IHS World Markets Energy Perspective | |
Significance | Negotiations between the Polish Treasury and EDF to sell Poland's third largest utility Enea to the French incumbent have collapsed as a result of EDF's refusal to offer guarantees on investment into Enea's generation capacity. |
Implications | EDF had been locked in exclusive negotiations with the Treasury since December last year but notion of allowing a major Polish utility to pass into the hands of French-state owned EDF was generating controversy. In the run-up to elections in October, Polish politicians are especially willing to derail such deals in order to curry nationalist favour. |
Outlook | Energy policymakers find themselves in a dilemma; Poland urgently need to attract foreign direct investment into its power sector as spare capacity margins fall dangerously low but foreign ownership of the Commanding Heights of the economy remains anathema to the wider population. |
Another Year, Another Failed Privatisation Attempt
The Polish Treasury Ministry has confirmed reports that negotiations with French state-owned utility giant EDF to sell the country's third largest utility Enea have been terminated. A statement released by the Ministry on 1 April said that the talks had stalled over refusal on the part of EDF to guarantee investment into Enea's 2.9-GW coal-fired power plant at Kozienice. The Treasury has been in exclusive negotiations with EDF over the acquisition of the state's 53% stake since mid-December last year, after talks with Jan Kulczyk, Poland's richest man fell through as a result of concerns over Kulczyk's capacity to finance the deal (see Poland: 16 December 2010: EDF Steals a March in Bid for Enea). The government feared Kulczyk was relying excessively on foreign loans to finance his acquisitions and was concerned that the central reason for selecting his bid, his nationality, might prove to be worthless if he was forced to sell the utility to a foreign party as a result of taking on too much debt.
Indeed, nationalist sentiments may be the reason Enea's privatisation has stalled yet again. The collapse in negotiations this week was preceded by comments from the Polish deputy prime minister Waldemar Pawlak arguing against Enea's sale to EDF on strategic grounds. Pawlak pointed to the fact that since EDF itself is 84.4% owned by the French state, its acquisition of Enea could hardly be labelled privatisation. This is true although it did not seem to be a problem for the government when it sought to "privatise" Energa by selling it to Polska Grupa Energetyczna (PGE), which is 85% owned by the Polish state (the deal was in fact blocked by the regulator on competition grounds, see Poland: 3 February 2011: PGE Appeals Regulator's Decision to Block Energa Deal). Pawlak's comments probably reflect the fact that his Peasant Party is struggling in the polls and may see its share of the vote decline in the general election scheduled for October this year. Jaroslaw Kaczynski, leader of the main opposition party also struck a populist note, attacking the government for hiving off strategic firms to foreign entities. Kaczynski's conservative Law and Justice Party has long been hawkish on non-Polish firms acquiring the "commanding heights" of the economy, although the timing of his and Pawlak's comments suggests both may have already known the deal was off anyway and were simply jumping on the bandwagon.
Enea Takers at All?
The Treasury's loss of one potential buyer for Enea once could be regarded as misfortune. For it to happen twice looks like carelessness. This, however, is the fourth occasion that a private buyer has been spurned at the last moment (the first two were Vattenfall and RWE, followed by Kulczyk Holdings and now EDF). It comes on top of the failed attempt to merge Energa with PGE, and potentially raises problems for the Treasury's plans to pare back state debt.
Moreover, this latest delay may also slow the delivery of urgently needed new generation capacity: peak demand is set to increase from 26GW in 2010 to over 30GW by 2015, during which time the country's reserve margin will dip below 10%, according to IHS CERA. The recession dented demand slightly and bought some breathing space but Poland's economy has rebounded aggressively and IHS Global Insight expects the economy to grow by nearly 4% this year. Even with conservative power demand growth estimates of between 3% and 4% the country may face rolling blackouts. Market coupling with the Czech Republic later this year, in conjunction with the likely permanent closure of seven of Germany's oldest nuclear power plants, will tighten regional markets further. Poland's energy policymakers thus find themselves in a difficult situation. The country desperately needs to attract foreign direct investment into its power generation sector, but allowing foreign firms to dominate remains anathema to politicians.
Outlook and Implications
Although EDF has not ruled out future interest in Enea, for the time being it is out of the running. Kulczyk has made clear he is still keen to acquire the utility GDF Suez, and the Czech Republic's Energeticky a Prumyslovy Holding (EPH) may also re-enter the race (see Poland: 10 December 2010: Government Sets Deadline for Potential Bidders to Improve Offers for Poland's Enea). An outside possibility is that PGE itself might seek to acquire Enea (Poland's third largest utility by capacity), having been thwarted in its bid for Energa (the country's second largest power generator). This would actually fit PGE's profile relatively well, since the main asset Enea has to offer is its distribution network and access to 2.3 million existing customers. This amounts to around 15% of the residential market (the growth sector within Poland's power industry), which is all the more attractive given the country's negligible switching rates. Access to Enea's distribution network would provide a steady revenue stream plus an outlet for new generation capacity PGE plans to add over the next decade. Nevertheless, the competition authority, UOKiK could intervene again.