State To Gain SPP, But Not Its Key Subsidiaries

Some questions are being raised into the government’s idea of the restructuring of gas utility SPP, and whether the state is not selling out cheap.

An agreement drawn up by the government in co-operation with the current foreign shareholders and the proposed new minority owner  Energetický a průmyslový holding (EPH) will see the state take control of parent company SPP, but some are saying this control could be more populist than beneficial for the state.

An article in Hospodarske Noviny today looks at the situation in more detail, and here TheDaily.SK provides you with an informative translation of the article.

The state wants to set gas prices – Hospodárske noviny, Author: Marek Poracký

It is now in black and white.

Prime Minister Robert Fico (Smer-SD) will gain greater control over gas prices. This arises out of a document on the sale of part of the shares in Slovensky plynárensky priemysel to Czech company Energetický a průmyslový holding (EPH), according to which the state should own 100 percent in the parent company SPP by the end of next year. On the other hand, the new private owner will have 49% stakes and managerial control in the subsidiaries of SPP.

EPH will also make decisions

“With this step the state will gain absolute control over pricing in the area of supplies for customers and also the value of the brand name,” reads the document of the Ministry of Economy. According to experts, however, it will not be so simple.
The end prices of gas for households are not only affected by the price of the commodity itself, bit also by distribution fees. They can be in the range of 30 to 60 percent of the overall price.

The fees are determined by the subsidiary SPP distribúcia, in which the state is the 51% owner, but managerial control will be held by the minority owner EPH. “It is precisely this part of the price that is most relevant for businesses, because the market is already significantly competitive in respect of supply of the commodity. Statements about absolute control over pricing are therefore out of place both in the case of households and also in the case of companies,“ says head of the Institute for Energy Security, Peter Marčan.
According to spokesman for the department of economy, Stanislav Juríkovič, however, the state will gain exclusive control over the pricing of gas for households by deciding in the name of the parent company SPP on whether to file a proposal for the adjustment of prices or not.  The prices of gas for businesses are not regulated.

Unknown price

The Czech company EPH, which is owned by the financiers from J&T, PPF Group of Petr Kellner and Daniel Křetínský, will buy their shares from the current foreign shareholders and according to the agreement with the government will manage also the most profitable part eustream, which earns from the transit of gas from the east to the west.

Opposition politicians are also pointing to the senselessness of the procedure of Fico’s cabinet. For example, according to the head of the parliamentary economic committee Ján Hudacky (KDH), the argument of greater control over gas prices is hot air.
He points to the so-called SPP Lex, which parliament endorsed in the autumn. “According to it, the General Meeting decides on price proposals. It already has an influence just now” states Hudacký.

Due diligence

The complete change of reorganisation of Slovensky plynárensky priemysel should take place by the end of next year.
The state is to acquire the parent company at an agreed price, which will be confirmed by due diligence. “The so-called net debt of the company will be allocated to the same amount against this price. The state will not pay this debt directly, but from subsequent increased dividends – over the agreed framework of EUR 300 million for the state,“ said Jurikovič.

Under the new situation, SPP will pay out minimum dividends over the next five years to a minimum amount of EUR 600 million. This deal is criticised by ex-minister of the economy, Juraj Miškov (SaS). He says that this decision provides no added value for the state. “It is a decision that Robert Fico needs in order to show the voters that he has gained SPP back and that he will influence or control gas prices” says Miškov.

For EUR 2.5 billion

The minority package of shares is currently owned by the French Gas de France and German E.ON Ruhrgas. They bought the gas company back in 2002 for USD 2.7 billion. Today, they are expected to receive EUR 2.5 billion for their share from the Czech energy concern.

This amount includes also the anticipated dividend worth EUR 300 million. They want to sell their share by the end of this year.
– What is planned in Slovensky plynárensky priemysel

1 In SPP the ownership relations will change, the foreign shareholders will sell their shares to Czech-Slovak holding EPH.
The state acquires 100 percent of the parent company SPP, by which it should boost the government’s influence over the pricing of gas for households.
2 The state will not, however, decide on the price of gas for households by itself. Between 30 and 60 percent of the pricing will come from the subsidiary SPP distribúcia, which will be under the managerial control of the new private shareholder EPH.
3 EPH acquires, in addition to a 49 percent stake in SPP distribúcia, also the same stakes in other subsidiaries of SPP, including eustream, which generates revenue from gas transit. Furthermore, it will also have managerial control over them.
4 The amount for the sale of part of SPP that is expected by the current foreign shareholders of SPP –
Gaz de France and E.ON Ruhrgas – is EUR 2.5 billion. The state will pay the price that the due diligence produces for 100% of the shares in the parent company SPP.
5 PPF Group of Petr Kellner, J&T and Daniel Křetínský are behind the new shareholder of SPP – Energetický průmyslový holding.

Source: Hospodarske Noviny