Czech utility takes over Vattenfall’s German lignite
Vattenfall did not specify how much EPH paid for the power plants and mines. The company only said the sale would reduce its second quarter income statement by 2.4 to 2.9 billion euros. “If Vattenfall were to remain the owner, the total negative impact on Vattenfall’s income statement would be higher than if the business is divested with Vattenfall’s present future price expectations,” the company said.
Under the terms of the deal, the company owning Vattenfall’s lignite operations records liabilities and provisions, in particular related to re-cultivation and decommission, of approximately 2.0 billion euros, EPH said. “Against these liabilities, it operates significant fixed assets with a value of 3.4 billion euros (according to Vattenfall accounting policy) and additionally is expected to retain approximately 1.7 billion euros of cash,” according to an EPH press release.
Vattenfall had been trying to sell its four lignite-fired power stations and five open cast mines in Lusatia for the past half year but struggled to attract buyers, as media widely reported. The Swedish state still has to agree to the sale.
“We want to reduce our CO2 exposure, so for us this is the right thing to do and it frees up resources to focus more on renewable energy. We see significant risks when it comes to the development of future electricity price levels. There are also regulatory risks to take into consideration,” said Vattenfall CEO Magnus Hall in a press release.
Vattenfall’s sale comes at a time when the debate about a coal phase-out in Germany is in full swing. With the target of decarbonising its economy by 2050, Germany’s environment ministry is currently working on a Climate Action Plan 2050 which might include some details for a coal-exit timeframe.
EPH already operates lignite assets in Germany. The holding owns lignite mines in the states of Saxony and Saxony-Anhalt through its German subsidiary MIBRAG, which it took over in 2012. It teamed up with Czech private equity group PPF Investments for the Vattenfall deal. EPH takes over Vattenfalls entire German lignite business, with all its assets, liabilities and provisions, according to Vattenfall.
Mining union IG BCE said it expected EPH to take into account the importance of lignite for social stability and regional development, as well as the long-term security of Germany’s energy supply, when planning its business strategy. “Fossil energies remain necessary as long as there are no possibilities to store renewable power, and grid extensions haven’t made the necessary progress,” said union head Michael Vassiliadis in a press release.
Previously the union had lobbied to transfer the assets to a foundation, as proposed by a rival bidder consortium of West German utility Steag and Australian investor Macquarie. Both had suggested to transfer the lignite assets, including the future costs for re-greening the mines, into a foundation that would also be used to support renewable projects in the region.
A similar offer to Steag's had been made by Greenpeace in October 2015 but had been rejected by the utility. “To pass on a ticking CO2 bomb like Lusatian lignite to a fossil energy dinosaur like EPH a few days before the Paris Climate Agreement will be signed in New York is scandalous”, said Karsten Smid, energy expert at Greenpeace Germany. “If the Swedish government ever believed in the Climate Agreement, it must not sign this dirty deal.”
Environmental NGO WWF also called on Sweden to block the deal. "Today's sale is bad news for the affected jobs, climate protection and Lusatia."
The two affected German states said they welcomed the deal which would finally end a time of insecurity for the employees. The lignite operations bought by EPH are located in the region of Lusatia, which partially belongs to the state of Saxony and partially to Brandenburg.
Brandenburg’s economy and energy minister Albrecht Gerber said that thousands of people working in the supply and service industry around the lignite mines and power stations, will now face a stable future. It was good news that EPH had agreed not to “drain the profits” of the operations in the coming years, he said.
“We expect that the new owners, with their long-term interest in the mining and utilisation of Lusatian brown coal, will engage responsibly in and for the region,” said Saxony’s economy minister Martin Dulig. Ensuring the renaturalisation of the mines was one of these long-term duties and had to be part of the business concept of EPH, he added. Domestic lignite remained an important pillar of a secure and affordable energy supply in Germany, he said.
Read a CLEW article on the pending sale here.