Ukraine's Energoatom may have to replenish charter capital starting from 2026 to remain solvent - ministry

MOSCOW. Oct 29 (Interfax) - Ukraine may have to replenish the authorized capital of state-owned nuclear power plant operator Energoatom in 2026-2028 to maintain the company solvent, Ukrainian media reported citing an annual fiscal risk forecast by the Ukrainian Finance Ministry based on data from state-run companies.

The positive, basic and negative scenarios of each company were modeled as part of the document based on macro-economic scenarios by the Ukrainian Economy Ministry. In particular, the positive scenario envisages the end of the crisis within 2024, the baseline - by the end of 2024, and negative - by the end of 2025. Every enterprise provided its data on specific variables under each scenario. For example, Energoatom's base case scenario takes into account the reduction of its share in the fulfillment of the public service obligations, special obligations to ensure the accessibility of electricity for household consumers.

Under the base case scenario, Enegoatom is expected to lose 27.8 billion hryvni on the average every year in 2024-2025, and the company will perform at break-even in 2026-2028. The worst scenario forecasts considerable losses from 2026 as well.

Energoatom reported a loss of 8.9 billion hryvni in 2023 compared with a loss of 12.4 billion hrvyni in 2022. The increase of the marginal prices on the energy market facilitated the growth of the company's profits by 14.6%.

The main factor leading to different results for Energoatom in the aforementioned scenarios is the Ukrainian government's policy on the fulfillment by the company of its public service obligations, the ministry's forecast said.

Electricity to the population is supplied under the regulated price which is lower than the market one, it said. The deficit is covered by part of the income of Energoatom and Ukrhydroenergo.

"This arrangement is no longer financially viable, because Energoatom's income has declined due to the loss of the Zaporozhye Nuclear Power Plant combined with the reduction in the amounts of sales for commercial consumers due to the halt in operations of many businesses over the crisis," the forecast said.

The Ukrainian government increased electricity tariffs for households by 63.6% since June 1, 2024 in order to reduce the amount of the public service obligations. However, Energoatom's liquidity position is currently insufficient. Despite the fact that the state of its liquidity has somewhat improved since 2022, the company does not have enough circulating assets to service its current obligations. Energoatom has considerable debts, mostly to the Guaranteed Buyer state enterprise under the fulfillment of its public service obligations. In 2023, the share of the company's financing by means of borrowed funds grew to 56% compared to 44% by the start of the crisis.

"Despite an improvement of profitably, the company's debt burden remains very high against its income, and there is a risk that the company could end up not being able to fulfill its obligations, when the time of their repayment comes," the ministry's forecast said.

In the long term, Energoatom is planning to build new power units and, if such construction is financed by debts, it is expected that high costs would increase the company's obligation to the level it is unable to service. Fiscal risks could be realized, if the government would be forced to provide financing to cover part of such expenses, or if the government would have to service the debts of the nuclear enterprise.

The cost of the decommissioning of nuclear power units is also a potential fiscal risk source.

"Taking into account that in 2020-2024, Energoatom did not pay financial reserves funds to the state budget to fund events dealing with the cessation of the operations and decommissioning of nuclear facilities in the amount of 3,141,600 hryvni and its existing debt of 660.5 million hryvni for 2007-2009, there is a high chance that the company would fail to make payments in the coming years as well," the forecast said.

According to the ministry's forecast, Energoatom's capital costs starting in 2025 would reach about 20 billion hryvni on the average in the baseline scenario and ten billion hryvni in the negative.

Energoatom's sole shareholder is the state represented by the government of Ukraine. It was registered as a joint-stock company with the authorized capital of 306.245 billion hryvni on January 11, 2024.

Energoatom operates three nuclear power plants, Rovno, Khmelnitsky and South Ukrainian, with a total capacity of 7,880 MW.