Interpipe Steel concerned about consequences of increasing share of imported electricity to 80% as guarantee of its stable supply

The electrometallurgical complex Interpipe Steel is concerned about the potential negative consequences of increasing the share of electricity imports to 80% to avoid supply restrictions for consumers and requests the government to adjust the corresponding resolution.

"Interpipe Steel expresses concern about the potential negative consequences of the Ukrainian government's introduction of changes to the regulation on the specifics of electricity imports under martial law in Ukraine and requests the Cabinet of Ministers of Ukraine to adjust its resolution No. 611 dated May 30, 2024," the company said in a press release on Friday.

It is explained that the changes introduced by this resolution imply that industrial electricity consumers are exempt from planned restrictions by the NPC Ukrenergo if the volume of imports in their consumption structure is at least 80%. Previously, this standard was 30% from May to September 2023 and 50% from October 2023 to April 2024.

The company said that this government decision could lead to numerous negative consequences for domestic industry in general and Interpipe Steel in particular. Currently, the capacity of interstate sections for electricity imports is 1.7 GW, which is significantly less than the needs of the entire Ukrainian business. That is, the international agreements of the state of Ukraine do not allow the implementation of the new rules introduced by the Cabinet in May, the press release states.

"In practice, this may lead to an artificial, even speculative increase in demand for imported electricity, the price of which can rise to any level. Only those enterprises that have minimal electricity costs in the cost structure of production will be able and willing to pay for non-disconnection," the company said.

Electricity accounts for almost 25% of the cost of steel billets supplied by Interpipe Steel to plants for the production of steel pipes and railway products within the vertical integration of the Interpipe group. That is, the increase in costs and increased demand for electricity will not only have an extremely negative impact on the competitiveness of Interpipe's finished products but also may result in the inability to purchase the required volume of imported electricity according to resolution No. 611.

Currently, Interpipe's plants located in Dnipropetrovsk region provide jobs for about 9,000 people in the frontline region. Among them, about 3,000 people are employed and have stable incomes at the pipe plant in Nikopol, which is officially recognized as a combat zone. Last year, the group paid a record amount of taxes and fees totaling UAH 4.4 billion.

Moreover, Interpipe bears a significant social burden, helping mobilized employees, internally displaced persons, and demobilized veterans. Systematic assistance is also provided to 15 brigades and units of the Ukrainian Defense Forces, the company said.

Previously, the Federation of Employers of Ukraine (FEU) appealed to the Cabinet of Ministers of Ukraine to cancel resolution No. 611dated May 30, 2024. The adoption of this decision "on such an important and relevant issue for industry took place without proper discussion and consideration, depriving consumers of the opportunity to express comments and suggestions, despite numerous potential negative consequences."

The FEU said that the capacity of interstate connections is significantly less than the needs of businesses, which will lead to a shortage of imported electricity, which, given the current state of Ukraine's energy system, cannot be covered by domestic production. This will result in an artificial increase in demand for imports and may lead to price increases. At auctions for the distribution of interstate connections, enterprises with a low share of electricity costs in the cost of production have an advantage. Providing supply guarantees only to those importing 80% of their needs will seriously harm energy-intensive industries and lead to the shutdown of large productions during peak load hours.

At the same time, the increase in import costs will lead to a general rise in electricity and consumer goods prices, negatively affecting the living standards of the population.

The FEU also said that the instability of electricity supplies creates obstacles for production planning, which negatively affects industry and related sectors, such as railway transport and port operations. The inability to ensure stable electricity supplies will lead to a decline in the production activity of large enterprises, a reduction in tax revenues, foreign exchange earnings, negatively affecting Ukraine's GDP, and the country's defense capability, as well as an increase in unemployment, the association believed.