ONLY several weeks before the deadline for final bids on the sale of a majority stake in the state-run Slovenské elektrárne (SE), Economy Minister Pavol Rusko implied that there might be some new solutions to the privatisation of the country's major power producer.
So far two alternatives - the sale of a 66 percent share of all SE property and the sale of a 66 percent share of SE's non-nuclear facilities are being considered.
However, the Economy Ministry implied that merging SE with another energy company or even a tripartite exchange of stocks between Czech power producer ČEZ and Slovak and Czech national property funds might be considered.
"Right now, all alternatives are open and equal. The Economy Ministry will decide after it has thoroughly investigated and analysed the options. The decision will depend on the bids and behaviour of investors," Alexander Škurla, the spokesman of the economy minister told The Slovak Spectator.
Minister Rusko said the government might not even sell SE.
"I will not support privatisation at any price just because we want to get rid of it. It will depend on the offers," Rusko said.
Insiders suggest that the Economy Ministry wants to find space to look for solutions most appropriate and advantageous for the state.
Additionally, Rusko had earlier confirmed that the date for submitting final bids, originally set for June 18, might be postponed. The ministry cited lacking energy legislation, which could be a risk for the future investors, as a reason.
"I think that Minister Pavol Rusko has signals that indicate that the interest in SE under current conditions - with the fate of stranded costs and energy legislation unclear - is not very strong. That is why he is already considering different alternatives in case the second phase of the tender for the SE sale is not successfully finished.
"However, I agree that it is a bit unpleasant and abnormal to enter the current privatisation tender with such allegations," Vladimír Dohnal, director of the company Symsite Research, told The Slovak Spectator.
The SE privatisation process, considered one of the final large-scale privatisation deals in Slovakia, started in early October in 2003 when investors were asked to present their bids. A total of 10 investors have done so.
The next step was the selection of investors, which excluded two Slovak companies from the tender: SAVAS and Hornonitrianske bane mines.
Their offers were officially turned down due to the companies' lack of experience in the energy sector and doubts as to whether they could finance their projects.
By the deadline of early December, only five of the remaining eight bidders presented preliminary offers. Although they have been given code names - Dunaj (Danube river), Gerlach, Chopok, Kriváň (all mountains), and Devín (a historic castle) - to make the privatisation more transparent, the bidders are known to include RAO UESR (Russia), ČEZ (the Czech Republic) and, most likely, E.ON (Germany), International Power (UK), and AES (US) or Verbund (Austria).
Rusko declared earlier that the most advantageous deal for the state would see the potential investor buy SE as a whole, including its nuclear facilities. So far, only ČEZ and RAO UESR have been interested in the nuclear part of SE.
Five bidders are now at the final stage of their due diligence of SE and are about to submit their final bids.
However, burdened with bad loans and disadvantageous contracts, SE has virtually no value for future investors, the Slovak daily Pravda wrote recently. The commitments of the company outweigh SE's assets by at least Sk61 billion (€1.5 billion).
In addition to bad loans and contracts, a major problem is the lack of funding to decommission two nuclear plants - Mochovce and Jaslovské Bohunice. This should be partially solved by the proposed amendment to the law on the state fund for the liquidation of nuclear energy facilities.
SE entered the privatisation process with bank loans amounting to around Sk87 billion (€2.2 billion) as well as stranded costs of about Sk36 billion (€896 million). These include disadvantageous contracts that are both fixed and long-term for drawing electricity from Paroplynový cyklus, supplying electricity to the Slovalco company, and buying coal from Slovak mines. A new investor would have to take over all these commitments.
Investors who are interested in buying the company as a whole - ČEZ and RAO - hope to change the decommission plan for the two nuclear power plants. The current model would require an additional Sk88 billion (€2.2 billion). According to privatisation adviser PricewaterhouseCoopers, the Pravda daily wrote, one of the possibilities is to transfer the costs into electricity prices over the coming 50 years.
"In the privatisation of SE, the government faces many problems. The biggest is SE's stranded costs, which climb into tens of billions of crowns and thus decrease the value of SE," said Dohnal.
He explained that SE inherited the costs from the politically motivated maintenance of electricity prices at a level lower than production costs for households and economically unreasonable investments, in two blocks of the nuclear plant in Mochovce, for example, during the government of former Prime Minister Vladimír Mečiar.
"That is why it is possible that there will simply be no one interested in and willing to buy SE in its current condition - when the solution of the problem of stranded costs is still unclear."
Dohnal thinks that the alternative of merging SE with a stronger energy partner would be a pragmatic fallback solution if the sale is not successful. In that case, the traditional connection to ČEZ seems logical.
"Before 1992, SE and ČEZ were connected in one energy system and from a technical point of view this connection still makes sense today. We suppose that a bigger company will have a better chance of success on a unified and liberalised EU market. Even now, SE must face high electricity imports from abroad, mainly from the Czech Republic, Hungary, and Ukraine. SE cannot offer prices as low as those offered by Czech, Hungarian, and Ukrainian competitors mainly to big customers due to stranded costs and indebtedness," said Dohnal.
Dohnal sees stronger financial stability and the ability to cover daily and seasonal amplitudes in electricity production and the consumption of customers as the main pros of a combined SE and ČEZ company. Additionally, the merged company would be more attractive for possible investors who would not be interested in SE alone.
On the other hand, although ČEZ is better off financially and a more modern company than SE, it is still a state enterprise in a post-socialist country. In a possible tender for the sale of the merged company, Slovakia would probably have a weaker impact on the choice of future investors and contract conditions, Dohnal summarised.