Enel suing Slovakia for €588m, says economy minister

By bne IntelliNews April 17, 2015

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Italian utility Enel is demanding €588.2mn compensation from Slovakia for the state's takeover of the operation of the Gabcikovo hydropower plant, the economy minister said on April 17. The move may indicate that Enel is giving up hope of selling its controlling stake in power producer Slovenske Elektrarne. 

Bratislava pushed Slovenske Elektrarne out of its lease on the state-owned hydro plant at the turn of the year. The government has said it will itself demand compensation from the company - 66% owned by Enel - on the grounds that the power company allegedly failed to report income and make agreed investments.

However, with Enel trying to sell its stake in SE, the Italian utility has so far remained largely quiet, presumably hoping to avoid offering suitors more reasons to be wary. Bratislava has piled pressure on the company since the Italians said in the summer that they want to offload the asset. 

Enel’s claim is based on the compensation agreement signed with the Slovak privatisation agency  - the National Property Fund (FNM) - during Mikulas Dzurinda's second government in 2006. The contract stipulates guarantees to Enel regarding the rental of the plant, including 35% of revenue from the sale of electricity produced at Gabcikovo over a period of 30 years, Hospodarske Noviny daily reports.

In March, the Slovak government took over the operation of Gabcikovo after a court ruled the lease contract invalid. Slovakia said it will sue SE for €350mn compensation for operating on an invalid contract. Slovakia moved to terminate the contract on December 4, claiming grave infringements on the part of SE. Prime Minister Robert Fico claims the Italian utility has blocked access to information that would allow Bratislava to assess that the plant’s profit is fairly distributed between SE and the state.

Since Enel announced it wanted to sell in the summer, police have raided SE and the government has demanded additional payments connected to the privatisation. Bratislava has also harshly criticised SE and Enel over the long delayed and over budget expansion of the Mochovce nuclear plant.

Yet until now, Enel has remainded subdued - presumably not wanting to stir things up any further, as suitors look to knock down the value of SE via the media by pointing out the growing risks. The Italian company's decision to respond to Bratislava’s pressure could therefore be a hint that its plan to sell 66% in power producer Slovenske Elektrarne (SE) has come unstuck. Annoucned at the same time as the Slovak asset sale, Enel has already scrapped its bid to offload its Romanian assets.

It's notable that Enel’s compensation request comes shortly after Bratislava officially announced it is mulling a plan to raise its stake - currently 34% - in SE. The announcement, made by Prime Minister Robert Fico - no fan of privatisation at the best of times - might have chased away possible suitors, who were already balking at the risks attached to Mochovce. Daniel Benes, CEO of Czech utility CEZ - seen as perhaps the leading suitor - suggested recently that any investor would be crazy to go ahead without the state's blessing. 

Enel has set May 9 as the deadline for binding bids for the Slovak power producer. So far, a consortium of Hungary's MVM and MOL, as well as CEZ, have said they have submitted non-binding bids. Czech energy holding EPH has also shown interest, while Finnish energy producer Fortum is also reportedly eyeing the company.

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