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The Warsaw Voice » Business » December 19, 2007
INTERVIEW
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We Like Competition Because It Keeps Us on Our Toes
December 19, 2007   
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Tuomo Hatakka, head of Sweden's Vattenfall Business Group Central Europe, the largest producer of heat and the seventh largest producer of electricity in Poland, talks to Marzena Robinson.

Vattenfall, which produces, distributes and sells heat and power, is one of the largest investors in the Polish energy sector. How much have you invested here so far?

We started our operations in Poland in 1992 and have taken an active part in developing the country's energy market ever since then. We have invested almost 1 billion euros here so far.

In 2000, we bought 55 percent of the stock in Elektrociepłownie Warszawskie SA, a combined heat-and-power plant in Warsaw, in what was one of the largest privatizations in Poland's energy sector. Today Vattenfall holds 75 percent of the stock in Vattenfall Heat Poland, a company established on the basis of Elektrociepłownie Warszawskie. Vattenfall Heat Poland is the largest producer of combined heat-and-power in Poland.

In 2001, Vattenfall acquired 33 percent of Górno¶l±ski Zakład Elektroenergetyczny SA (GZE SA) in a transaction that marked Poland's first ever privatization of a power distribution company. Today Vattenfall holds 75 percent of the stock in Vattenfall Distribution Poland, a company established on the basis of GZE SA that has more than 1 million customers, both private and industrial.

Over the past 15 years, we have grown in Poland from a small representative office into a sizeable business. Today Vattenfall has a 27-percent market share in Poland in combined heat-and-power production, 10 percent in power distribution, and 7 percent in electricity sales.

We know that we are not alone on the market. But we like and respect competition. We welcome it because it keeps us on our toes.

In early December, Vattenfall decided to integrate its operations in Poland and Germany as part of Vattenfall Business Group Central Europe. How is this move going to affect your activities in Poland?

We hope it will have a positive effect on our activities in Poland. We expect synergy benefits in the development of our business, and we hope to take advantage of the extensive experience that we have in Germany and use it in Poland in the first place, with a possible expansion into other markets as well.

You have been appointed head of Vattenfall Business Group Central Europe, which means you will be heading Vattenfall in both Poland and Germany. Does that mean there will be some joint Polish-German projects?

I'm sure there will be, mostly in the area of business development. We have the ambition to grow, and I think there are complementary experiences and skills in the two countries, and we will try to put them to good use. I'm sure there are going to be cross-border benefits and, as I said, I think they will primarily come from joint development projects.

However, we are not going to merge the two countries' organizations. The Polish business will be run as a separate country organization, and the same goes for Germany. There are synergy benefits, but these benefits are really in the area of business development.

How do you think the planned deregulation of energy prices next year will affect Polish customers?

There are a number of issues that are important here. The price of electricity is important, but it's also important to have the security of supply and the certainty that there's not going to be a blackout. I don't know which is more important: the security of supply or the price. Yet another issue is the environment. We all want to be responsible citizens who protect the environment. So the trick is to reconcile these three things. Unfortunately, it's not that simple. We all have to learn to accept tradeoffs. The Polish economy is growing at a very fast rate, and that means that the demand for electricity will grow as well. Poland's power plants are relatively old and need modernization. You most probably need 20,000 MW of new capacity over the next 15 years. Unless you have that, you can't ensure the security of supply.

Another issue is the environment. Poland is a coal-based country that emits a lot of carbon dioxide into the air, and with the new EU energy package, the environment is the top priority. So how do you bring your CO2 emissions down? The answer is energy efficiency, along with the need to diversify the fuel mix and use more renewable energy.

Overall, I think there's going to be a price increase. But that's why you need a well-functioning market that will minimize the price hikes. You need competition in the market, and if that's the case then every consumer will accept the fact that prices have to go up-in exchange for the security of supply and environmental gains.

Vattenfall is known for its attention to environmental protection. What is your agenda in Poland in this area?

In our field of infrastructure, we are using biomass fuel in Warsaw. Of course, it's not a big amount for the time being, but we plan to increase the amount of biofuels to be used for our heat operations here. We have also invested significant amounts of money to reduce dust emissions.

We have 15 windmills in northern Poland that generate some wind energy, and we are also involved in other projects like improving the street lighting system in the Upper Silesian region, which will lead to dramatic savings in electricity and will reduce CO2 emissions.

In your view, how can Poland's energy industry be made more environment-friendly? Is there an alternative to the country's heavy reliance on coal?

For countries like Poland that are based on coal, the carbon-dioxide problem is combined with the security of supply. We need to work on technologies that will make coal cleaner and better as a fuel. I don't think we can avoid using coal in countries like Poland at the current stage. There is no other alternative. One should simply be responsible. Of course, we can say, well our CO2 emissions are too high so let's stop using coal. But that would hurt the country's energy security. Poland needs coal for its power plants, and we just have to make them compatible with our climate change objectives. Currently Vattenfall is building its first coal-fired research power plant with carbon capture and storage technology in Germany. The test results will also be used in Poland.

Does Vattenfall plan any further acquisitions and projects in Poland in the near future?

We are determined to grow. Time will tell how fast we will grow, but the commitment is there. Our first priority is electricity generation, but we are also keen to increase our presence in the heat business and obviously we don't mind growing our sales business here. We have approximately 1 million customers today to whom we supply electricity in Silesia and we hope to use that as a base to expand our sales business.

We are obviously interested in acquisitions, but we're also keen to expand through greenfield investments in conventional generation as well as in renewable energy. Those are the methods of growth as we see it today. The power sector is a capital-intensive business so any project that you realize would be a significant investment. How much will that be? Time will tell.

Overall, we are optimistic. The overriding objective is continued growth, but we also want to respond to changes in the market. That's why we have decided to make the latest organizational changes. An integrated energy market in Europe is not a distant prospect. One day we will move from individual country markets to an integrated European market. This explains our decision to combine our business in Poland and Germany. Poland and Germany are neighboring countries that are part of the same region. So for us this is a logical step that is aimed at accelerating growth.

Tuomo Hatakka. Born 1956. Senior Executive Vice President Vattenfall AB since 2005 and Head of Business Group Poland since 2001.

Education: Helsinki School of Economics and Business Administration, Instituto de Estudios Superiores de la Empresa, Barcelona, Spain.

Work experience: Bain & Company, London, UK, Manager (85-91), Company Assistant Limited, Warsaw, Poland, Director, Partner (92-93), Enterprise Investors, Warsaw Poland, Executive Vice President, & Partner (94-99), Elektrim Kable SA, Warsaw, Poland, President & CEO (00-01).
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