Czechs May Pip AES and other Bidders in Key Slovak Power Sell-Off by Taking Nuclear Plants into Deal

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). U.S. power company AES (NYSE:AES) (Arlington, Virginia) (PEC 79400011) is among a group of companies said to be in the bidding for the conventional power generation facilities of Slovak power producer Slovenske Elektrane (SE). The Slovak government launched the tender for a 49% stake and managerial control in the company in October. Ten companies have expressed an interest, which must be followed up by a more detailed letter of intent by December 5.

The other companies reported to have made a bid for the conventional (excluding nuclear) SE power base are Enel (MILAN: ENEI) (Milan, Italy), E.ON (XETRA, NYSE: EON) (Dusseldorf, Germany), RWE (XETRA: DEAG) (Essen, Germany), British International Power (LSE:IPR) (London, UK), Austrian Veerbund (VIENNA: VERB) (Vienna, Austria), Electrabel (BRUSSELS: ELCB) (Brussels, Belgium) and Russian Unified Energy System (RTS: EESR) (Moscow, Russia) through its subsidiary RAO UES, which could possible be a bidder for the whole offering including the nuclear component. RAO UES increased the volume of export of electrical power by 33.6% to 9.59 billion kWh in the first six months of 2003, of which 6.11 billion kWh was to non-CIS countries.

AES and the other non-nuclear bids are being upstaged by the largest power company in the Czech Republic, CEZ (PRAGUE: CEZP) (Prague Slovak, Republic), as it has been identified by sources as the only company interested in the whole company, including the Mochovce and Bohunice nuclear power plants. The sale could bring in anything up to $400 million. Support by the government in terms of debt support and competitive bidding for the whole or parts of the company could affect the final total.

Reinforcing reports on CEZ's pole position are comments made in mid-November by the Czech government deputy industry minister that, "We will either have a new nuclear source within 15 years or we will not have the lights on."

The Czech government will meet in December to discuss a new energy policy that will balance domestic and export power requirements. Currently the country is Europe's second largest power exporter. CEZ has said that if there is a decision to build nuclear reactors the power units would not exceed 1,000 MW capacity each.

CEZ owns the Dukovany nuclear plant with 4 x 440 MW reactors and the 2 x 1,000 MW nuclear plant at Temelin close to the Austrian border that has been a source of friction between the two countries. Temelin is unlikely to see additions and a plan for two newly located 400-600 MW reactors is a possibility.

SE, in 2002, had a generating capacity of 6,880 MW which accounting for over 80% of the power generated in the Slovak Republic. Bidders for the stake in the company have to consider taking on the company's debt of around $900 million, although government has indicated it will be willing to take over the debt in order to move on with a coherent energy policy. The debt may be partly refinanced with at least $560 million of bank loans from a consortium and a bond issue.

The Slovak power sale is a key piece in the jigsaw of eastern/central European power generation, distribution and energy policy reform. Many of the players in the bidding process have been around the block before and are aware that the opportunities are there in the future in terms of inter regional power exports and generating power for grid formations. For example Russian interests would be boosted by increased access to export opportunities and sources of generation to supply those opportunities and to give greater security in general to Russia role in regional supplies.

CEZ must still be considered to be the front runner as it was its expression of interest in taking over the whole company that made the Slovak government put the deal back on the plate after previously withdrawing it because no one was interested with the full deal when it included the nuclear power stations.

The continued interest of a number of major players suggests two things. Management control and 49% of SE is a prize worth having and the deal is not yet done with the region ripe for alliances and future supply agreements plus financial facilitation. The Slovak Republic, like the Czech Republic, is moving into the EU but is also geographically on the frontier of interests and power routes to the north, east and south.

PriceWaterehouseCoopers, who are advising the government, are looking to see final bids by mid 2004. If it is a case of one buyer takes all then the deal should be done by the end of 2004. IF SE is split into parts then mid-2005 could be the final date.