Poultry-producing giant MHP, one of Ukraine’s leading listed companies, has announced plans to start biogas energy production as part of a strategy to move the firm toward self-sufficiency.
Construction of the first biogas production plant will start in early April at MHP’s Oril-Leader farm in Dnipropetrovsk region.
The company expects it to produce 30.4 million kilowatt hours per year, more than enough to cover the farm’s annual consumption of 21 million kilowatt hours.
The $15 million plant is to begin operations in October and pay off the cost within four years. Similar ventures are expected at the company’s plants in Kyiv region and the Crimea.
The company said it sees this as a first step in the development of alternative energy sources, which also include solar power production (particularly for the company’s plants in sunny Crimea) and straw.
The fermentation of straw can produce 1,000 cubic meters of natural gas for every 2.5 tons, meaning the company could boost total production to 0.4 billion cubic meters in the future.
Though the energy-generating potential of these ventures is significant, the project won’t necessarily do much for profits.
Alexander Tsependa, an analyst at the international investment bank Troika Dialog, said that MHP’s electricity costs did not exceed 5 percent of total production expenditures, so he didn’t expect any material impact.
Oleksandr Dombrovski, the project manager, said MHP is vying for energy independence. At the very least, this means independence from the political and non-political fluctuations of gas and electricity prices, he added, at most – own power production.
For years, Ukraine’s energy-inefficient economy has been dogged by fluctuations in gas and electricity prices amid spats with supplier Russia and the opacity and overregulation of the local energy market. Thus, the spread of alternative energy use by Ukraine’s top companies can only help.
Listed on the London Stock Exchange, MHP disclosed its 2011 results on March 20, reporting revenues up 30 percent to $1.3 billion, while net income rose 20 percent to $259 million. Its stock has increased by nearly 30 percent since the beginning of the year.
Projections by Troika Dialog show the company’s revenues could almost double by 2016 after a new complex in Vinnytsia region, scheduled to be fully operational by 2015, boosts production capacity by over 50 percent. This would open the road to exports, which are so far limited by rising local demand.
Nor are rosy prospects clouded by the current economic troubles. According to Troika Dialog, Ukrainian households, who spend over half their disposable income on food, will increasingly replace more expensive beef and pork with poultry even as their wages are squeezed.
Land reform, however, may be a thornier issue. One draft bill, passed in the first reading on Dec. 9 2011, foresaw an ownership limitation of 6,000 hectares or 5 percent in a single district.
With a land bank of 280,000 hectares, this could impose significant compliance costs on MHP.
Yuriy Kosiuk, MHP’s CEO and co-owner, told the Kyiv Post that the restrictions were merely “rumors,” a way to float the idea and gauge reactions.
Conversely, he said the plans found in a new draft law submitted to parliament on March 16, which aim to introduce a one percent tax on the normative value of land, were possible, but would mainly be felt by smaller producers.
Kyiv Post staff writer Jakub Parusinski can be reached at [email protected]
