DTEK's CEO gave an interview to Economic Pravda. In it, Maxim Timchenko spoke about how the company restructured its work amid war, the EU's refusal of Russian energy resources and the future of the coal industry.
ON PREPARATIONS FOR WAR, DTEK'S LOSSES AND CHANGES IN MANAGEMENT
- Where did Maxim Timchenko find the morning of February 24?
- Like most Ukrainians - at home in the bedroom. I woke up from the sounds of explosions, flashes and from the madman’s appeal about the start of this alleged special operation demonstrated on every new source. This was in fact the announcement of war.
- Did you have preemptive insider information about the beginning of the war?
- On the 23rd there was a meeting of business representatives with the president, where this situation was discussed, among other things. It was said that it is very important for big business to unite and be ready for any development of the situation. However, there was no specifics that a war would start in a few hours. To tell you the truth, literally at 11 pm on February 23, I wrote to my friends that I had a bad feeling.
At that moment, we were more interested in the start of the operation of the Ukrainian energy system in an isolated mode: just on the night between 23 to 24, we disconnected from the energy system of Russia and Belarus. And just a few hours after that, the war broke out.
— Before the war, you spent more time in London than in Kyiv. How does your timeline look like since the beginning of the war?
- I wouldn't say so. Before the war, I was absent from Ukraine no more than 30% of the time. And even then - not in London, but on international trips.
After the start of the war, it was necessary to set a completely different mode of company management. There have been a lot of changes, but in many ways they are not new for us, because we have the experience of 2014 in transferring the company to a military footing, which is useful in today's situation.
— Please provide specific examples of management changes.
— You know that we had about 30% of our assets in the Donetsk region and Crimea, and, of course, it was necessary to rebuild both the company and the system. Therefore, about three weeks before the start of the war, we restored the vertical of our anti-crisis headquarters at the level of the corporate center.
At the level of each of our operational holdings, responsible persons have been identified, communication systems have been installed, critical materials have been identified that need to be purchased and stocks checked, from fuel to materials for the restoration of power lines.
Liquidity and financial stability of the company has been paid special attention to. Plus, we sent an advanced team of our IT specialists to Lviv in order to equip a reserve place for managing the company.
All this has been done about three weeks before the start of the war. And already on February 24 at 7:30 am we had the first meeting of our anti-crisis center, when all these mechanisms have been launched.
- Has the management of the group moved into a rigid vertical?
- Oh sure. If you remember, at a briefing in November I said that changes aimed at decentralization were taking place in the Group: each of the operational holdings built a self-sufficient company, for example, like DTEK Energy or DTEK Oil and Gas.
Today, of course, all this has turned in the opposite direction. We have a rigid vertical of management, a very high level of centralization has been introduced, both in making financial decisions and in production decisions. Crisis management requires quick, often unpopular decisions.
- Can you give an example of unpopular decisions made?
- I'll tell you how my day is built. Every day at 10 am, we have a meeting of the anti-crisis center, where the issues of the standard agenda are being discussed. Those are: the map of places of combat, the development of the situation in the energy industry in general. This gives us an understanding of how the situation is developing.
We also discuss the evacuation of our employees and their families. We have evacuated over 3,000 employees and their families from active combat zones in the first weeks of the war. The next one is humanitarian support, technical assistance.
- So far you have listed all the popular solutions. Please list the unpopular ones.
— You are talking about, so to speak, the second part of the meeting, which is devoted to business management. Unpopular decisions are being made. For example, all our capital investment plans have been halted. Today CAPEX (capital expenditure) is at its lowest level. Therefore, we spend money only on operational tasks.
The next question, of course, is related to the optimization of management personnel. Projects related to development, with building the future today, must be postponed.
- Are there mass layoffs?
— We do not have layoffs for our working professions – we work in critical infrastructure. We, on the contrary, need people to keep production going. There is a decrease in the number of managerial personnel.
We try to be flexible in every situation. Somewhere we pay bonuses, giving people the opportunity to reorganize within 6-12 months. Somewhere we suspend labor relations hoping that someday we will return to cooperation again.
