Tensions over Slovenske Elektrarne spike as bid deadline approaches

By bne IntelliNews April 17, 2015

Tensions between the Slovak government and Enel, which is trying to offload its majority stake in power producer Slovenske Elektrarne, look to have hit boiling point. Bratislava announced on April 17 that the Italian utility is suing the state, while the prime minister said plainly that Slovakia will "obstruct" Enel's attempt to sell.

Enel is demanding €588.2mn compensation from the Slovakia for its takeover of the operation of Gabcikovo hydropower plant, the economy minister said on April 17. That move on its own raised questions over Enel's bid to sell, but shortly after, Prime Minister Robert Fico made it clear, as he said openly that the government will block it.

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

However, with Enel trying to sell its stake in SE, it has remained largely quiet, presumably hoping to avoid offering suitors more reason to be wary. Bratislava has piled pressure on the company since the Italians said in the summer that they want to offload. That the announcement that Enel will fight over Gabcikovo came from Economy Minister Pavol Pavlis to local media appears little coincidence. 

Enel's claim is based on a 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 plant rental, including 35% of revneue 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 infringement 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, it has also seen police raids at SE and demands from the government for 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 wanting to stir things up any further as suitors look to bargain via the media by pointing out the growing risks. The Italian company's decision to respond to Bratislava's pressure could be a hint that its plan to sell 66% in power producer Slovenske Elektrarne (SE) has come to an end. Annoucned at the same time as the Slovak asset sale, Enel has already scrapped a bid to offload its Romanian assets. 

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, let alone taking them on without a controlling stake. 

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 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. 

However, Prime Minister Robert Fico suggested on April 17 that none of them should bother putting together an offer. Expanding on recent statements from officials, he reiterated that the government objects to Enel's effort to sell SE before completing Mochovce. 

While the nuclear project has been a source of bad blood for years, and the Italians put SE up for sale in the summer, it is only in the last few weeks Bratislava has openly objected. Lat month, it said it fears the sale will lead to further delays in the construction of the two new reactors

"At this point, we won't agree with the sale of the 66% of shares. We'll obstruct it," Fico said, according to TASR. "Let them do us a favour, get their Italian brains in gear and complete [Mochovce] before they think about what to do next with Slovenske Elektrarne."

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