Ukraine’s anti-monopoly chief openly admits that DTEK is a monopoly.
“There are structural signs of a collective monopoly,” said Yuriy Terentiev in March 2016.
But there’s not much that Terentiev, or anyone else, has done about it. The company controls 70 percent of the country’s heat generation factories, giving it overwhelming control of the Ukrainian market.
DTEK denies that it has a monopoly on heating generation, saying that the thermal and electricity generation markets in Ukraine cannot be separated from each other and that the anti-monopoly commission has declined to split the company up.
“It is completely clear that on the electricity market of Ukraine no generator can be a monopolist or have any market power because of the state regulation, setting output, setting prices on electricity, sole buyer of the generated electricity,” the firm said in a statement.
Monopoly or not?
DTEK holds 70 percent of Ukraine’s heating generation capacity, and around half of its coal mining capacity, extracting 51 percent of the country’s coal in 2016.
The company was first registered in 2002 as a coal mining and power generation firm. It is a subsidiary of System Capital Management, the Rinat Akhmetov-owned conglomerate with holdings in finance and various strains of industry.
Akhmetov, himself from a coal mining family, built his fortune in the 1990s in Donbas, building up a steelmaking empire at a time when the region was effectively governed by local mafiosos.
But recent years have left SCM’s companies on their back.
The 2014 EuroMaidan Revolution saw Akhmetov lose political influence with the ousting of former President Viktor Yanukovych. The resulting Russian-backed war in the Donbass led to scores of Akhmetov’s industrial properties falling behind separatist lines.
For two and a half years SCM maintained an uneasy truce, transporting coal across the frontline to its power and thermal plants on the Ukraine-controlled side.
But March 2017 saw that come to a quick end, after activists blockaded coal shipments from the occupied territories, forcing the government to end them.
Dmytro Yablonovsky, a researcher at Kyiv’s Centre for Economic Strategy, said “ Because its used for heating power plants, they cannot change the supply of electricity so fast.”
For DTEK, the best solution would be to have integration to the European market,” Yablonovsky said. “If we have some other source of electricity, we won’t have this monopoly anymore.”
This effectively would allow DTEK to keep its dominant domestic position while offering Ukrainian consumers more choice.
“The extent of competition from imported power depends on the size of the transmission links and whether the transmission links become congested,” said John Hilke, an adviser to the U. S. Federal Trade Commission that has worked with Ukrainian regulators. “In general, larger transmission links give more trading opportunities, both imports and exports.”
DTEK says that it would support such a move.
“We believe that only free and competitive market can rise the quality of service and remove concerns related to fairness of wholesale and retail prices,” a firm spokesman wrote in a statement to the Kyiv Post.
Oligarch Rinat Akhmetov’s energy companies have made huge profits from the the Rotterdam+ coal pricing benchmark. Meanwhile, heating prices for the population have greatly increased.
Maintaining position
But DTEK’s position has been reinforced in recent years by International Monetary Fund policy.
In an effort to root out corruption, the IMF mandated that the government shut off $600 million in subsidies, closing at least 40 state-run mines.
Eroding away the public mining sector will all but ensure DTEK’s dominance, while destroying dozens of towns that rely on mining as their main source of economic activity.
“It’s a really bad future for the mining towns. There will be no jobs and no investment,” said Mykhailo Volynets, a former deputy who leads the Confederation of Free Trade Unions of Ukraine. “And the IMF will not answer for anything. They don’t live in Ukraine. But our government will answer for this and our people, by having bad lives.”
DTEK holds a regional monopoly in the areas where its mines and processing plants are located.
“In our region its only DTEK, the only work provider,” said Natalia Bilozerska, Youth Representative of the Bilozerska mine’s union. “There’s nowhere really else to work.”
The central harm of DTEK’s monopoly from a more macroeconomic perspective comes down to allegations of overpriced coal and, by extension, heating for average Ukrainians and business owners.
There have been separate accusations that DTEK’s concentration on the coal market has allowed it to trade coal to itself at inflated rates, and that it successfully lobbied for the Rotterdam+ coal benchmark, which sets the price of Ukrainian coal at the Dutch rate, plus transit.
A separate conflict over the past few months has seen the state-owned Centreenergo refuse to purchase coal from DTEK, opting instead for state-owned mines. Andriy Gerus, a former National Energy Regulatory Commission member, said that DTEK was refusing to sell coal to Centreenergo as part of a bid to keep coal prices inflated.
The company did not comment on the accusation.
In general, DTEK’s concentration on the market alone could make it a target for being broken up.
“If a firm has market power, we expect them to exercise it and that would drive higher prices than which would occur in a competitive context,” Hilke said. “Ukraine really needs several of these independent regulators, because you find that a lot of these things aren’t happening at all or not as effectively as they might because the regulators are ineffective.”
