| Author: |
Peter Mitka |
| Publication: |
Czech business weekly |
| Date: |
30. 7. 2007 |
I had a dream in which I saw a man standing by the window in a large office on the top floor of a skyscraper overlooking a big city. From outward appearances this man symbolized success and should have been happy, but he wasn’t.
He knew he was at the end of a journey on which he had set out many years ago. Over the years, the man and his company had acquired control of all resources and supply channels of fuel and power that humankind needed to survive.
It all started many years ago in the “good old days,” when electricity was produced by an electricity producer, oil or gas was extracted by specialized upstream majors, and power or gas was distributed by power or gas distributors.
Slowly times began changing. Opportunities for various regional and global merger and acquisition deals started popping up like mushrooms. Original specialization no longer mattered.
Acquisitions or mergers (famously entitled consolidation) were a matter of survival. Big suppliers became bigger and small ones died or were swallowed. Sure enough, there were a lot of financial boys with funds to invest. But for all their artificial financial strategies, they never really understood the difference between megawatts and megawatt hours.
Now, the man was much older. He had survived many battles. The world’s fuel and power generation, transmission and distribution was in his hands. He should have been happy, but the constant urge to fight that had always driven him had suddenly vanished.
I was awakened from this dream by my refrigerator, which had started shrieking because it had been disconnected from power for five minutes. Mumbling something about incompetent power suppliers, I dressed and left for the office. I had more important issues to sort out than complaining about a power blackout. I was due to close negotiations on a big transaction: One of the energy majors was buying one of its competitors in the largest transaction of its kind so far. I was in a good mood and anticipating a juicy bonus.
Epilogue
Over the past decade, the trend we’ve observed in the energy sector in Central and Eastern Europe and the Commonwealth of Independent States (CEE/CIS) has been characterized mainly by a selected group of international utilities players (such as EDF, RWE and E. ON) buying selected power and gas assets and focusing mainly on “soon-to-become-EU members.” They succeeded in establishing a substantial position in the heart of the region, primarily buying distribution assets with a view to building a strong customer base. Generation assets were considered more carefully.
But one scenario by the industry association Union for the Coordination of Transmission of Electricity (UCTE), an association of transmission system operators (TSOs) across Europe, suggests that decided investments for the period 2010–15 aren’t sufficient to prevent a decrease of generation capacities and thus of margins. Remaining capacity would decrease below the threshold of 50 GW by 2013. By 2015, generation adequacy for the UCTE will no longer be met unless further investments than those already decided by TSOs are made. And for 2015-20, the situation will quickly worsen. Remaining capacity is seen as “drastically decreasing” to 2020, with the deficit in capacity put at 50 GW. The situation can currently be characterized as follows:
- The number of players keen to acquire energy assets in the form of crossborder transactions has increased, with new players such as Enel and ČEZ quickly joining the former “front-runners.”
- Acquisitions of generation assets are the “hot agenda.” However, existing capacities available for purchase are diminishing (except for Poland and Russia/CIS) and therefore construction of new capacities is becoming a new phenomenon that will dominate the market in the foreseeable future.
- After the whole utility market was quite immune to changes and developments in other CEE countries, recently the Russian government approved a policy program whose aim is mainly to: a) strengthen the position of domestic majors (mainly Gazprom), and b) allow foreign investors to enter the market (mainly through a series of IPOs of power companies). Whether this signals that the market is ready to open up fully for foreign investments is yet to be seen
- Gazprom has already joined the group of regional investment riders, although its access to assets and/or businesses in the pan-European region has so far been orchestrated mainly through joint ventures established with other European players (such as EON or RWE).
The CEE/CIS region represents a significant growth opportunity for Western European utilities companies. To date, EUR 17.8 billion (Kč 501.9 billion) has been invested into the sector and a further EUR 42.8 billion of equity investment opportunity still lays ahead, ignoring privatization in Russia (which has the potential to double this number). So, the question is: “where will all this end?”
