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DTEK’s Operational Results in 2Q and 1H of 2012

DTEK's operational results grew significantly in year-on-year terms in the 1H of 2012. Coal production rose by 75.3% YoY, coal preparation by more than 120% YoY, electricity generation by 53.8% YoY and purchases from the wholesale electricity market more than threefold YoY. The growth was mostly due to the fact that the Company acquired new assets in late 2011 and in the first half of 2012, as well as to the key investment into production facilities.
“The new companies that joined DTEK have quite worn-out equipment, which makes effective investments our top priority,” said Yuriy Ryzhenkov, DTEK's Chief Operating Officer. “DTEK, as one of Ukraine's leading investors, has been increasing its share of income to upgrade production facilities every year. This year budgeted investments exceed projected net profit by almost 1.5 times. Aware of the contribution to the safe and reliable operation of Ukraine's energy network, DTEK is conducting large-scale upgrades of the power units of its thermal power plants. At the same time, the fact that the country's largest water supply companies systematically default on their payments for electricity puts the timely modernization of DTEK's electricity companies at risk.”
Upgrading electricity equipment and coal production and preparation facilities makes it possible for DTEK to increase production efficiency, enhance equipment reliability and improve its environmental performance. Industrial safety remains one of the key investment priorities for DTEK.
”We are making every effort to reduce occupational injuries and regard health and safety issues as on a par with operational performance. In total, DTEK is planning to invest UAH 573.4 million into health and safety programs by the end of 2012,” said Ryzhenkov.

Coal production and preparation
DTEK's coal production amounted to 20 million tons for the period from January to June 2012, which is 75.3% higher than in the same period of 2011.
The increase in coal production mostly resulted from the acquisition of new coal assets: DTEK Rovenkyanthracite (3.7 million tons), DTEK Sverdlovanthracite (3.4 million tons), Mine Bilozerska (0.3 million tons). At the same time, DTEK Pavlogradugol and DTEK Mine Komsomolets Donbasa achieved record-high coal production in the reporting period: 8.5 million tons and more than 2.0 million tons, respectively.
The rise in coal production at DTEK enterprise was the result of upgrading the shearer and roadheader pool, quality labour management and the application of innovative engineering solutions along with continuing personnel training and professional development. Labour productivity per one miner at DTEK Mine Komsomolets Donbasa was 95 tons per person, which is one of the highest indicators in the industry.
DTEK invested more than UAH 300 million to equip mine longwalls, acquire and overhaul tunnelling equipment. This made it possible to reduce the ash content of produced coal, to ensure stable production and to improve coal mining safety. The commissioning of longwall #341 at the Pavlogradskaya Mine in February 2012 was one of the major projects. This project was implemented as part of the mine's strategic development plan until 2030 within the framework of introducing the world's best practices for coal extraction in thin bed seams. Project investment amounted to UAH 180.6 million.
The mines are currently being fitted out with safe up-to-date mining and transport equipment. In 2Q 2012, the Company acquired a telpher railway (Scharf, Germany) within the framework of upgrading personnel and cargo transportation systems at the Dolzhanskaya-Kapitalnaya Mine. Implementation of the project will ensure high speed transportation, thus expediting the relocation of surface equipment and improving the miners' safety. Project investment amounted to UAH 21.6 million.
The volume of ROM coal preparation at DTEK's coal preparation plants amounted to 13.7 million tons for the period from January to June 2012, which is 122% more than for the same period in 2011. The production of clean coal rose by 130.9% as well, reaching 9.1 million tons. The increase in ROM coal preparation and clean coal production was mostly accounted for by the acquisition of concession rights to the companies DTEK Sverdlovanthracite and DTEK Rovenkyanthracite, which together own six coal preparation plants. ROM coal preparation at DTEK's other facilities rose by 4.6% YoY, and clean coal production by 3.8% YoY.
The Company invested UAH 79.4 million in the comprehensive overhaul and retrofitting of coal preparation plants in the first six months of 2012. Upgrades at Pavlogradskaya CPP (total budget of UAH 143.2 million) will increase the plant's production capacity to 7 million tons/year, boost clean coal production by improving the technological workflow and reduce the cost of ROM coal preparation. Improvement in the technological workflow at DTEK Dobropolskaya CPP (total budget of UAH 106.7 million) will make it possible to increase clean coal production, raise the plant's production capacity to 4.5 million tons/year, abolish external settling ponds and solve the issue of liquid waste disposal.
The Company completed the upgrade of mechanisms and equipment at Komendantskaya CPP in the first six months of 2012, which enabled the plant to reach production capacity of more than 6 million tons per year. The rehabilitation and installation of new equipment at Sverdlovskaya CPP and Oktyabrskaya CPP are still in progress. This work will increase the plants' production capacity and improve the quality of their products.

