But the experience of AES in Ukraine is areminder that even the biggest investors can get bullied aroundhard by officials in countries such as Ukraine. And for them, itmay not be worthwhile to watch in pain as smaller domestic groupschurn out bigger profits in what are still murky business waters,"writesFinancialTimes.
The US-based company announced earlier thismonth that it had agreed to sell two regional electricitydistributors - Kyivoblenergo and Rivneoblenergo - to a Russiangroup called VS Energy.
With the purchase, VS Energy, which alreadycontrols a handful of Ukraine's 27 regional electricitydistributors, considerably increased its control over Ukraine'selectricity distribution business.
So, thestage is set for VS Energy to dominate the electricity distributionsector of Ukraine, a big economy with a population of some 46m,together with several other regional groups. They include DTEK, theenergy group of Ukraine's richest man Rinat Akhmetov, andbusinessman Kontantin Grigorishin's Energy StandardGroup.
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In a company statement this month, AES Executive Vice PresidentTom O'Flynn explained the decision to sell both Ukrainian assets asfollows: "We continue to exit markets that are not part of ourstrategic vision. This transaction represents another step in theprocess to simplify our structure so we can focus on creating valuein markets where we have a compelling competitive advantage."
That may be so, but the word in Kiev is that AES's inability tofind common ground with local government regulators and itsunwillingness to play by local rules, left it with no other choicebut to leave.
In a February 28 note to investors, Alexander Paraschiy, analystat Kiev-based investment bank Concorde Capital, wrote:
"AES's key problem was that it spoiled its relations with thestate sector regulator from its first day in Ukraine (in fact, theystarted lecturing the regulator). Needless to say, with suchbehavior, the AES-related oblenergos ended up being discriminatedby the regulator, which ultimately led to AES's exit from Ukrainewith losses."
Ukraine energy sector insiders are quick to point out thatenergy giants that are now entering Ukraine to explore itspotentially large, untapped hydrocarbons reserves - the likes ofRoyal Dutch Shell, Chevron and ExxonMobil - are coming on strongterms. A new package of production-sharing legislation has beenadopted that better protects their investments. It includesso-called stability clauses, and agreements with Ukraine'sgovernment have clearly laid out prices and production sharingsplits for the long-term.
But the experience of AES in Ukraine is a reminder that even thebiggest investors can get bullied around hard by officials incountries such as Ukraine. And for them, it may not be worthwhileto watch in pain as smaller domestic groups churn out biggerprofits in what are still murky business waters, concludes RomanOlearchyk.