As the government gets set to agree on the reorganisation of gas utility Slovensky plynarensky priemysel, some of the motives for the unusual new deal are being questioned. Here The Daily provides you with an informative translation of an article today by Gabriel Beer from the publication Trend.
The pre-Christmas sprint in SPP
They’re leaving! After ten years in the joint stock company SPP the minority shareholders – German EON Ruhrgas and French GDF Suez are now waiting only on several formal signatures and the crediting of an attractive sum of money to their account. The foreign shareholders affiliated in Slovak Gas Holding declared that they wished to sell off their stake in Slovensky plynárensky priemysel (SPP) by the end of this year at the latest. The deal worked for them. The owners of Energetický a průmyslový holding (EPH) are ready to pay roughly EUR 2.5 billion for the minority set of shares by the end of January.
On Friday of last week, representatives of EPH signed a memorandum on how they would behave towards the state shareholder if they acquired the shares.
Last week the government cabinet definitively admitted that it would not be exercising its pre-emptive purchase right to the shares in SPP. Even though no official declaration of this exists. If they considered exercising the pre-emptive purchase right, within twenty days from the moment the foreign shareholders officially announced their intention to sell, the government would have to have expressed its interest in the shares. “Then it would have another twenty days to get hold of the money. We had no chance of that”, claims economy minister Tomáš Malatinský.
The government didn’t manage to fulfill the desire of PM Robert Fico to have absolute control over the SPP group.
Even so, he still wants to show people that the company is in his hands.
While this is more akin to propaganda than reality. The government negotiated with the holding owned by Czech PPF, J&T and Daniel Křetínský that the politicians would receive one hundred percent control over the joint stock company SPP. But what the state is about to receive is a company that has been truly castrated. After the experiences from the time when the state controlled gas monopoly was led by Ján Ducký, we could say that it is just as well. “The model that we negotiated is transparent.
In a way that the scope for similar affairs like the Ducký promissory notes in the past is minimized”,
claims T. Malatinský.
However, all key activities will be firmly under the managerial control of EPH. While it clearly is controlled by the oligarchs linked to the political party Smer-SD, who got their hands on the energy business. A transaction should go through by the end of the year where in the core subsidiaries SPP Distribúcia, Eustream and SPP Storage, the sole shareholder to date SPP will be replaced by the 49% shareholder with direct managerial control, the company EPH.
In turn, EPH will withdraw from the joint stock company SPP leaving the state as the one hundred percent shareholder.
What’s really going on
The state gaining control over the joint stock company SPP is hardly of major significance, however. This is because the most interesting business takes place directly in the companies that transit the gas or transport it to final customers.
Eustream and SPP Distribúcia produced a combined profit after tax last year of EUR 300 million (the parent company posted a consolidated profit of EUR 564 million).
Roughly EUR 380 million of the revenues heading to SPP come from the company Eustream for the lease of the transit pipelines. From next year, though, this will end and all the revenue should remain directly in Eustream.
The state company will gain control over the company SPP, which holds the contracts with final customers and the contract for the purchase of gas from Russian Gazprom for Slovakia.
Oh, and a loss-making regulated business. SPP estimated that for last year alone it lost some EUR 50 million in this area. It could not charge the prices in normal market conditions.
The foreign shareholders to date therefore tyrannized the Slovak Republic with arbitrations.
Loss of control over SPP will therefore not harm D. Křetínsky in the business. Quite the contrary, as he will not have to deal with politically sensitive processes in the company. For example:
how to set the price for final customers in households. Or the need to go to Russia to negotiate the price of gas for Slovakia.
He can now calmly let all of this rest on the shoulders of the government and its political nominees in SPP. He will only charge for gas distribution services for companies that decide to sell gas. He also doesn’t have to be perturbed if the state company gradually loses the current seventy percent market share of SPP on the gas market to more aggressive traders. All of them will have to use the services of the company SPP Distribúcia, which will only be overseen by the regulatory authority RONI.
D. Křetínský committed to the government that over the next five years the group that he gains control over would pay out annual dividends of at least EUR 600 million. By the middle of next year the government can even demand the payout of extraordinary dividends. He gave the state nominee also the option of co-decision making even over large investments in the gas companies.
Then something that will please R. Fico very much: the undertaking that EPH will make sure the shareholders to date will terminate all pending arbitration proceedings.
SPP has the whole of next year for implementing major organizational cleaning and reorganization.
According to estimates of the Ministry of Economy, the purchase of the share in SPP should cost the state something like EUR 60 million. The funds for the transaction should be obtained from the paid out dividends. So far there are still no studies or audits that would show what value the company will have following the mega changes or how much profit it will realistically be able to generate.
Through a different lens
This week already the shareholders of SPP will have a transaction on their table that as recently as the spring turned the stomachs of the government party gang. In March this year, former economy minister of Fico’s first government and current head of the department of agriculture, Ľubomír Jahnátek, perceived the people who wanted to transfer the transit gas pipeline from the joint stock company SPP to the one hundred percent subsidiary Eustream basically as traitors. “People who are willing to stand back and look on at the robbing of every citizen in Slovakia have no place in the Board of Directors of SPP”, he retorted for daily Pravda. He was disturbed by how politicians do not have such a strong influence over Eustream as over the parent company SPP. The book value of the valuable pipelines should have been made right before this year’s spring parliamentary elections.
Smer-SD flared up panic with its declarations to the media.
”It is only thanks to the pressure of Smer-SD and the President of the Slovak Republic that we managed to prevent the valuable assets of SPP from being transferred to the control of private hands” the party noted in a statement. If the General Meeting were to approve the transfer of assets of SPP to the subsidiary Eustream, the state would, according to the head of Smer-SD, completely lose control over the transit gas pipeline from Russia to Western Europe.
The strongest political party in the country Smer-SD exerted a lot of pressure to block the transaction, and the prime minister at the time Iveta Radičová and economy minister Juraj Miškov held back the transaction. The fears were understandable.
It is politics. The transaction could have had an impact on the percentage fluctuations in the results of the parliamentary elections.
It was clear to Ľ. Jahnátek already in the spring that SPP would not avoid the transfer of the large pipelines. The Third Energy Package set very strict conditions for unbundling trade and distribution or transit infrastructures in the European Union. Slovakia was supposed to split SPP and Eustream organizationally last year already. If it does not manage this by February next year, the country would face sanctions from the European Commission.
Smer-SD knew already last year that negotiations on the sale of the share of the foreign shareholders with Energetický a průmyslový holding are very intensive. Also that the game surrounding Eustream could pressurize or unsettle the new potential buyer.
It wasn’t until November of this year that the government took a final decision, that it would instruct its nominees to vote for the creation of an independent transmission system operator (the ITO model), the same as the previous cabinet also wanted. If the company were to risk sanctions from the side of the European Commission, it is the state that would have to pay. It is pretty hard to expect EPH to take on the sanctions, even when it does not hide its huge loyalty to its future state-owned joint shareholder in SPP.
Last week the General Meeting debated the transfer of the attractive transit pipelines to Eustream. Unsuccessfully. A second attempt is being prepared for the Friday before Christmas, after the stop press for this issue of TREND. The shareholders of SPP will evidently raise their hands under the Christmas tree for this mega-transaction.
Source Trend, author of original article, Gabriel Beer