Tender Slaughter

Economics
14 January 2011, 09:48

A few days before New Year’s, DTEK, the electricity giant in the Akhmetov business empire, gave its boss, the richest man in Ukraine, a lovely Christmas present: a contract for over UAH 7.5bn. DTEK’s income for all of 2009 was a healthy UAH 10.6bn, from extracting 9.7mn tonnes of coal. The final figure for 2010 is still not in. But on December 27, TOV DTEK Trading set a real record, having won a tender to supply 7.46mn tonnes of coal and anthracite under contract to VAT Dniproenergo. According to State Procurement Newsletter #56 dated that same day, the deal is worth UAH 7,529,971,694.59 or nearly US $1 billion—almost equal to the consolidated budget of the country’s entire health care system. One important detail: DTEK owns about 47% of Dniproenergo shares, while the State, through ZAT UkrEnergo, owns the controlling stake. Does this deal actually work in the State’s interest?

A New Year’s greeting posted on Dniproenergo’s site from CEO Roman Serdiukov says, in Russian, “This year was a year of gains and changes for us. Together with DTEK, our strategic partner, we have learned to work in a new way in a changing environment and are looking at the future with confidence.” That’s the poetry.

The practical reality is somewhat different. According to a memo posted on the site where tender bids are disclosed, only two companies bid to supply coal to Dniproenergo: DTEK Trading and VAT Energoopttorh. The winner offered to do it for UAH 400mn or US $50mn less. Dniproenergo supposedly saved a lot and certainly got itself a reliable supplier. The registered statutory capital of Energoopttorh, the other bidder is UAH 5,000, according to open sources, yet, supposedly, all conditions set in Ukrainian law were met in running the tender and selecting a winner. The background to all this is even more curious.

Once upon a time, a powerful state-owned enterprise called Vuhillia Ukrainy or “Coal of Ukraine,” tried to compete with DTEK and Energoopttorh in a tender to supply coal to Donbasenergo, which is not yet in the “Our Companies, Partners and Associates” list on the DTEK site—unlike VAT Dniproenergo. Back in September 2010, the deal was not too expensive: DTEK offered coal for UAH 419mn or UAH 932/t, Energoopttorh’s price was UAH 20mn higher, but Vuhillia Ukrainy was ready to sell its coal for UAH 335mn or UAH 744/t. The Anti-Monopoly Committee (AMC), which considers complaints from participants, recorded the bid results for Vuhillia Ukrainy.

In November, VAT Donbasenergo lawyers looked at the Vuhillia Ukrainy offer and concluded that it “did not meet the requirements regarding tender documents and the State Procurement Law.” Vuhillia Ukrainy had apparently failed to provide bid security worth UAH 1mn through bank underwriting. Instead, the company provided “a letter of guarantee to be taken as a bid security in the amount of UAH 1,000,000.00 against the total debts” accrued at the time by that same Donbasenergo before Vuhillia Ukrainy. This little “detail” was used as an official excuse to shut Vuhillia Ukrainy out of the bid.

The company tried to discover the truth from the AMC, which, instead, supported Donbasenergo and rejected the complaint in early December. That Vuhillia Ukrainy is not a corporate raider is beyond any doubt. Moreover, the tender’s organizer gained nothing from UAH 1mn underwritten by a bank as, by law, securities are returned to those who lose the bid. In short, the State lost UAH 84mn on this tender—enough to pay basic pensions to 100,000 Ukrainians.

After this defeat, Vuhillia Ukrainy did not bid in the tender to supply Dniproenergo. Now DTEK can use its coal monopoly against state-owned Tsentrenergo and Donbasenergo to swallow these power utilities as well. Wherein lies the State’s interest?

 

 

Tender trophies

DTEK wins coal tenders for state-owned companies in 2010

Dniproenergo UAH 13,031,970,000

Zakhidenergo UAH 913,130,000

Donbasenergo UAH 517,220,000

Donetskoblenergo UAH 319,860,000

Kyivenergo UAH 748,000

TOTAL: UAH 14,782,934,000

 

DTEK earned over UAH 7.5bn on a single transaction

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