IT TOOK almost five laborious years, but Slovakia has finally completed its toughest privatisation deal ever, selling a 66-percent stake in power utility Slovenské elektrárne to the Italian power giant Enel.
The stake changed hands after the state on April 28 found Sk31.3 billion (€840 million) on its account that had been transferred by Enel. The state will be holding on to 34 percent of shares in Slovenské elektrárne, the second largest power utility in Central Europe.
The transaction is Enel's largest international acquisition of generating capacity to date.
"With this acquisition, Enel's largest ever outside Italy, the company confirmed its expansion strategy into Eastern and Central Europe, a market which is recording continental Europe's highest growth rate," Enel head Fulvio Conti said of the deal.
"SE will become an important hub for Enel's further growth in Eastern Europe. Slovenské elektrárne has a well-balanced production portfolio consisting of nuclear, hydro and coal driven utilities, which is important for keeping the costs at reasonable level," Enel press office told The Slovak Spectator.
Along with its new owner, the Slovak company, which supplies 83 percent of the domestic market, received a new general director in the person of Enel area manager for Slovakia Marco Arcelli, who replaced previous SE boss Miroslav Pikus.
The state will have two representatives on the seven-member board of directors with the rest of the seats taken by Enel. On the supervisory board, two people will represent the state and five people the employees, while Enel will nominate the remaining eight members.
As for the interests of Slovak electricity consumers, the new owner has not announced any bad news yet, but opponents of the deal warn that the privatization might result in a rise in electricity prices.
However, Conti did not wait for the ink to dry on the sales contract before telling the press that the strategic investor wants to focus on reducing costs rather than raising prices.
Slovak Economy Minister Jirko Malchárek described the deal as one of the most difficult privatisation sales the country has attempted, with contract negotiations lasting almost two years.
Peter Mitka of the privatisation advisor PricewaterhouseCoopers agreed that the Enel sale had been a Herculean task.
"It was one of the most complicated privatisation deals that Slovakia has experienced. The process lasted almost five years. What made it really complicated was that nuclear power facilities were part of the assets to be sold. There has been no other case in the world where a power utility was sold along with a nuclear power utility to a strategic investor within a single deal. It's a success," Mitka told The Slovak Spectator.
Mitka said that one of the stumbling blocks in the sale process was the absence of legislation to govern the decommissioning of outdated nuclear facilities and handling nuclear waste.
"The Nuclear Fund Act was adopted practically in the closing phase of the deal, at a time when the strategic investor had already been chosen. It was a very significant moment," Mitka said.
The Act, which parliament passed on March 16, guarantees Enel that Slovak taxpayers, rather than the utility's new owner, will foot the bill for handling nuclear waste.
The law is needed to cover an estimated Sk15 billion (€401 million) deficit in the Nuclear Fund. Slovak energy consumers will contribute Sk0.05 per kilowatt-hour of energy to the fund for the next 20 years as of July 2006, or more than Sk850 million annually.
According to Mitka, another factor complicating the deal was the length of time it took to hive off several Slovenské elektrárne assets that were not part of the deal.
"This made the privatisation really unique. I can't recall any privatization deal where the sale included the exclusion of several assets, such as the V1 and A1 nuclear power reactors and the Gabčíkovo waterworks, before the completion of the deal," Mitka said.
The SE sale, Slovakia's second largest privatisation deal after the sale of gas utility Slovenský plynárenský priemysel (SPP) in 2001, spanned two Slovak governments and several economy ministers, which also delayed the process.
On the other hand, the privatisation advisor said that as a result of the sale, the power utility had solved various long-term problems (e.g. debt) that would have complicated the company's operations in the future.
"I am not aware of any problems that were not solved," Mitka concluded.
Enel was selected in 2004 as the preferred bidder, beating out the Czech CEZ and Russian RAO UES consortium. The company paid 20 percent of the sales price (€168 million) on signing the contract in February 2005.
Enel has pledged to invest Sk70 billion into the utility over the next seven years. Malchárek said that Slovakia, as a 34-percent shareholder in SE, will also contribute its share of the investments.
"In the coming years we will participate in the agreed investment plan in the form of dividends," the minister told the SITA news wire.
Enel opts for nuclear power
Enel CEO Conti gave some strong hints that the investor might complete the 3rd and 4th blocks of the Mochovce nuclear power station, which came on line in 1998.
"By acquiring Slovenské elektrárne, Enel returns to managing nuclear technology, a key step towards playing a leading role in the European power market," Conti said.
While the Dzurinda government earlier ruled out completing Mochovce itself, the issue was revived after former Economy Minister Pavol Rusko proposed that the completion of the nuclear facility be made a major condition in the selection of a strategic investor.
However, the privatisation contract with Enel includes only an obligation to do a feasibility study.
The completion of the last two blocks, which so far have cost the state Sk19.8 billion, is expected to require an additional Sk52.4 billion.
SE officials claim they have started working on the completion of the third and fourth reactors at Mochovce , and estimate it will take from three to five years.
Enel says that completing Mochovce is key to averting an increase in electricity prices, as it views nuclear power as one of the cheapest energy sources.
The construction of the third and fourth reactors was suspended due to a lack of finances. The unfinished third and fourth EMO reactors cost Sk19.9 billion to the end of August 2004, including interest on loans and bank fees. The third and fourth blocks are about 70 percent complete in terms of construction and 30 percent in terms of technology.
Austria has not objected to the possibility that Enel might complete Mochovce. However, the anti-nuclear country remains hostile to the nuclear power plans of its northern neighbours, the Czech Republic and Slovakia.