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Knock, knock…who’s there?

Judging by the crowd at this year’s Central and Eastern European Power Industry Forum (CEEPIF) conference, interest is once again high in the region. The door policy at the event was strict. Everyone had to be checked for delegate badges – no badge, no entry. The doors were only open to those with the right credentials.

The message is one which also applies to the region’s power sector. Several countries in the region, after slow progress, are finally seeing investment as they liberalize their markets. But it is investment which is part of a careful strategy on both sides. In his opening statement, Emil Wasacz, Poland’s minister of the Treasury said: “Poland will consolidate and privatize companies in groups i.e. several plants at time. The Polish market is small therefore an IPO will not happen. We are looking for strategic investors. Any IPO would be supplementary to this.”

Poland plans to complete privatization by 2002, with the funds needed to modernise plant and increase efficiency. It is also part of the country’s efforts to gain EU accession by 2003. Wasacz concedes that this is a great challenge. Poland has 17 power plants, 19 heat and power plants, 33 distribution companies and polskie Sieci Elektroenergetyczne (the Polish Power Grid).

Yet things are on the move. Privatization processes are underway in seven out of 19 heat and power plants. And even though privatization of the larger plants will be slower, investors are seizing the opportunity to position themselves in a market which could be more important than its size suggests.

Belgian energy company Tractebel recently acquired a 25 per cent stake in the 1800 MW coal fired Polaniec power plant. The acquisition is part of Tractebel’s European strategy. Tractebel’s CEO, Jean-Pierre Hansen, commented: “The Polaniec power plant is well positioned to sell its output to the increasingly liberalized Polish electricity market, and beyond that in Europe. This acquisition forms a good basis to tackle the German market.”

German companies can also see the advantage of investing in the region. As Michael Fehn, member of the Board and managing director of Bayernwerk noted at the conference: “Foreign investment has advantages for both sides.”

Indeed recent developments have seen the set up of Polenergia SA, by Polish and German energy companies to help increase Polish exports to Germany and to improve Poland’s energy security.

Meanwhile, Germany’s RWE has raised its 13.8 per cent stake in Czech energy distributor Stredoceska energeticka to 34.37 per cent by buying shares from local municipalities.

But in the Czech Republic, the task of privatization may not be as straightforward as in Poland. Although the country has made progress in privatizing other sectors, there is no clear schedule for energy. As Jan Mladek, Deputy Minister of Finance put it: “The good news is that serious discussions have started. The bad news is that reaching a consensus will be difficult.” The problem is, the Czech Republic is not starting from zero. With the sector already partially privatized, the profitability of any subsequent privatization will be limited.

This far from ideal situation was, according to Mladek, due to “the incompetence of the government in the initial privatization”. The original thinking was that 74 per cent of shares in the power companies would not be tradable thus allowing the government to maintain control. This initial ‘open the doors – but only just enough’ approach has come back to haunt the current government. Ultimately, it may jeopardise what deputy Prime Minister, Pavel Mertlik, described as its present aim of “privatizing in a way that maximises revenues.”

It seems that what goes around comes around.

The last time I was in the Czech Republic, a colleague and I were turned away by a doorman from a nightclub for no apparent reason. This time the shoe was on the other foot but with a slight difference. My colleague was ‘on the door’ on the first morning of the conference. As an unimposing looking gentleman with a raincoat (but no badge) approached, it seemed that history might repeat itself with a cruel twist. But it was not to be. After a moment of interrogation, it was clear that this gentlemen did not need a badge – my colleague soon learned that in the Czech Republic the doors are always open to the Lord Mayor of the City of Prague.

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