Slovakia finally approves gas network sale

By bne IntelliNews December 13, 2012

bne -

Slovakia announced on December 12 that it has finally approved the sale of a 49% stake in the country's gas pipeline operator and supplier SPP to Czech power investor EPH. The move follows confirmation by the energy regulator that gas prices will rise no more than 0.5% in 2013, as Bratislava had demanded in order to allow the deal to go through.

Joint holders GDF Suez of France and German power giant E.ON Ruhrgas have been trying to offload the stake in the gas company for months, as E.ON looks to divest assets in smaller countries in order to reduce debt and concentrate on large emerging markets. However, no friend of privatisation, the government of Prime Minister Robert Fico has played hardball, blocking the sale until it received a commitment that the pair would not try to push through a bid to raise gas tariffs by up to 25%.

However, Fico's evident fury over the sale - he actively blocked the deal in October due to GDF and E.ON's "arrogant and rogue behaviour" - appears to have been driven as much by frustration as anything else. The PM has stated that his government would buy the stake if only it could afford it, and had expressed ambition to renegotiate the clause in the privatization agreement which hands operational control to the holder of the minority stake.

Given the fact that Bratislava had at least two other levers at its disposal to block any price hikes for domestic customers, the refusal to allow the deal to go ahead appears driven as much by the government's dissatisfaction with its failure to achieve that as anything else. As majority owner of course, the state could always have simply blocked a price hike at shareholder level, but Fico staunchly opposed even discussing the issue at the last AGM.

Meanwhile, the state energy regulator has repeatedly rejected the large gas price hikes proposed by SPP in the past. True to form, URSO announced on November 30 that gas tariffs for households will rise by under 0.5% in 2013, while electricity prices will drop. With GDF/E.ON's bid to have tariffs rise 18-25% safely kicked into the long grass for 2013, Bratislava has now given the deal its blessing. Details of the price EPH is paying for the stake have not been revealed.

On top of the government's clear hostility to the existence of a private shareholder, its operational control, and any bid to raise tariffs significantly, a huge question over the valuation of SPP is posed by its major revenue earner - transiting Russian gas exports to the EU. Gazprom is busy building alternative routes, while Moscow has threatened to cut the main route through Ukraine - which sits upstream from Slovakia - entirely once it gets Nord and SOuth Stream up and running.

However, neither point apparently worries the suitor, which is also eyeing RWE's Czech pipeline operator Net4Gas. That has led some to question the real motives behind the interest of the closely held Czech power holding. Spokesman Martin Manak said in an e-mailed statement that EPH expects to sign the transaction with the Slovak government "within several days," reports Bloomberg.

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