HANDELSBLATT EXCLUSIVE Vattenfall Delays Coal Sale

Swedish utility Vattenfall has postponed the sale of its brown coal operations in eastern Germany until mid-April, Handelsblatt has learned. The process could be called off entirely due to low bids.
Vattenfall's plans to sell off its brown coal operations in eastern Germany may go up in smoke.

Vattenfall Chief executive Magnus Hall has decided to take more time wrapping up the sale of the company's brown coal operations in eastern Germany.

Mr. Hall initially planned to make a decision on Wednesday but is now targeting mid-April, Handelsblatt has learned.

His representative in Germany, Tuomo Hatakka, and labor representatives are apparently backing different buyers.

Mr. Hatakka favors the Czech utility EPH, which already operates the Mibrag coal mining company in eastern Germany, according to Handelsblatt's sources on the supervisory boards at the two affected subsidiaries, Vattenfall Mining and Vattenfall Europe Generation.

The overwhelming impression is that the sale to EPH will go through. Handelsblatt source

In a meeting with the supervisory boards on Wednesday, Mr. Hatakka said he had encouraged Vattenfall's board in Sweden to back the EPH bid, and noted support for the deal among workers and political authorities in the states of Saxony and Brandenburg.

It is still unclear, however, whether the Czech utility's offer is robust enough to convince Vattenfall management in Sweden.

Labor representatives are pushing for an alternative deal with the German electricity company Steag and the investment bank Macquarie.

Under that deal, Steag and Macquarie would bring Vattenfall's brown coal operations into a trust. Mr. Hatakka, however, apparently told the supervisory boards that the trust model had no serious chance of approval.

Vattenfall declined to comment.

 

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Final bids for Vattenfall's brown coal operations, which include five mines and three power plants in Saxony and Brandenburg as well as a plant operated jointly with EnBW in Saxony, were due on March 16. The mining company Czech Coal also made an offer. The Czech utility CEZ had expressed interest but backed out on short notice.

Germany's decision to subsidize renewable energy has created a glut of electricity, driving down prices and making coal plants unprofitable. A megawatt hour of electricity currently currently goes for €20 ($22) on the futures markets for 2017, 2018 and 2019. When Vattenfall decided to sell its brown coal operation in 2014, a megawatt hour was worth €35.

Germany plans to phase out coal altogether. That means whoever buys Vattenfall's mines and power plants has to eventually wind them down and reclaim the land. Industry experts put the cost of reclamation at €4 billion, compared to the operation's current value of €2.5 billion.

EPH's chief executive, Daniel Kretinsky, still believes he can squeeze a few euros out of German brown coal. As Germany phases out nuclear energy, Mr. Kretinsky expects electricity prices to start rising in 2022 when the last nuclear plant goes offline.

EPH would control the second and third largest coal operations in the country as Germany tries to fill the gap in the power grid created by the abolition of nuclear power.

 

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But according to the unions, the trust proposed by Steag and Macquarie is the only offer that puts up enough capital to cover the costs of shutting down the mines and plants when Germany abandons coal. The taxpayer wouldn't have to worry about intervening, the unions argue.

The trust, however, would prove expensive for Vattenfall. Steag and Macquarie want the Swedish utility to make a €2 billion deposit. The two companies have promised to compensate Vattenfall if electricity prices subsequently rise.

According to Handelsblatt sources familiar with the matter, Vattenfall has said the sale is very complex and has yet to reach a decision on a buyer. The Swedes haven't ruled out abandoning the sale entirely due to the low bid prices.

However, a source present during Mr. Hatakka's meeting with the supervisory boards said the decision is virtually a foregone conclusion.

"The overwhelming impression is that the sale to EPH will go through," the source said.

 

Jürgen Flauger covers the energy market for Handelsblatt. To contact the author: [email protected]