Modernizing Poland's power plants will carry a hefty price tag
Once the privatization of Poland's energy sector is complete, its power plants will require investment injections of $20 billion-$30 billion over the next decade to bring them up to Western European standards, industry observers said.
Citibank (Poland) estimated that $20 billion would be required to bring the plants up to date, while the Polish Agency for Foreign Investment (PAIZ) said the amount needed could reach as much as $30 billion.
Modernization of Poland's power plants is crucial as the country's electrical energy usage is expected to double during the next 20 years, according to the PAIZ. Investment in the sector will pay for the construction of new power plants to meet increased consumer demand as well as the implementation of environmental protection measures to meet stricter ecological standards Gas turbines will largely replace coal-fired plants during the next several years, while nuclear power plants will supply part of the country's power after 2010, according to PAIZ.
In the past the government has been daunted by the prospect of financing the cash-demanding modernization of power-sector projects on its own. "In recent years ... it was not a natural thing for the state treasury to just go ahead and start selling assets in the power sector because of problems that have accumulated for years," said Pawel Zach, senior research analyst at Citibank.
To illustrate the scale of modernization that Polish power plants must undergo, he cited the example of Vereinigte Energiewerke (VEAG), the power company of the former East Germany, which controls about 80% of the power market. In the past 10 years, almost DM 20 million has been invested in the plant, Zach said, adding that Poland's power plant upgrades will require the same massive cash infusion.
This year's batch of power plant privatizations will yield the government about $500 million or more, he said. When the proceeds from the privatizations of energy distribution companies are added, the amount jumps to about $700 million, he said.
As with privatization in other sectors, foreign investors will bring much-needed capital and know-how to the country's outdated power plants. Until recently, however, the Polish government had not welcomed foreign companies into the energy sector, industry observers said.
"For a long time energy has been viewed as a strategic sector and any talk about selling (energy assets) to foreigners was inadmissible," said Jacek Michalski, a partner who specializes in privatizations and corporate finance at the Warsaw office of law firm Hunton & Williams. "Now the government is welcoming foreigners. The government came to the conclusion that so much financing was needed to upgrade the plants for years to come, and it doesn't have any money (to do it). In private hands with certain regulatory controls (in place), those companies would do better under foreign companies."
Energy sector privatizations this year include 17 power plants, 33 energy distribution companies and several heating plants, according to the Treasury Ministry.
So far, the ministry has proceeded with power company privatizations through a tender process to find strategic investors instead of offering shares on the Warsaw Stock Exchange or foreign exchanges. To entice foreign investment in the power plant subsector, the treasury said it would offer strategic investors share packages that would enable them to acquire up to 75% of shares in a power company.
The Treasury Ministry said that it is conducting negotiations on the privatizations of 19 companies in the heating power plant subsector and all 33 companies in the
energy distribution subsector.
Three energy sector privatization projects will be completed in the new few weeks, Zach said. These include the Gdansk-based thermoelectric power plant Zespol Elektrocieplowni Wybrzeze, the Bedzin heat and power plant, and Rybnik, Poland's sixth-largest power generator.
One power distribution company privatization close to completion is Gornoslaski Zaklad Energetyczny (GZE), Zach said. The company's 40% stake that is up for grabs is estimated to be worth about $200 million.
Privatization is also scheduled this year for Koncern Poludniowy group, which includes seven power plants (Jarworzno III, Laziska, Lagisza, Siersza, Halemba, Blachownia, Katowice).
