Slovakia steps up plan to swap phones for power

By bne IntelliNews February 17, 2015

bne IntelliNews -


Slovakia looks to be solidifying plans to try to sell its minority stake in Slovak Telekom and use the proceeds to take a controlling interest in power producer Slovenske Elektrarne (SE), as the prime minister gave the scheme his backing on February 17. 

Suggestions that Bratislava could use the funds from the sale of its 49% stake in the telecommunications company to expand the state's 34% stake in SE had previously been opposed by senior members of the government. However, a spokewoman for Prime Minister Robert Fico suggested that has now changed.

"The government is searching for ways in which, at the expense of an unusable minority share in [Slovak Telekom], the state can extend its influence in other companies, such as Slovenske Elektrarne," Beatrice Szaboova told Hospodarske Noviny.

The cabinet approved the sale of the Slovak Telekom stake on February 11. It is likely to look to unload it on the public markets, with strategic investors having shown little interest. By way of contrast, several suitors have been sniffing around the 66% stake in SE that was put up for sale by Italy's Enel in the summer. 

However, friction between Enel and the Slovak government over how the Italians bought the utility and their running of it, as well as Bratislava's persistent suggestions it wants to raise its stake, has cast doubt over the divestment. But until now, the government's empty coffers have kept a lid on worries it can interfere much in Enel's plans. But the PM's backing for using cash raised from the telecom sale will clearly make Enel's job harder; the about face in senior government circles will not go unnoticed by potential suitors.

The idea of using the Slovak Telekom proceeds to buy control of SE was first floated in the autumn by Economy Minister Pavol Pavlis. The suggestion was criticised at the time by both Fico and Finance Minister Peter Kazimir, the latter insisting that the money should go to finance the country’s budget deficit.

The Slovak Telecom stake is thought likely to raise up to €1bn for the government. Analysts have estimated Enel's 66% in SE is worth around €3.5bn.


If that valuation is accurate, it suggests Bratislava could afford to boost its holding in the power company to a majority. Enel would need to agree, but might find it difficult to resist. Since the Italian company announced it wanted to sell - as part of a group-wide attempt to urgently cut debt - pressure from the government has come hard and fast. 

A series of police raids and criminal complaints filed by Bratislava have focused on the legality of the 2006 privatisation of SE. The government is demanding an additional €226mn from the Italian company, saying the deal was badly priced.  

Pavlis, the government's point man in the campaign, has said the money should be paid by Enel before selling the company. He has claimed, however, to be confident that a “mutually beneficial” solution can be found. In January, he said it makes good business sense to buy into troubled companies.

The long-delayed and over-budget expansion of the Mochovce nuclear plant is another major issue between Enel and the government. Suitors have called for the Italians to come up with some sort of guarantee from Bratislava to cover the immense risks.

SE also lost the lease on a state-owned hydropower plant on the Danube late last year. Fico was front and centre as he accused Enel of hiding financial information from the owner and unilaterally revoked the contract on the Gabcikovo facility.

Raising the prospect of more trouble for Enel, police opened in mid-February a probe into 147 Slovak-linked accounts held at the Swiss unit of HSBC. Claims in the media say that some are connected to privatisations, including that of SE.

According to Pavlis, Enel received four preliminary bids for its 66% stake ahead of the December deadline. The Italian company is due to finish evaluating the offers by the end of April.

The Italian job

So far, Hungary's MVM and MOL and Czech utility CEZ have said they have submitted non-binding bids. Czech energy holding EPH has also shown interest, but has not commented on whether it made an offer. 

Closely-held Slovak financial group J&T controls EPH. Its owners are reportedly close to Fico and his Smer party. Last year, EPH completed a deal for 49% in Slovak gas utility SPP, which sees it working happily alongside Bratislava, which holds the remainder.

Fico had previously said his government wanted to revoke the privatisation agreement covering SPP, which handed management control to the minority stakeholder. However, that was dropped as EPH bought out France's GDF Suez and Germany's E.ON. Bratislava was then handed full control of the loss-making domestic sales unit of SPP, while it shares the lucrative transit business with EPH.

The Czech-based group meanwhile has been pushing into Western Europe. Its latest deal saw it buy 4.5MW of Italian gas- and coal-fired power plants from E.ON in January. The deal will see the company working in close proximity with Enel.

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