|Privat’s grab at Dniproenergo was rejected last week. Still waiting for officials to call a foul… Image from scout.com / AP, in honor of the NCAA basketball tournament. Go Badgers!|
On Friday, two private security firms (and a handful of Party of Regions deputies) tussled in front of the Zaporizhye offices of Dniproenergo in an apparent attempt by Privat and the state-owned Energy Company of Ukraine (EKU) to take control of the regional electricity firm. The attempted seizure was rebuffed, but a secretive shareholders’ meeting of disputed legality was held “in close proximity” later in the day in another effort to appoint Privat-affiliated figures to the company’s board.
The government’s shareholder regulation commission refused to support the legality of this meeting and the management appointed by the currently-accepted ownership–50%+1 owned by EKU, 44% by Rinat Akhmetov’s Donbass Fuel and Energy Company (DTEK)–will remain in place. However, another shareholders’ meeting scheduled for March 27th promises to deliver more intrigue.
- Dniproenergo is one of Ukraine’s largest electricity generating companies, with its three thermal power plants combining for a capacity of about 8 gigawatts. In 2007 the company reported a profit of about $24 million on over $765 million in revenue. Controversy over ownership of the firm has arisen since an August 2007 supplementary stock issue. The sale, which was approved by the outgoing Viktor Yanukovich government, dropped EKU’s share from 76% to 50%+1 and raised DTEK’s stake by 26% to about 44%–above the 40% threshold needed to block company decisions. DTEK allegedly paid about $10 million for the shares and also agreed to assume around $190 million in Dniproenergo’s debt as well as to make future infrastructure investments.DTEK, an energy holding company composed of coal and electricity assets, reported profits of over $190 million last year. It is owned by Rinat Akhmetov (via his massive holding company System Capital Management), who is a deputy in Yanukovich’s political party as well as Ukraine’s richest citizen.
|“Stop the rePRIVATization of Dniproenergo” advertisement in Kyiv. The racist undertones are a bit disturbing, even if unintended.|
Both EKU and Privat–which, via its subsidiary Business Invest, owns 0.0065% in Dniproenergo–have contested the controversial sale. A court case spearheaded by Privat that challenges the stock issue is currently being considered by Ukraine’s Supreme Court after a lower court ruled in favor of DTEK.
While EKU is government-owned, it is seen to be an ally of Privat, particularly in this fight. EKU’s current president is the former financial director of Ukrnafta, an oil company essentially controlled by Privat. Also, neither EKU nor Privat is interested in Akhmetov being in control of Dniproenergo. Ukraine’s current Prime Minister, Yulia Tymoshenko, sharply criticized the stock sale during her campaigning last fall, alleging that Akhmetov used his political connections to increase his share of Dniproenergo to a bargain price. Privat is apparently interested in obtaining the potentially lucrative asset itself. A privatization of Dniproenergo–along with three other regional power generators–has been announced, but the terms and viability of such a sale remain vague. (Update: Comments from Tymoshenko on privatization plans in English.)
|A “Government, return Dniproenergo to your country!” advertisement on the streets of Kyiv. Apparently, Akhmetov taking control over the company is okay, but Privat taking control is treason.|
Tensions had been growing in advance of a shareholders meeting that was scheduled for last Friday, March 21st. Competing propaganda posters began appearing in the streets of Kyiv last week. On Thursday, Ukraine’s Fuel and Energy Minister announced the government’s intent to change Dniproenergo’s leadership at the next day’s meeting.
Also on Thursday, Vladislav Lukyanov, a fellow deputy of Akhmetov and Yanukovich in the Party of Regions (PoR), warned there could be an attempted forceful seizure of Dniproenrgo’s office. In expectation of trouble, Dniproenergo invited members of the press to its office on Friday. Also present were five PoR representatives, including Lukyanov and Elbrus Tedeyev, an Olympic gold medal winner in freestyle wrestling.
An audience was therefore on hand to document the resulting physical confrontation.
As retold by Kommersant, early Friday morning about thirty camouflaged men from the Dnipropetrovsk private security firm “Security. Protection. Guaranteed.” (whose Russian initials, БОГ, spell out “God”) stormed Dniproenergo’s offices and clashed with the company’s own security team as well as the PoR deputies. (The PoR’s experience in obstructing the work of Ukraine’s Verkhovna Rada by blockading the rostrum and dais must have come in handy.)
Privat is based in Dnipropetrovsk, and the same security firm was earlier used in seizures of a Kremenchug steal mill and Ukrtatnafta’s oil refinery.
However, the raiders could not gain access to the building and retreated in their minibuses after Dniproenergo called in guards from the prestigious security firm Berkut (Golden Eagle). Things then quieted down giving the defenders time to lick their wounds–one deputy had his coat torn and others came away with bruises.
By 11 AM, the State Commission on Securities and the Stock Market (GKTsBFR) acknowledged that no legally valid shareholders’ meeting could have taken place, as regulations called for any meeting to occur on the company premises between 8 and 10 AM.
However, this didn’t stop EKU and Privat from attempting to convene a shareholders meeting “in close proximity to [Dniproenergo’s] office,” according to the head of EKU’s corporate law department, Alexander Maliy. Justification for the meeting centered on the refusal to recognize the result of the supplementary stock issue, meaning that EKU still owns over 75% of the company giving it the right to make unilateral management decisions.
This interpretation is allegedly supported by the figures in Dniproenergo’s shareholder register, which is controlled by the controversial financial firm Ukrneftegaz. Ukrneftegaz, in charge of keeping the registers for energy companies with significant government ownership, is owned by Privat. The same firm is implicated in the ownership dispute still raging over Ukrtatnafta (expect an update from me soon).
At the secretive shareholders meeting, the EKU “elected” a new board of observers for Dniproenergo that is full of Privat-affiliated figures. Lukyanov dismissed the results of the meeting, saying that “after the storming was unsuccessful, Privat decided to place its leadership into the firm by a different manner.”
Dniproenergo also refuses to accept the result of this meeting, pointing to a court ruling annulling the meeting as well as various procedural violations. “We have nothing to disprove,” says Dniproenergo board member, Dimitry Tevelev. “An illegitimate decision cannot be implemented.”
Another shareholders meeting is scheduled for March 27th. The other major state-controlled power generating companies also have shareholders meetings scheduled in the near future–Kievenergo on March 28th, Zapadenergo on April 2nd, Tsenterenergo on April 3rd, Donbassenergo on April 15th, and Krimenergo on April 22rd. Management changes are on the agenda for all of them.
Some analysts are predicting that the physical confrontation with Dniproenergo is the first step of a coordinated effort between Privat (which controls the books) and EKU (which has the votes) at remaking the leadership structure of Ukraine’s power generators. We’ll see if the next steps are as action-packed as the first one was.
Update (3/25/08): Protesters gathered outside the Fuel and Energy Ministry in Kyiv holding anti-Privat signs. They are the usual subjects: bored-looking students and cranky pensioners willing to hold a sign for a little money. I asked them what they thought of the conflict, but didn’t get much in the way of a response besides a general belief that Akhmetov “is right.” Here’s a couple pictures from the “rally.”
“Dniproenergo for the people, not for Privat!”
“Take care of state–not Privat–interests!”
“Dniproenergo in the hands of Privat = energy crisis in Ukraine!”