indicated at 89.2-mid, according to Cbonds.
DTEK Renewables did not reply to a request for comment.
Boost for the sector
The decree is a positive development for Ukraine’s renewable producers at a turbulent time for the sector, said Ilya Segeda, M&A principal at KPMG.
“We believe this decision […] along with doubling the electricity transmission tariff for our system operator since August 2020 – and keeping it essentially the same in 2021 – would pave [the] way for reanimating a dwindling investor sentiment towards the sector that took quite some beating thisyear.”
In July, parliament passed legislation to retroactively cut pre-agreed payments to renewable producers under the Feed-in-Tariff as debts owed by SE Guaranteed Buyer to producers ballooned.
The news regarding loans being provided by state-owned lenders is a “very unexpected development”, said Dennis Sakva, an energy sector analyst at Dragon Capital. The funding was previously expected to be raised from development banks such as the EBRD or EIB, as reported
Development finance institutions may have shied away from lending, as Ukraine struggles to get backon-track with an IMF program and political risk is rising in the country.
Parliament already made provisions in the 2020 budget law to allow the state to provide guaranteesto Ukrenergo, said Sakva. “[However,] it's mostly about Ukrnafta and Naftogaz and Ukrenergo is only mentioned indirectly there,” he said.
There is not much room for procedural risks to derail securing the guarantees, agreed Segeda and Petrov. While the Ministry of Finance could theoretically veto the move, this would not be in itsinterests given Ukrenergo is a state enterprise, said Petrov.
How fast the loan agreements can be prepared and signed is, however, uncertain, said Segeda. “Thestate originally promised to repay 40% of the debt [accrued up until 1 August] this year, but it is notyet clear if this timeline can be adhered to,” he said.
The remaining 60% was set to be repaid in four quarterly instalments next year.
If all goes smoothly, renewable energy suppliers should be able to receive the financing in Decemberor January, added Petrov.