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Cabinet approves energy distributor sales

THE CABINET has approved the Sk25 billion ($530 million) sale of minority stakes in three state energy distributors, launching a wider move to take the energy sector out of state hands and put it under the control of market forces.
The government elected on May 22 to accept privatisation committee recommendations that the German utility E.ON, French utility Electricité de France and German RWE Plus be declared the winners of 49 per cent stakes in the western Slovak ZSE, the central SSE and eastern VSE, respectively.
The decision ended several weeks of political infighting that analysts ascribed to pre-election jostling among rival parties.

THE CABINET has approved the Sk25 billion ($530 million) sale of minority stakes in three state energy distributors, launching a wider move to take the energy sector out of state hands and put it under the control of market forces.

The government elected on May 22 to accept privatisation committee recommendations that the German utility E.ON, French utility Electricité de France and German RWE Plus be declared the winners of 49 per cent stakes in the western Slovak ZSE, the central SSE and eastern VSE, respectively.

The decision ended several weeks of political infighting that analysts ascribed to pre-election jostling among rival parties.

Elections are expected to be called in Slovakia for late September.

Although the sale winners were declared by privatisation committees in late April, two parties of the current ruling coalition, the Christian Democrats (KDH) and the Party of the Democratic Left (SD1), vetoed approval of the sale proposals and prevented the government from completing the privatisations.

However, analysts said the sales had never seriously been in doubt, and that the wrangling had not hurt Slovakia's international reputation.

"All the investors realised that Slovakia is in a pre-election period, which explained the delays," said Martin Barto, chief economist at the Slovenská sporite3oa bank.

"The privatisation process was smooth and there were no negative signals regarding the transparency of the process," he added.

The KDH had interrupted the final privatisation phase on May 9, saying it wanted to discuss the use of the sale proceeds, the selection criteria and the possibility that the foreign investors might import electricity from abroad.

After consultation with coalition experts, however, the KDH admitted that a liberalised energy market could not be protected from either exports or imports of energy, and advised their member in cabinet, Justice Minister Ján Earnogurský, to vote in favour of the sales.

The Economy Ministry has announced a plan to liberalise the energy market, permitting almost all corporate consumers to import electricity by 2005. Price liberalisation is also envisaged after Slovakia's entry to the European Union, expected in 2004.

A few days after the KDH dropped its complaint, the SD1 raised questions about the impact of the sale on the Slovak economy and electricity consumers.

"The privatisation of distribution companies will speed liberalisation of the market and also prices," said SD1 Chairman Pavel Koncoš, adding that his party was worried about the impact of the sales on employment at the three companies. The SD1 also expressed concern over how the deals would affect the coming privatisation of electricity producer Slovenské elektrárne (SE), expected this fall.

In the May 22 cabinet meeting, Deputy Labour Minister Edit Bauer presented a document estimating that between 2002 and 2006, approximately 2,900 employees would be cut from the energy sector. The government would put aside Sk430 million ($9 million) to retrain people laid off and help them find new jobs, she said.

The SD1 also repeated previous complaints over the price accepted by the privatisation commission for ZSE, arguing that E.ON had been declared the winner over Austria's EVN, which had offered 21 million euro more.

The party also proposed before the meeting on May 22 that ZSE should be sold to EVN, but only four SD1 ministers supported the proposal.

A majority in the 20-member cabinet is required to carry votes.

Privatisation Minister Mária Machová explained that the bids had not been evaluated on price alone.

"While the price offered accounted for 80 per cent of overall bid evaluation, the remaining 20 per cent was the strategic aspects of each bidder," she said.

Although EVN offered 351 million euro, compared to E.ON's 330 million euro bid, the latter's net profit exceeds EVN's by 36 times, and E.ON's revenues are 18 times higher.

Furthermore, E.ON operates in 17 countries, while EVN owns only two minority stakes in foreign companies. Selling distribution to E.ON, according to the committee, would give it much greater potential for further growth and development.

Machová also noted that income from the privatisation of all three companies, approaching Sk25 billion, "is slightly above original estimations [by sale advisors]."

Besides doubts among the KDH and SD1, opposition and non-parliamentary parties also criticised the transaction.

Tibor Mikuš, shadow economy minister for the opposition Movement for a Democratic Slovakia (HZDS), currently the country's most popular party, said that "privatisation of distribution companies before the privatisation of the electricity producer is an absolutely incorrect step," adding that it would "lead to the obliteration of the Slovak Republic."

"No producer sells his shops. And especially not to his competitor, who is then able to bring his own goods into these stores," said Mikuš.

The boss of the number-two Smer party, Robert Fico, called the sale "treasonable".

Economy Minister 1ubomír Harach, however, said he was relieved that the process, begun in late 1999, was finally over. He expressed frustration at the delays.

"Members of parliament, the government and political party experts had enough time to study all the details of the privatisations," he said.

E.ON will pay 330 million euro for its minority stake in ZSE, while SSE's stake will go to EdF for 158 million euro and RWE Plus will buy the stake in VSE for an expected 130 million euro.

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