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SE, SPP sales still on course

The government has reassured potential investors that its plans to sell two of Slovakia's richest privatisation assets, gas utility Slovenský plynárenský priemysel (SPP) and energy utility Slovenské elektrárne (SE), are still on course after both firms' financial performances were recently dented.
Slovenské elektrárne July 18 released figures showing that it had posted a 1999 loss of 3.92 billion crowns ($86 million), while SPP, considered the government's 'cash-cow', saw its pre tax profits for the first quarter of the year tumble 38% from the same period of 1999 to 5.7 billion crowns.
But the Economy Ministry, which administers the utilities, put the losses down to external factors, such as restructuring prior to privatisation at SE and international oil prices at SPP.


Privatisation plans for gas firm SPP and power company SE are on track despite poor financial results.
photo: TASR

The government has reassured potential investors that its plans to sell two of Slovakia's richest privatisation assets, gas utility Slovenský plynárenský priemysel (SPP) and energy utility Slovenské elektrárne (SE), are still on course after both firms' financial performances were recently dented.

Slovenské elektrárne July 18 released figures showing that it had posted a 1999 loss of 3.92 billion crowns ($86 million), while SPP, considered the government's 'cash-cow', saw its pre tax profits for the first quarter of the year tumble 38% from the same period of 1999 to 5.7 billion crowns.

But the Economy Ministry, which administers the utilities, put the losses down to external factors, such as restructuring prior to privatisation at SE and international oil prices at SPP.

"These problems are important for each company. But in SPP's case, they [the falling profits] were due to the price of crude oil, while at SE there were important investment projects and a need to create financial reserves," said Economy Ministry spokesman Peter Benčúrik.

Spiralling prices of crude oil in the last 18 months have had a negative impact on companies worldwide. SPP general director Pavol Kinceš said recently that this factor, added to the strengthening of the dollar, had hit his company hard. He warned in July that SPP had been buying one cubic metre of gas for 4.5 Slovak crowns and selling it for only 3.6 crowns. SPP will pay 13 billion crowns more for gas year-on-year in 2000, he said, because of higher purchase prices for crude oil on world commodity markets.

Slovenské elektrárne's loss, meanwhile, had been widely expected, and government figures said the three billion crown profit that the company turned in the first three months of this year was a reassuring sign that the company was still on a reasonable footing. "The situation at SE is improving," said Benčúrik. "First we have to revitalise the company, including its finances, and then privatise it," he added.

The government has already extended two guarantees for loans to the troubled power monolith. SE obtained a state guarantee for a one billion crown loan in March and another for 4.1 billion crowns in June.

The news of the losses came just after the government's approval of a concrete privatisation plan for SPP and an announcement by the Economy Ministry that a plan for the privatisation of SE had been submitted to cabinet. The government is looking to sell a 49% stake in both firms.

Under the privatisation plan for SPP, the utility would become a joint-stock company at the end of April next year with a privatisation advisor being chosen at the end of August or early Spetember this year. However, analysts warned that while the definitive plans for the gas firm would reassure potential buyers, any delays with doing the same for SE could harm the eventual price it might fetch.

"The price the state gets for SE is dependent on its structure, on what will be separated [into new companies] and what will not," said Dušan Meszaros, energy sector analyst at Commerzbank Capital Markets in Prague. "That will be the key question before assessing any price for the firm. It's good that SPP has its structure already made clear. It will be kept the same way as it is going into privatisation. But restructuring for SE is a must before privatisation," he added.

Benčúrik said that under the Economy Ministry's plans for SE, new electricity distribution companies could be formed on January 1 next year along with a new transmission firm. However, with the government-approved date for SPP's privatisation some three months behind the date cited in the Economy Ministry's proposal, there is a real fear that this delay will be repeated in SE's privatisation, and that SE's sale price may be hurt as full energy sector liberalisation begins to falter.

SE general director Vincent Pillár has said that the company wants regulated electricity prices hiked by 20% for households and 5% for the corporate sector as of January 1 next year. The company currently only covers about 80% of its average production costs, while the revenues from the hike are estimated to be in the region of 3.5 billion crowns.

The government introduced a series of price hikes in energy supplied to domestic households as part of its economic reform programme last year. In January and July 1999 it raised prices by 30 and 35% respectively, while prices jumped 40% in January this year on the back of preparations for full sector liberalisation.

Any further price rises are likely to be met with protest both from ordinary citizens and the former Communist ruling coalition member, the Democratic Left Party (SDĽ). However, analysts have stressed that unless this liberalisation is carried out, the government's long-term plans for both companies will be put in jeopardy.

"Regulation of prices is critical, it is a must. And this is up to the government. The government creates this environment [with regulated prices] and the companies [SPP and SE] just have to work in it," said Meszaros.

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