- What processes or decisions did the war force the Group to abandon? In addition to investment.
— I wouldn't talk about refusing to invest. It's about suspension. It is important for us now to mothball the construction in such a way that we can restore it after the end of the war. In addition to investments in construction, we have suspended the development of IT projects. A massive drilling program in the oil and gas business has also been halted.
— What main assets did the group lose during the war? And what form of loss is it: the physical destruction of the object or the loss of managerial control over it?
It's more about losing control. The Luhansk TPP was the first to be lost. The bombing of this station began two days before the full-scale war - on February 22. And since February 25, we have lost control of this station. We don't know what's going on with her now.
Our second problematic Ukrainian facility is located on Russian-controlled territory, but for security reasons it is not worth talking about it publicly. For all other generating companies, we have a conditionally stable work.
- What kind of destruction does the network enterprises of the Group (oblenergos) have?
- The most serious situation with destruction is connected with the grids. First of all, it is DTEK Donetsk Electric Grids. You know the entire catastrophe that is taking place in Mariupol and other areas of the Donetsk region. Today, more than 30% of consumers there are deprived of electricity supply, it is impossible to restore their supply at the moment.
- Impossible now during hostilities?
- Yes. We tried many times to restore the lines, substations of Mariupol, to bring humanitarian aid, but all this was in vain. The next level of problems after the Donetsk region is the Kyiv region. More precisely - the north of the Kyiv region.
— What is happening with the mines and green generation of DTEK?
- We have stopped the mine "Belozerskaya" from the Donetsk region. It is not being mined due to a lack of personnel and the danger of bringing people there.
If we talk about green generation, then there is no destruction of it, but these power plants are located in the temporarily occupied territory. There is no way to restore the damaged lines of Ukrenergo, and because of this, some of the wind turbines are simply not able to produce power.
ON THE PROBABILITY OF DEFAULT, AKHMETOV'S ATTITUDE TO THE WAR AND THE LOSS OF RUSSIAN ASSETS
- In the context of the physical loss of assets and the shutdown of their work, how has the ratio of assets to liabilities of the group changed?
— Frankly speaking, we have not brought such a balance yet. We continue to service the debt, we have not had a default. By agreement with our creditors, funds were postponed or frozen to continue servicing the debt for 6 to 9 months. Therefore, here we have a certain margin of safety.
For one of our companies, DTEK Energy, we partially capitalized the payment of quarterly interest, and partially paid it in cash. But of course, the further situation will largely depend on how events develop further.
- What is the size of the group's debt today, and how high is the risk that it will go into default?
- It is difficult for me to predict anything from the point of view of the further situation of the economy because it depends on the timing of the end of the war. Today, the debt as a whole for the Group is more than 2.8 billion dollars. But you need to look at each individual business.
For example, payment of green generation debts will depend on how quickly we regain control over our wind generation, and what will be the state's further policy in paying for green generation (for the period of martial law, Ukrenergo suspended payments to green energy producers - EP).
At the moment, we pay about 15% of the amount of energy produced at the feed-in tariff. This is not enough to service the debt.
- There is open information that to balance the energy system of Ukraine you need 250-300 million dollars a month, and this is due to the collapsed collection rate. How much did the payments decrease across the Group in absolute numbers and percentages?
- The first week of the war, payments were on the level of 30% thourghout the whole country. Today the situation has begun to improve. Of course, it differs from the regions, it is impossible to compare the western regions and the eastern ones in terms of payment discipline.
But we see that today the average level of fees is already somewhere around 55%, and further dynamics are positive. I assume that further growth of payments will continue.
Another thing is the volume of consumption. Now it is 35% lower than before the war. This reason, combined with the fall in electricity fees, has led to the fact that the liquidity gap in the energy market of Ukraine is in the region of $300 million per month.
- How many of these 300 million are accounted for by the Group?