Electricity generation
DTEK's electricity generation companies supplied 25.6 billion kWh in the first half of 2012, which is 53.8% more than over the same period of 2011. The considerable growth in volumes was primarily the result of the acquisition of new enterprises. The Company received control of the three thermal power plants of DTEK Zakhidenergo, Myronivska TPP (within DTEK Donetskoblenergo), and CHPP-5 and CHPP-6 in Kyiv (Kyivenergo).
DTEK continued the large-scale modernization of its power equipment during 2Q 2012. Power unit #8 of DTEK Kurakhovskaya TPP was put into operation after modernization completed in 1Q 2012. The cost of the retrofit amounted to UAH 527 million. Unit #10 of DTEK Luganskaya TPP was commissioned after the completion of modernization. The upgrade of the latter unit made it possible to raise its capacity from 175 MW to 210 MW, to reduce dust emissions threefold, to increase the flexible operating range by 35 MW and to extend the service life of the equipment by 15 years. The cost of the unit's rehabilitation totalled over UAH 370 million. The power unit is currently in start-up and adjustment mode.
The Company continues to upgrade power unit #6 of DTEK Kurakhovskaya TPP, #4 of Zuevskaya TPP, #5 of DTEK Burshtynskaya TPP, #3 DTEK Krivorozhskaya TPP, #9 and #11 of DTEK Pridneprovskaya TPP, #1 of DTEK Zaporozhskaya TPP. Work on these units is expected to be completed in the second half of the current year or at the beginning of the next year. Preparation for the modernization power units #13 of DTEK Luganskaya TPP, #3 of DTEK Zaporozhskaya TPP, #1 of DTEK Krivorozhskaya TPP, #8 of DTEK Dobrotvorskaya TPP and #4 of DTEK Ladyzhynskaya TPP is in progress in terms of the elaboration of technical specifications. Respective equipment is being manufactured pursuant to DTEK's specifications. The projects are due to begin in late 2012 and early 2013.
As of July 1, 2012, DTEK's modernization program covered seven of 62 installed power units of the nine thermal power plants of DTEK Skhidenergo, DTEK Dniproenergo and DTEK Zakhidenergo. Since 2007, DTEK has invested UAH 2.96 billion (net of VAT) into upgrading electricity generation equipment. Overall, UAH 23.33 billion (net of VAT) is planned to be allocated to upgrade power units until 2018. Starting in 2012, all retrofitted power units will be fitted with electrical precipitators that meet European dust emissions levels of 50 g/m3.
In addition, in the first half of 2012, the modernization of power unit #5 at Myronivska TPP (part of DTEK Donetskoblenergo) continued. One of tasks is the technical re-equipment of the unit's boiler. This will make it possible to raise the reliability of equipment, to reduce specific consumption of fuel for the supply of electricity from 572.3 g/kWh to 435.8 g/kWh and to decrease auxiliary consumption of electricity from 16.94% to 9.87%. Work at the power unit is planned to be completed in 2013.
Plans for the reconstruction of power plants are increasing, first of all, due to wear and tear on the TPPs' equipment as well as due to new technical solutions from the manufacturers of the plants. The modernization of DTEK's power equipment is a motivational factor for activity in all sectors related to electricity generation.

Electricity supply and distribution
Purchases of electricity from the Wholesale Electricity Market (WEM) by DTEK's electricity supply companies grew up more than threefold to 23.6 billion kWh in the first half of 2012. This increase is linked to the acquisition of new power supply enterprises and to growth in demand for electricity from the enterprises' main consumers: coal companies and households.
DTEK's electricity supply companies continued to implement investment projects for the technical re-equipment and construction of new substations, modernization and construction of electricity transmission lines in the first half of 2012. DTEK Donetskoblenergo completed modernization projects at the Kalinovka 110 kV and Scherbakovskaya substations (city of Donetsk). In 2Q 2012, it launched a project to retrofit the 110 kV overhead electricity transmission line Telmanovo-Voykovo (Donetsk region) , which is expected to be completed in the second half of the current year. Kyivenergo completed a major overhaul of power unit #2 at CHPP-5.
The cost of DTEK's electricity distribution companies' implemented investment projects on electrical networks in 1H 2012 amounted to UAH 431.28 million (VAT included). Kyivenergo also invested UAH 49.1 million in its electricity generation capacity. The implementation of these projects made it possible to raise the reliability of electricity supplies to industrial and household consumers and adjacent licensees as well as to cut possible economic losses.
All in all, the following volumes of investments into electrical networks are planned for 2012: Servis-Invest – UAH 202.1 million, DTEK Energougol ENE – UAH 43.6 million, DTEK Donetskoblenergo – UAH 329.4 million, DTEK Krymenergo – UAH 235.8 million, DTEK Dniprooblenergo – UAH 386.1 million. Kyivenergo plans to invest over UAH 1 billion into the modernization of electricity transmission lines, electricity generation capacity, and heating network reconstruction projects.

Export and import transactions
The amount of electricity exported in 2Q 2012 was about 2.5 billion kWh (119% more than in the same period of the previous year), and for the first half of the year – 4.3 billion kWh (+100.7%). The difference in the volumes of electricity exports on a year-on-year basis is explained by the commencement of supplies to Poland (resumed in October 2011) and uninterrupted supplies of electricity to Belarus during the whole period.
The volume of export and import transactions with coal fell considerably, similar to the first quarter of the current year. The reduction in exports in 2Q 2012 by 16.9% YoY due to decreased demand on external markets, as well as the low price for thermal coal compared to the second quarter of 2011. The total volume of coal exports in 1H 2012 equalled about 1.5 million tons.

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