Energy producer awaits new owner

A NEW owner of the state power producer Slovenské elektrárne (SE) will be announced in September this year.
After opening bids for the potential 66 percent share of SE on August 12, the privatisation commission has now recommended that the bidding companies clarify and revise their offers.

A NEW owner of the state power producer Slovenské elektrárne (SE) will be announced in September this year.

After opening bids for the potential 66 percent share of SE on August 12, the privatisation commission has now recommended that the bidding companies clarify and revise their offers.

"All assessed bids are equal at this moment. There is a need to compare the offers because they each provide numbers based on a different premise. They are not easily comparable," Peter Mitka from the privatisation advisor PricewaterhouseCoopers told the press.

Investors have received an additional two weeks to clearly define their offers. The commission is supposed to discuss the revised offers beginning September 3.

During this period investors may change their bids as well.

"Our aim was not to encourage the investor to increase the price. However, if the potential buyer wants to do that, they may," added Mitka to the daily Pravda.

Four companies - Czech ČEZ, Russian RAO UES (in consortium with German OstElektra), Italian Enel, and Austrian Verbund, submitted final bids for the purchase of the majority share of SE.

Because the firth suitor, Verbund, was only interested in purchasing the water and heating plants of SE (and not the nuclear plants), the company was automatically dropped from the final evaluation of the bids.

Economy minister Pavol Rusko implied earlier that the ministry intended to sell SE with its nuclear facilities included. The ministry considers accomplishing the third and fourth blocks of the nuclear power plant in Mochovce a priority.

According to information leaked to the public, Italian Enel proposed the highest price for SE so far, Sk40 billion (€992 million).

It is believed that Enel wants to buy all of the SE properties, although the firm did not specify whether it intends to complete the nuclear blocks in Mochovce as well. However, it conditioned the best price by planning to abolish SE's disadvantageous long-term contracts that lose the company billions of crowns in stranded costs.

The Czech power producer ČEZ offered Sk31 billion (€769 million) for SE. It is willing to cooperate in accomplishing the Mochovce nuclear power plant, but its bid does not include purchasing the hydro plant in Gabčíkovo or the Jaslovské Bohunice V1 and A1 nuclear blocks .

Slovakia has to close down the V1 block based on accession agreements with the European Union in 2006 to 2008. The A1 block was broken in 1977 and has not been functioning for 30 years. The future owner will have to face the task and costs of their full decommissioning.

"We will not buy something that will have to be closed down in 2 to 4 years and not produce electricity any more," said Ladislav Kříž, the spokesman of ČEZ.

According to Kříž, the ownership of the nuclear blocks in respect to the costs of their decommissioning is not important.

"In Slovakia, the decommissioning is paid by the State Fund of Liquidation of Nuclear Energy Facilities," added Kříž to the Národná Obroda daily.

Russian RAO UES set its bid at Sk19 billion (€471 million). Although the amount might be the lowest, RAO is the only potential investor interested in acquiring both the V1 and A1 blocks and considers the completion of Mochovce one of its priorities.

Each of the interested companies has its pros and cons.

ČEZ and SE were built as one unified system during the period of the former Czechoslovakia. Although it does not want to buy the V1 block and Gabčíkovo, ČEZ is interested in operating them. ČEZ has vast experience in the construction and operation of nuclear facilities similar to those in Slovakia.

"Before 1992, SE and ČEZ were connected as one energy system and from a technical point of view this connection still makes sense today," Vladimír Dohnal, the general director of Symsite Research told The Slovak Spectator.

"We consider our bid very advantageous for the whole Slovak energy industry for several reasons. The Slovak and Czech energy industries were developed as one unit," said Martin Roman, the general director and chairman of the board of directors of ČEZ.

On the other hand, the Czech energy company is fully state owned, as is the SE. Its financial strength is also lower than that of the other bidding parties.

Although it is free from the financial scandals that plagued the SE, there are doubts that the state enterprise would be able to bring fresh and new ideas to the Slovak company.

"SE would not be able to gain a strong financial strategic owner. There are no scandals (of tunnelling) connected to ČEZ unlike with the SE, however, it is still a state-run company in the post-communist Czech Republic," added Dohnal.

On the other hand, Enel is one of the financially stronger potential investors. The state has a 68 percent share in the Italian company.

Its most significant advantage is without a doubt a strong financial background. Enel, however, has no experience in managing nuclear energy facilities.

Russian RAO UES would fulfill both the conditions of financial reliability and long-term nuclear facilities operation, plus the state's share in the company represents only 53 percent.

The Russian company is a big energy player at home and in neighbouring countries. The reason it is interested in buying SE might be that it is looking for a gateway to Europe.

In spite of this, the firm has the lowest rating among all the bidders. The well-known case of Russian oil producer Yukos (which owns a minority stake in the Slovak oil transport company Transpetrol) only strengthens concerns about the riskiness of dealing with a Russian company.

SE consists of 3 nuclear, 2 thermal power plants, and 34 water energy sources. The net profit of SE for 2003 represented Sk1.31 million (€3.3 million).

According to Dohnal, the government faces many problems regarding the privitisation of SE. The largest of which is SE's stranded costs, which climb into the tens of billions of crowns and thus decrease the value of SE.

He explained that SE inherited the costs from the politically motivated decision to maintain houshold electricity prices at a level lower than cost.

There is also a history of some economically unreasonable investments, for example, the two blocks of the nuclear plant in Mochovce during the government of former Prime Minister Vladimír Mečiar.

In addition, SE also signed some strange long-term and highly disadvantageous contracts such as the agreement to purchase electricity from Paroplynový cyklus (PPC), as well as to supply electricity to Slovalco in Žiar nad Hronom.

According to Hospodárske noviny daily, SE sells 1 KWH of electricity to the aluminium producer Slovalco for $0.03 (€0.02). Such a price is unheard of in central Europe. On the other hand, SE is buying electricity from PPC for too much.

SE quantified the stranded costs at almost Sk70 billion (€1.76 billion). The company cannot offer prices (mainly to large customers) as low as those offered by the Czech, Hungarian, and Ukrainian competitors due to its stranded costs and indebtedness.

The Slovak power producer needs a large partner so that it may have a better chance of success in a unified and liberalised EU market.

SE, although active in foreign markets, must face high electricity imports from abroad, mainly from the Czech Republic, Hungary, and Ukraine.

Additionally, there are doubts about the transparency of the tender. According to Transparency International, apart from last-minute changes to deadlines, there are no clear and publicly known rules of the bidding assessment.

"In such a situation we can only hope that the commission will not change them [the rules] in favour of a concrete candidate and that it will proceed according to them," Emília Sičáková-Beblavá, the president of Transparency International, told the daily SME.

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