- Today, all talk about the lack of liquidity is conducted in terms of support for state-owned companies. That is, our group is not included in this amount: today we are saying that this financing is needed primarily by Energoatom and Ukrhydroenergo, for the reason that they are the ones who actually bear the burden of actually subsidizing electricity tariffs for the population.
— How many months or weeks will the Group be able to withstand today's financial conditions, when demand for electricity has plummeted and non-payments have increased?
- Without any discussion with external creditors, if we take the current situation, we will be able to work for another 6-9 months. This is based on today's debt service schedule.
— Doesn't this mean that the Group needs to start negotiations with creditors now?
- Let's look at it this way. The business of DTEK Oil and Gas is working, this company is servicing its debts, and there is no subject of discussion here. There is a drop in fees in DTEK Energy's business, but due to the fact that we can partially capitalize interest payments, this gives us the opportunity to service this debt.
The third direction is the green generation holding DTEK RES. He has 600 million euros of debt, of which 325 million are bonds, and the remaining 275 are bank loans. Here we are negotiating with banks. We explain to them that debt servicing is in our plans, and we have a safety margin for 9 months in relation to the bank's creditors.
This is all to the fact that there is no situation in the Group in which we must immediately declare a default and enter into negotiations on restructuring. It hasn't happened yet, and I hope it won't.
- A few months ago, the president spoke about the alleged plans of Rinat Akhmetov's participation in a conspiracy to carry out a coup d'état. Is it possible to say that the war crossed out this distrust and now Akhmetov's group and the authorities work as a single mechanism?
- War very often puts everything in its place. Everything becomes either black or white. There are fewer gray areas. And in positions, and in relationships, and in many other things. People appear as they really are.
A few weeks before the start of the war, mr. Akhmetov said“it doesn’t matter where I am, what matters is what I do. In the most difficult times, I will be with my people.” What he said he clarified with his actions. He has been in Ukraine since the first day of the war.
In the first days of the war, he publicly declared his personal position and the position of our entire Group, calling Putin a war criminal, designating Russia as a country that commits crimes against our country every day, and that he personally and the entire Group will do everything to ensure that we quickly win this war.
From the point of view of the relationship between mr. Akhmetov and the authorities, it is difficult for me to comment on this, because I do not know about these relationships. But I know about the relationship between business and government. Now there is a complete consolidation in everything we do.
You mentioned the statement that Putin is a war criminal. Don't you have the feeling that Rinat Akhmetov was 8 years late with this wording?
- Let's look at what people say and what people do. In 2014, while in Donetsk, he clearly said that a happy Donbass can only be part of Ukraine. He directly called the so-called "leaders" of the DPR rogues who lead the Donbass to collapse. He stated: "the Donbass and the DPR, are heading on the different path." This was the position.
It was a very diplomatic wording. On the one hand, it’s quite understandable, because the Group at that time had a lot of assets in Russia, and it was dangerous to put them at risk. On the other hand, it was precisely this "diplomacy" that led to the fact that all these years there was a field for doubts about Akhmetov's patriotism.
- Perhaps there was room for doubt. But mr. Akhmetov is an investor, a businessman who is responsible for hundreds of thousands of people working at the Group's enterprises. He is not a politician. He speaks about the position of the Group at critical moments.
I believe that in 2014 the position that we see Donbas as part of Ukraine was sufficient. And I don’t know how right it is to enter into some political statements, to blame someone. Everyone in the Donbass knows the extent of support for our countrymen. Caravans of humanitarian aid, food packages went to help people survive.
This time, when the full-scale invasion started, he also called a spade a spade. His position is always very straightforward, based on his principles and life values.
- How do Rinat Akhmetov understand today's events differ from the events of 2014?
- It seems to me that each of us understands that now a full-scale war has begun, declared to us by Russia. In fact, an attack on our country. When your country is attacked by another country, there is no other way to call it but an aggressor-country.
There is no other way but a war criminal to call the one who gives these orders murderous orders.
— The Group had large assets in Russia. What happened to them legally and in fact?
