Consumers may be on bad end of lucrative sell-offs

The lucrative sell-offs in the energy sector may result in higher prices for consumers, the government has warned.
Adverts for a tender for 49% state stakes in VSE, ZSE and SSE appeared in foreign and domestic media November 9.
But Economy Ministry officials immediately warned new owners would be able to hike tariffs to a maximum level set by a new regulatory body - a maximum that could be much higher than at present.

The lucrative sell-offs in the energy sector may result in higher prices for consumers, the government has warned.

Adverts for a tender for 49% state stakes in VSE, ZSE and SSE appeared in foreign and domestic media November 9.

But Economy Ministry officials immediately warned new owners would be able to hike tariffs to a maximum level set by a new regulatory body - a maximum that could be much higher than at present.

"The regulatory body will set a maximum price but it's hard to say what that maximum price will be. It could be much higher than it is now," said Peter Chalmovský, spokesman for the ministry.

Prices currently run at Sk 2,079.54 /MWh for industry consumers, Sk 2,916.16 /MWh for commercial consumers and Sk 2,728.51 /MWh for households.

The sales of the three stakes are part of a wider liberalisation of the energy market which will eventually include the privatisation of power monolith Slovenské elektrárne.

The opening of the market will prepare the sector for the country's entry into the EU, possibly in 2004 and a role as part of a wider European power market. Slovakia at the end of October closed the energy chapter in the pre-accession legislative harmonisation document, the Acquis Communautaire.

But with the liberalisation could come unwelcome price rises for households and corporate customers in a country where the state continues to pay large subsidies in the energy sector and substantial lay-offs.

"Some increases of prices in the short to mid-term is inevitable. There may also be layoffs as new owners discover surplus manpower at these state firms," said Miloš Božek of J & T Securities.

He added: "However, losing these surplus jobs may produce a benefit for customers in the long term."

Liberalisation of the power market will start partially as of January 1 next year when low-level users of power - up to 100 GWh a year will be able to choose which suppliers they receive from.

A market regulatory body for the power, gas, rail and water industries will begin operating fully as of January 1 2003. The sale of the three distributors is also viewed as a key step in the same liberalisation process. With energy sectors across Europe undergoing a period of consolidation and a number of power giants emerging in the market, experts say the outlook for Slovakia's sector liberalisation is reasonably bright.

"These privatisations are really very important. They are focused on meeting the regulations required for EU accession and deregulation on the market. This is the same as in telecoms. If you want the market liberalised you need private shareholders," said Boris Kostík, energy sector analyst at Slávia Capital brokerage house.

"This sale is a positive signal that not only is there proposed liberalisation but that there is actually some liberalisation taking place," added Božek.

Under the sale contract the new owners of the three distributors will buy 49% stake but will be allowed full management control despite holding only a minority share.

The government will also be looking for a relatively quick and smooth sale to bolster what is expected to be the much longer sale of power generator SE.

Privatisation of SE itself began last month with the placing of an advertisement for a tender for a privatisation adviser in international press. But government figures have already said the firm will not be sold before the next elections in 2002.

Government members have not commented on the price they want for the shares in VSE, SSE and ZSE but the three companies have already attracted interest from German giant Energie Baden Wurttenberg AG.

"It will be a successful sale. Interest in the energy sector in general is quite strong and the demand for all these companies, especially ZSE, will be equally strong. The largest international institutions will be after these companies. It's a strategic entry move onto the Slovak market now with an eye on later position in a hopefully bigger European market," said Božek.

The Economy Ministry is also predicting a positive sale. "We know this privatisation will be successful even though it may take time. The final sale will likely be in the first half of next year," said Chalmovský.

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