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Acquisition of New Companies and Effective Export Management Supported DTEK’s Production Growth in the First 9 Months of 2012

Coal production for this period by DTEK enterprises went up by 73% to 29.3 million tons, and coal processing grew by 122.2% to 20.7 million tons, while the electricity output of DTEK’s generation companies increased by 57.4% to 38.5 billion kWh and electricity purchases from the Wholesale Electricity Market increased by 3.6x to 38.2 billion kWh.
The improvement in DTEK's operating performance from January to September was supported by the consolidation of eleven new companies1 in late 2011 and 2012, and investments in production. According to unaudited data, DTEK‟s total capital investments in coal mines, processing plants, thermal power plants and electricity distribution companies for three first quarters of 2012 amounted to more than UAH 5 billion, twice as much as in the first three quarters of 2011. Investments were targeted at retrofitting the equipment of thermal power plants and coal mines. At the same time, a significant drop in electricity demand from steel plants, the main industrial consumers of DTEK‟s electricity in Donetsk, had a negative impact on the entire production chain.
“Electricity demands from mining and metallurgical enterprises dropped by 11% in 3Q 2012 compared to the same period of 2011,” said DTEK’s COO Yury Ryzhenkov.” This led to a decline in electricity generation and a corresponding reduction in demand for coal produced by private and state mines. We managed to mitigate the negative impact to a large extent by increasing electricity exports. Despite the fact that electricity exports as such bring losses to the company, they allow for exporting Ukrainian coal „via transmission lines,‟ including state-produced coal, the quality of which is often unsuitable for export. Thus, the electricity exports extension by DTEK not only increased the currency earnings of Ukraine, but also supported significantly the domestic coal industry. By conducting modernization at its thermal power plants, DTEK is making the combustion of such coal less harmful for the environment.”
Coal Production and Processing
In 9M 2012, DTEK's coal mining companies produced 29.3 million tons of coal, an increase of 73% YoY. Run-of-mine coal processing in January-September increased by 122.2% to 20.7 million tons, and concentrate output grew by 115.6% to 13.7 million tons. In 9M 2012, average labour productivity amounted to 64.9 tons per person per month. DTEK Mine Komsomolets Donbasa had the highest labor productivity: 99.2 tons per person per month in 9M 2012, and 107.6 tons per person per month in 3Q 2012.
Growth drivers:
- The concession of DTEK Rovenkyanthracite and DTEK Sverdlovanthracite – from December 2011 – contributed 3.4 million tons to the increase in output in 9M 2012, 3.8 million tons to ROM coal processing and 2.6 million tons to concentrate output.
Investments in production:
According to unaudited data, DTEK's total investment in coal production and processing enterprises in
9M 2012 was UAH 2.6 billion.
The following projects stand out among the largest investment initiatives completed in 3Q:
- construction of a vertical fresh-air shaft complex at the Frunze mine (DTEK Rovenkyanthracite)
- construction of a ventilation well #3 for addition of reserves of section 3 at the Yuvileyna mine (DTEK Pavlogradugol)
- equipping the first Higher Capacity of the Technological Chain (coal hoisting set, technological complex) start-up facilities at the Geroiv Kosmosu mine (DTEK Pavlogradugol)
Implementation of those projects will help raise output and increase commercial coal reserves, improve occupational safety, extend the service life of the mines, and optimize ventilation and transport systems.
The company continues to upgrade and re-equip its processing plants, increasing their production capacity, reducing the cost of ROM coal processing and improving environmental impact.
Electricity generation
DTEK's electricity generation companies supplied 38.5 billion kWh of electricity in January-September 2012, up 57.4% YoY. In 3Q, the installed capacity utilization rate (ICUR) of DTEK's TPPs averaged 36.8%. Dobrotvirska TPP had the highest ICUR – 60.6%.
Growth drivers:
- The acquisition of new companies, namely the three TPPs of DTEK Zakhidenergo, two CHPPs of Kyivenergo and Myronivska TPP of Donetskoblenergo. In general, DTEK Zakhidenergo's TPPs supplied 11.3 billion kWh of electricity over 9M of 2012.
Investments in production:
DTEK continues large-scale upgrades to its power equipment. In 3Q 2012, power unit #3 of Zaporizka TPP was put into operation after upgrades. The project included upgrading the boiler, turbine and generator stator, as well as the replacement of electric precipitators and installation of a digital process control system with built-in equipment for the monitoring of flue gas (SO2, CO2, NОх and dust). The upgrade of the unit made it possible to raise its capacity from 300 MW to 325 MW, extend the service life of the equipment by 15 years, reduce the specific consumption of standard fuel from 365 to 340 g/kWh and bring down dust concentration in flue gas by 85% – from 320 mg/m3 to 50 mg/m3. In September, DTEK also completed the retrofit of the electric precipitator of unit #11 of Prydniprovska TPP.
In 3Q, the Company continued to upgrade unit #6 of Kurakhivska TPP, unit #4 of Zuivska TPP, unit #5 of Burshtynska TPP, unit #3 of Krivorizka TPP and unit #9 of Pridniprovska TPP. During the upgrades, special attention is paid to environmental issues. The electric precipitators were replaced to bring dust concentration in flue gas in line with EU requirements, which is up to 50 mg/m3. The retrofit of unit #3 of Kryvorizka TPP was completed already in 4Q. Other projects are going to be implemented by the end of 2012. Furthermore, retrofit of unit #5 of Myronivska TPP (DTEK Donetskoblenergo) is in progress and is expected to be completed in 2013.
Electricity distribution and supply
Over the first nine months of 2012, DTEK's power distribution companies increased purchases of electricity from the wholesale electricity market by 3.6x to 38.2 billion kWh.
Growth drivers:
- The acquisition of new power distribution companies, which increased purchase volumes and, respectively, electricity supplies to consumers. DTEK consolidated 72.33% of shares in Kyivenergo in December 2011, 71.34% of DTEK Donetskoblenergo in January 2012, 51.505% of DTEK Dniprooblenergo in April 2012, and 57.50% DTEK Krymenergo in May. Growth was somewhat negatively affected by lower electricity demand from iron and steel making companies, which consume over 80% of electricity supplied by Servis-Invest.
Investments in production:
DTEK's power distribution companies continued to implement investment projects directed at the technical re-equipping and construction of new substations, and the upgrading and construction of electricity transmission lines. Investments in these projects in 3Q totalled UAH 609.6 million (VAT inclusive). Kyivenergo‟s capital expenditures on electricity generation and distribution for the same period amounted to UAH 343.6 million (VAT inclusive). This reduced its number of interruptions and electricity network losses.
Export and import transactions
Over the first nine months of 2012, DTEK exported 7.1 billion kWh of electricity (up 112.4% YoY).
Growth drivers:
- The continuous electricity supplies to Belarus over the entire period
- Increased electricity supplies to EU countries, including the start of supplies to Poland (supplies resumed in October 2011)
Coal exports have been going down, by 20.6% in 3Q to 638.4 thousand tons, due to continuingly declining demand in external markets and the low price for thermal coal compared to the same period of the previous year. The company did not import coal as there was enough internal resources for our generation companies.