- At the moment we no longer have assets in Russia and there are no relations with Russia. If we talk about Russian mines, then we had a large debt on the balance sheet of these enterprises. Since these mines were pledged to Sberbank, the shares of these mines were written off against this debt.
- That is, these assets were taken from the Group for debts.
- In simple terms, yes. This process was provided in the documents, since we had a default on payments.
- Maybe the fact that the Group has no assets in Russia is the root cause why Rinat Akhmetov began to call a spade a spade?
- I'll repeat it again. The wording matched what was happening. And believe me, the share of the Group's assets in Russia was negligible compared to our assets in Europe, the USA, and Ukraine.
Therefore, neither then, nor now, we definitely have no dependence on the presence or absence of assets in Russia. And even more so, some dependence of the shareholder's position on Russia.
ON INTERNATIONAL ASSISTANCE, THE EU'S REFUSAL OF RUSSIAN ENERGY RESOURCES AND THE TRANSFER OF BUSINESS
In Ukraine, the reputation of DTEK and SCM in general is ambiguous with reference to the shareholder, but it is unambiguous in the outside world. There, the group is known as a structure that always fulfills its obligations. Why, given this, nothing is heard about the effective actions of the group to attract international financial organizations to support Ukraine?
- Maybe the answer is that diplomacy is not as publicly visible now as our actions to restore power lines or deliver humanitarian aid. If we talk about international activities, we have taken a very active position since the beginning of the war.
First, we have constant contact with international media and with our partners, including investors. Every week I hold a briefing with 40-50 international counterparties, media and partners, to whom I tell about the situation in the industry and about the needs.
The first such briefing was on the third day of the war. Then it was difficult to estimate the magnitude of the impact on the energy system. We said that the real help for us would be to speed up the synchronization of the Ukrainian energy system with the European one. And on March 16, there was an accelerated synchronization of power systems, which was initially planned for 2023.
Next, we made the first calculations about problems with the liquidity of the energy market. The figure of 250-300 million dollars you mentioned above comes from our calculations. Subsequently, these analytics were presented to external partners, and we were the first to raise the question of the need for external support and a solution to this problem. This was not done on behalf of our group, but on behalf of the entire industry.
In addition, we work together with our partners in Brussels and Vienna. At meetings with them, we discussed the system of technical and humanitarian assistance. Today we have already received this assistance from our partners.
- Why can't the group become the bridge through which specific money can be brought to Ukraine for specific restoration work?
- In this matter, we act as experts, and we will definitely not replace the state and the ministry. Today the launch of the fund under the auspices of the Energy Community Secretariat has been announced. I met with the head of this secretariat, we discussed how the fund can work and what is needed from our side.
Naturally, we are talking about the role of Ukraine and our industry on the European continent after the war. Today, everyone has understood the great mistake of the Europeans, when such a share of the supply of energy resources comes from Russia, and such a level of dependence on Russia.
Today, I think everyone already understands that Nord Stream 2 is not a "purely commercial project." Everyone understands that Putin uses energy resources as a weapon. In order for us to win the war, we need to stop the supply of Russian energy resources to Europe.
You may have heard that together with NJSC Naftogaz and Ukrenergo we launched the Stop Bloody Energy initiative for which we made a platform. Now it is gaining momentum and is turning into a database of "toxic" companies that continue to work with Russia in the energy sector. Several companies, seeing themselves in this database, refused to extend the contract with Russia.
— The prospect of Europe's rejection of Russian energy carriers is a prospect of several years.
- In order to refuse Russian energy resources, it is necessary to completely revise the energy security strategy of the European Union. This updated strategy should also include the issue of diversifying energy sources. And Ukraine should take its rightful place in this updated strategy.
Among other things, for us it is also a matter of restoring our country. We can be suppliers of nuclear electricity, which is recognized as clean in Europe. In the short term, we can replace Russian coal.
We can be suppliers of coal to Europe. For example, Poland has already abandoned Russian coal, as a result we have started small deliveries of coal to Poland and Slovakia.
- With the accession of the Ukrainian energy system to the European DTEK lost its role as a hegemon in the domestic market. What benefits does the Group find for itself in this process?
