Reduced energy
By : Bogda Zukowska
Companies eager to invest in the energy sector were dealt a blow last week when the Treasury Ministry announced plans to delay further sales of energy assets for at least another year.
At a Euroforum conference Tuesday, Marian Milek, the new deputy treasury minister in charge of privatization, unveiled a strategy that gives priority to the sale of power manufacturers, reversing an earlier ministry plan to sell distributors first. Investors interested in buying energy distributors will have to wait until manufacturers' assets are sold or purchase selected groups of distributors together with power plants, something that is unlikely to happen before 2002.
According to Deputy Prime Minister and Economy Minister Janusz Steinhoff, the proposed changes stem from the government's concern that investors will buy distributors and ignore manufacturers. He said the government is also worried that once the distributors are privatized, the treasury will raise less money from the sale of power plants. Manufacturers are considered less attractive, he said, as the margins on energy sales to distributors are small and because many firms require heavy investment to bring them in line with Western European environmental standards.
In a change from the treasury's previous plan, the strategy envisages selling a cluster of eight northeastern energy distribution plants, the so-called G-8 group, in pre-set packages that require investors to purchase at least one of four electricity manufacturers Kozienice (central Poland), Dolna Odra (northwestern Poland), Ostroleka (northern Poland) or Stalowa Wola (southeastern Poland). Earlier this year, the ministry put out a tender for 25% stakes in the distributors only.
Under the plan, the treasury plans to first sell a group of southwestern power plants Poludniowy Koncern Energetyczny, Opole and Turow while more lucrative assets such as the Belchatow power plant and the STOEN energy distributor are to be sold in 2002. The remaining distribution firms, such as the G-4 group of southeastern distributors, will be put up for sale after the privatization of several smaller assets.
The plan, which the Cabinet Economic Committee (KERM) approved last Thursday and is now awaiting final government approval, limits private investor participation to 25% in distributors and 45% in manufacturers. Before, the Treasury Ministry planned to lift this cap and allow investors to bid for majority stakes in companies.
"There are contentious issues in the proposal, such as the privatization timetable for the Belchatow power plant and the combined sell-off of distributors, as well as the 15% market share cap for any single investor in the energy industry," Milek said. According to him, the treasury hasn't decided whether to consolidate the industry before its privatization. The government also has to decide on the state's role in the energy market and foreign ownership levels. "We have to determine if we want to have Polish energy or energy in Poland," Milek said.
The proposal has prompted investors and industry watchers to question Poland's commitment to privatizing the sector. "I wonder whether this will result in a new tender being opened and a slowdown of the privatization process," said a Deutsche Bank representative.
Additionally, banks, investors, energy firms and the Polish Power Exchange (GE) are concerned about the plan's stipulation to sell distributors in a package deal with power plants. "In the case of combined deals, we have to avoid a situation where, for example, an investor would only focus on a lucrative distribution company, while ignoring the power plant that the investor was forced to purchase (with it)," said Jan Buczkowski, president of GE. According to Buczkowski, the ministry's sell-off scheme may reduce investor interest.
But if the proposal is accepted, energy sector consolidation could become an even hotter topic. Under consolidation, electricity manufacturers would merge with raw material suppliers and distributors, reducing their dependence on coal mines and rising coal prices, as well as diversifying producers' revenue sources. "We're in favor of such consolidation as it would strengthen our position on the market," said Stanislaw Kusmierczyk of the Opole power plant. Stanislaw Zuk, president of the Turow power plant, agreed: "We stand for mergers and joint ventures across the sector, as it would reduce risks, such as coal price volatility, and such entities would be more attractive for investors."
Other market players were less optimistic saying that consolidation would give the newly created large entities unfair price advantages over smaller competitors. "Consolidation in the energy sector is welcome as long as it does not limit competition," said Jarek Astramowicz, director of the Warsaw office of Enron, a U.S. energy conglomerate. According to him, consolidation should be limited to mergers among distributors or energy manufacturers.
