Barriers remain to future power sector privatization
Power plant privatization plans have seen recent surges of activity although some sector observers wonder about the market's attractiveness to potential investors.
Some of the smaller, less modern plants aren't drawing much interest from investors. Analysts say the highly fragmented industry needs more consolidations similar to the merger of five energy companies announced last Wednesday by the Treasury Ministry. The resulting Poludniowy Koncern Energetyczny will provide 17% of the country's electricity.
Another major barrier for investors is the lack of an up-to-date law to regulate the production, distribution and pricing of energy, said Krzysztof Urban, an analyst with brokerage Wood & Co.
Perhaps it's only institutional as opposed to strategic investors who are turning their backs on the largely non-traded energy market, said Anatoli Kaminov, an analyst with investment bank Merrill Lynch in London.
"I know that there will be one company (attractive) to institutional investors next year," Kaminov said, referring to Elektrownia Belchatow, the country's largest power plant. "Currently there's nothing ... though some strategic investors might find it interesting to invest in small plants."
One of these potentially interesting plants is Elektrocieplownia Bialystok. The Treasury Ministry recently reopened a tender to sell 10-80% of the combined power and heating facility. The company's first tender in January attracted no bids.
"Other privatization projects attracted much more interest," said Pawel Zach, senior research analyst at Citibank (Poland). "Bialystok is not the best market at all for the power sector," he said.
This time around, however, Zach said, Bialystok has indicated that a number of companies have shown at least marginal interest in buying stakes. These include construction company Exbud and a number of power companies: U.S.-based Ogden Energies, U.K.'s National Power, Sweden's Vattenfall, Belgium's Tractebel and Germany's MEAG and HEW.
Zach believes the privatization process is pretty much on schedule and doesn't think power generators and distributors for sale in the future will have problems finding strategic investors. Roughly 90% of power companies sold have gone to strategic investors looking for acquisitions, Zach said.
"You can argue about whether it's fast enough, but the intention ... is to privatize the sector," he said. "We see the activity (in stake sell-offs and a few IPOs), so I don't see any problems here."
Privatization began in 1998 when Electricite de France subsidiary Finelex took 57.9% of Electrocieplownia Krakow. In March 1999, an Elektrim consortium paid $88 million for a 20% stake in Patnow Adamow Konin (PAK), the nation's second largest plant. Warsaw's Elektrocieplownie Warszawskie sold off a 55% stake to Vattenfall in January 2000 for $230 million. At about the same time, foreign investors Elcho and Foster Wheeler signed a $320 million contract for a power plant in Chorzow.
More recently, Tractebel paid $84.12 million for 25% of Polaniec, the fifth-largest electricity generator. It plans to up its stake to 37.5% in the next several years and invest o339 million on modernization. Tractebel paid about $185,000 per megawatt (MW) hour of installed energy capacity, a price that seems to have set the standard for power plants, Zach said.
Although Belchatow, Kaminov's bet for future institutional investment, has yet to be privatized, the treasury just named investment bank Credit Suisse First Boston and accounting firm KPMG Polska as privatization advisers. With an estimated market capitalization of $2 billion-$4 billion, the treasury-owned Belchatow became a joint-stock company in May 1999 and could begin issuing shares to the public sometime in 2001, Zach said.
Built in the 1980s, the plant also has the lowest operating costs in Poland, Zach said, making it even more appealing if free floated, sold off or both. Belchatow, combined with an upcoming Belchatow 2 project, could potentially supply more than 5,000 MW of electric capacity. It currently has an installed capacity of 4,320 MW compared to next-largest PAK's 2,740 MW.
Kaminov, who doesn't think institutional investors will be eyeing anything other than Belchatow, said the situation is similar in Hungary and the Czech Republic. In Hungary, only the country's largest plant, Demasz, is liquid enough to attract institutional investors, he said. In the Czech Republic, it's also the largest plant, Ceske Energeticke Zavody (CEZ), he said.
But even if it is only strategic investors that go after the energy sector, several deals are nearing completion.
It looks fairly certain that an Electricite de France and Gas de France consortium will soon be scooping out roughly $50 million for a 45% stake in Zespol Elektrocieplowni Wybrzeze (ZEC), a power and heat generating plant. A consortium of Japan-based Marubeni, General Electric Capital and NRG looks poised to acquire 35% of the Rybnik power plant.
And IPOs aren't out of the privatization equation. Wroclaw-based Zespol Elektrocieplowni Kogeneracja plans to offer 36% of shares and look for a strategic investor in the near future. The Bedzin power plant, owned 68.3% by the Treasury Ministry and 13.3% by Polish construction company Betonstal, and MPEC Wroclaw, owned 89.3% by the municipality of Wroclaw, are already traded on the Warsaw Stock Exchange (WSE). Both companies plan to find strategic investors sometime in the future, Zach said.
