Talks for G-8 resume, deal may take as long as six months

Poland will return to talks with six bidders for its top utility group G-8, this year's biggest privatization project, after negotiations with Germany's E.ON failed, Treasury Minister Wiesław Kaczmarek said last week. The sale of the G-8 power distributor, which was to raise as much as 75% of the state's target for $1.6 billion in privatization revenue this year, now hangs in the balance after the German utility's three-week exclusive negotiation period expired without result. Kaczmarek said that the state would now have to ask the six initial bidders back to the negotiating table, risking delaying a deal by up to six months. The government's leeway in negotiations over the G-8 sale is limited because the treasury desperately needs privatization revenue for Poland's cash-strapped budget. Without the sale, it will have to increase borrowing to finance the budget deficit. "I won't beat around the bush," Kaczmarek said. "With six bidders at the table, it may take up to six months to get this deal."

Negotiations for more than a 60% stake in the Polish group, which has a 17% market share, will now resume with E.ON, Belgium's Tractebel, Spain's Iberdrola and Endesa, Ireland's state-owned ESB and local investor El-Dystrybucja. It is not clear whether all bidders - shortlisted in March 2001 - will still be interested in buying the G-8 stake after Poland's economy stalled and the state imposed a new tax on power sales to help close the budget gap. Earlier last week, E.ON, which looked on track to get control of the G-8, said it was still interested in Poland's northern utility. The German group never disclosed its initial bid, but industry sources said it started at $1.2 billion before E.ON reportedly tried to reduce it. Some market sources said earlier that E.ON tried to slash its initial offer by 25%. E.ON would not comment on the reasons behind the negotiations fiasco after some reports said that the German group used Poland's new excise tax on power sales, introduced in April, as an argument to cut its offer. Kaczmarek said that the power tax, which utilities say squeezes their profit margins since they cannot raise government-controlled retail prices, discouraged aggressive bidding for the stake. "This issue certainly did not make the negotiations easier for us," Kaczmarek said. - Reuters