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The Warsaw Voice » Other » March 4, 2009
Energy Security & Environment
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Privatization of the Energy Sector
March 4, 2009 By A.R.    
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Despite the financial crisis, the Polish government is determined to go ahead with its privatization agenda for the energy sector.

Under the Program for Electrical Power Engineering, approved in 2006, the government plans to establish "economically strong" energy enterprises capable of financing new investment projects and being competitive on the market. This goal is to be achieved through merging and subsequently privatizing some of the country's largest power engineering companies.

So far the consolidation process has produced four energy groups in Poland: Enea, Tauron, Energa, and PGE Polska Grupa Energetyczna. This last group is the largest power engineering company in Poland, accounting for almost 40 percent of total energy production nationwide. Under the Treasury ministry's four-year privatization program for 2008-2011, all four energy groups will soon be privatized through the stock exchange.

Despite ambitious plans, for the time being the Treasury ministry has only managed to float Enea on the Warsaw Stock Exchange. This happened in November, with help from Sweden's Vattenfall corporation, which had bought 18 percent of Enea's stock.

According to Deputy Treasury Minister Jan Bury, the privatization of Enea is scheduled for completion in the third quarter of 2009, while Tauron and Energa are expected to be privatized in 2010. But in Energa's case the privatization rules may still be altered, Bury said. Instead of privatizing the company through the stock exchange, the government may decide to sell some of the company's stock to an investor from the energy sector, which will make it possible to secure a better price. The Tauron group will be privatized through the stock exchange in 2010, Bury said.

The Treasury Ministry is also determined to privatize the country's largest power engineering enterprise, PGE Polska Grupa Energetyczna. The Polish Press Agency (PAP) has quoted Bury as saying that the PGE prospectus has already been submitted to the Financial Supervision Authority. "Some changes will probably be made to it, but I believe the company stands a good chance of hitting the stock exchange in the second quarter [of this year]," Bury told PAP.

According to Bury, PGE submitted its prospectus to the Financial Supervision Authority at the end of September with plans to increase its capital by 15 percent. The value of the offering is estimated at zl.4-5 billion.

The government recently approved a resolution on an action plan for developing nuclear power generation in Poland. According to Prime Minister Donald Tusk, the government wants PGE to handle the construction of one or two nuclear power plants in Poland by 2020.

"It is important for PGE to get the go-ahead from the government to build a nuclear power plant in Poland, and this should happen still before the company is listed on the stock exchange," said Bury.

"We want PGE to establish and lead a consortium that will build a nuclear power plant in Poland. In this way, the financial market will see that PGE is a solid and strong energy group capable of building a nuclear power plant. We can thus make PGE more attractive [to potential investors], though it's hard to predict how the market will respond-and what shape the market will be in six months from now."

As far as PGE is concerned, the Treasury Ministry is not looking for a core investor. Instead it wants to retain control of the corporation, seeing PGE as a major player on Poland's energy market. In the future, PGE may become an important market player in the whole region, the ministry says.

"The needs in Poland are enormous at the moment, but in a few years' time, within a decade or so, PGE will be able to invest across the region," said Bury.

Success in the privatization of energy companies will depend not only on what happens on the stock exchange, but also on the government's energy price agreements with foreign corporations operating in Poland. Potential investors and company managers are pressing the government and the Energy Regulatory Office to permit higher electricity prices for households. So far, only electricity prices for businesses have been deregulated-a move that has resulted in enormous price increases of 20-30 percent last year and another 40-50 percent this year. Electricity prices for households are still subject to approval by the Energy Regulatory Office, and energy companies are complaining they are forced to sell electricity to households at a loss.

The Fitch Ratings agency expects Poland's energy sector to further improve its the position this year. In a report released in December, Fitch predicted that the market will largely remain unchanged and will still be dominated by the four leading, state-controlled companies-Enea, PGE, Tauron, and Energa.

According to Fitch, the key priorities for Poland's energy sector in 2009 are new investment programs, more funds for investment, and a stronger presence of European energy companies through privatization and direct investment.

European energy market players have set aside large sums of money for long-term investment in Central and Eastern Europe. According to Fitch, these companies have the financial capabilities, know-how and experience to carry out major projects in Poland. However, the stock exchange debut of Enea, coupled with rising prices of coal and the ongoing debate on the costs of carbon-dioxide emissions, may result in another tough period for the Polish energy sector, Fitch says. Despite efforts by Poland's Energy Regulatory Office to keep electricity prices for households at a moderate level, Fitch expects that the flow of cash to the Polish energy sector will remain stable this year.
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