Poland’s G-8 group will need €1.5bn investment

Poland’s G-8 group of power distributors in which Spain’s Iberdrola is seeking a strategic stake, needs around €1.5bn worth of investment over the next five to six years according to Janusz Starzynski, the head of Gdansk-based Energa SA, the largest of the eight state-owned plants located in north-western Poland. In an interview with Reuters, he said that half of the funds were needed to upgrade the group’s network infrastructure.

Last month Poland picked Iberdrola, Spain’s second largest power utility, to buy 25 percent in the G-8 group, which sells around 16 per cent of Polish power, supplying electricity to 2.5 million customers, mostly households. Iberdrola has been granted exclusive negotiation rights until September 14.

The 25 per cent stake in the northern conglomerate – valued by analysts at as much as $400m – was also sought by Belgium’s Electrabel, a unit of French giant Suez, and a consortium led by German giant E.ON .

“The Polish energy sector is following the same path as the Spanish industry did and in this respect the choice of Iberdrola as a strategic investor was a good decision,” Starzynski told Reuters.

“Our co-operation with Iberdrola will enable us to improve our services. Over the next three to five years we will have a chance to bring them to European Union standards,” he said.

Starzynski said the group wants to diversify its business in the utilities sector through acquisitions of local water, gas and heating distributors. The purchases would cost the company some €300-500m in the next three years, he said.

“Iberdrola has all these services in its offer and the G-8 group could benefit from their know-how,” Starzynski said.

The group also plans to invest around €250m in its IT and technological systems.

Poland’s treasury wants to complete the sale to ease the strain on the country’s budget before a national election on September 23, which the incumbent government is expected to lose to the leftist opposition, the Democratic Left Alliance (SLD).

The G-8 group is the second Polish distributor to be sold, after a tender for control of southern firm GZE attracted hefty demand late in 2000. It was sold to Sweden’s Vattenfall for more than $950m in cash and long-term investments.

Poland’s large market of 39 million consumers, big cost-cutting potential and relatively transparent power sector regulations make its utilities attractive to foreign buyers, analysts say.

Market insiders say that investors hope for higher revenues from a residential customer base as Poland nears European Union membership, which is expected to boost annual electricity consumption from current levels of 124.5 TWh.

The government’s official forecasts see domestic demand for electricity growing by some 50 per cent over the next 20 years.

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