Sweden ignores protests to agree sale of Vattenfall's coal assets to EPH

Sweden ignores protests to agree sale of Vattenfall's coal assets to EPH
Vattenfall's Lippendorf lignite-fuelled plant.
By bne IntelliNews July 4, 2016

The Swedish government on July 1 approved the sale of German lignite assets by Vattenfall to Czech-based energy holding EPH.

Owned by moguls linked to Slovak financial group J&T, the closely-held EPH agreed in April to buy five coal mines and four power plants from the state-controlled Vattenfall. However, the Swedish government, which had pushed for the sale due to environmental concerns, has faced protests against the sale, with demonstrators calling for the fossil fuel plants to be closed.

"We highly appreciate the Swedish government’s decision for EPH and its financial partner PPF Investment," EPH said in a statement. "This is an important milestone in the transfer of ownership. We are now awaiting regulatory approval in due course."

The deal sees EPH extend a long shopping spree around Central and Eastern Europe and further afield, in a strategy at least partially based on hopes the EU will pay for fossil fuel capacity to be mothballed. It further cements the group's position as among the biggest power players in Central Europe, and expands EPH’s presence in Germany, where it already owns brown-coal mining company Mibrag and some generation assets.

In terms of power generation, the acquisition will expand EPH's capacity by just over 8 gigawatts (GW) to leave it at 21.5GW. The value of the Vattenfall deal is not clear, however. EPH said on April 18 that it has agreed on a new capital structure for the company owning the German lignite operations, which has liabilities and provisions of around €2.0bn, against which it operates fixed assets valued by the Swedish seller at €3.4bn, and will retain around €1.7bn of cash.

Vattenfall said second-quarter results would see a charge of up to €2.9bn. The deal, which needs government approval, is set to close by August, Vattenfall said.

EPH clearly suggested in recent weeks that it hoped to buy the assets at a cut price. "We... emphasize that we are fully mindful of [the] current economic condition of Vattenfall's lignite operations, including the fact that in the forthcoming years, unless... power prices will materially recover, the company will not be in a position to distribute any dividends and rather will generate a negative cash flow,” EPH chairman Daniel Kretinsky said in a statement in March. The €1.7bn in cash is reportedly a consideration for expected losses.

As part of the deal, the consortium has committed to waive dividends in the coming years. It will also assume the operation’s regulatory obligations, including provisions for decommissioning plants.