- On March 16, Ukraine's electric grids were connected to European ones without the right of commercial overflows - export-import. That is, if there is a shortage of electricity in Ukraine, then there is a technical possibility to deliver electricity from Europe so that we do not have a blackout here.
Since then, our power system has been operating in synchronous mode very stably. The Europeans are completely satisfied with the way we manage this situation.
We have come up with an initiative to European partners to allow us commercial exports and our government fully supports this. The task set for the ministry is to maximize export opportunities. Even with the current technical state, and without major technical changes, it is possible to supply an additional 600 megawatts to Europe.
And this is largely a political decision, which I hope the European partners will take. And then we will need to install special equipment in order to increase this cross section by 2.5 times.
— Are there areas in which Ukraine will remain dependent on Russia in the energy sector in the near future?
- None.
— Are there such spheres in Europe?
— I'm not ready to talk about Europe, because in addition to the technical possibility, there are political positions of different countries. Unfortunately, this also has an effect. But technically, according to our guys, within three years Europe may refuse to supply Russian oil and gas.
Russian oil supplies may be stopped before the end of this year. It is my deep conviction that this is the focus on which all our diplomacy should be built today. Russian oil gives huge revenues to the Russian budget, even more than gas.
— What are the prospects for the coal and thermal business in the next few years?
- I believe that the attitude towards coal, as a temporary solution to reduce dependence on Russian energy resources, will change. Coal will be in demand, today its quotations on foreign markets are already more than $300 per ton.
This is happening for two reasons. First, in recent years there has been a huge underinvestment in the coal industry as part of the state policy of Europe. The second is the decision to refuse Russian coal. For the energy security of Ukraine, we need to mine coal, and for thermal power plants to work. Ukrainian coal will be in demand on foreign markets.
Therefore, I believe that the coal sector in Ukraine will develop. We also need to keep thermal power plants. But it is necessary to understand which capacities will not be destroyed and will remain under control.
— Given the above, should we expect the Group to reconsider its attitude to the coal business? Maybe you think that the return of Dobropolyeugol to the state from the lease was a hasty decision?
- We are already too experienced in strategic planning. The return of Dobropolye was made in order to create its production vertical link with Centrenergo. It shows itself effectively in our business, and we continue to keep it.
Today we continue to find solutions to change the movement of supply chains. As, for example, Corum (a manufacturer of equipment for the mining industry - EP), whose plants we are now moving to Khmelnitsky, and are negotiating with our Polish partners to restore the joint production of mining equipment in Poland.
Moreover, today we had a conversation with the ministry that we are ready to look at the possibility of investing in Lvivugol.
- You initiated the talks?
- Yes. We are ready to consider Lviv as a subject of investment and production. We look at it soberly. It is clear that adjustments have now been made to the attitude towards coal and thermal generation from the point of view of Ukraine's energy security and from the point of view of the demand for coal.
— You mentioned that Corum is moving its business to the West of Ukraine. Isn't this decision, besides business, the desire of the Group to get rid of the stamp of the "Donetsk DTEK Group", to reformat it into the "Ukrainian DTEK Group"?
- Those who renounce their homeland and the past have no future. I will always say and be proud that I am from Donetsk, that I support Shakhtar, and that our company is based in Donetsk. Donetsk is Ukraine. Even in today's conditions. Occupied part of Ukraine.
There will come a time when I return there, walk the streets that I walked when I was a teenager.
Even before 2014, the Group had assets in all major regions of Ukraine. In eastern Ukraine, central, eastern. And the Group, by definition, was already Ukrainian.
— In a previous interview, I asked you a question about learning the Ukrainian language. Now many have switched to its systemic use. Is Maxim Timchenko ready for this?
- I believe that for those who communicate publicly, the Ukrainian language should be mandatory, including me. I can't promise 100%, but "I'll do everything possible so that all DTEK public events in the future are held in Ukrainian”.
- Can we expect the same from Rinat Akhmetov?
- It's better to ask him.
