Aug 23 2002 – Shareholders of eastern German power generator Veag are due to approve its merger with Hamburg and Berlin city utilities HEW and Bewag on Thursday in a move that concludes a two-year process.

Late on Wednesday, HEW shareholders approved the merger to create Vattenfall Europe, Germany’s third biggest utility, which will compete with E.ON, RWE and EnBW, the new firm said in a statement.

“With the new holding company, we will create the strategic centre of a strong new company in the German energy sector,” its new chief executive Klaus Rauscher was quoted as saying.

“We thus complete the restructuring of the German power market, which was kick-started by the opening of energy markets (in 1998),” he added.

Under the lead of HEW’s Swedish parent Vattenfall AB, the new company is expected to contribute more than six billion euros ($5.87 billion) to the Vattenfall group’s total projected sales of 11 billion euros in 2002, the statement said.

It would generate and market 80 TWh of electricity, employ initially 18,000 people and serve more than three million customers in Berlin, Hamburg and Mecklenburg state.

Vattenfall AB currently owns 67.3 per cent of Vattenfall Europe, which also includes east German brown coal producer Laubag, and is due to buy another 24.5 per cent from the city of Hamburg by the end of August.

Because HEW has control over more than 90 per cent of Veag, the vote on Thursday is expected to be a formality.

Bewag would be merged into the new group from January 1, 2003, as its accounting year differed from those of the other units, but the group would be entered into the companies’ register within four weeks, Johannes Altmeppen, spokesman for the holding company, told Reuters.

The new group has said it will shed between 3000 and 4000 staff by 2005 amid restructuring and cost-cutting programmes.

“Our master plan says that from 2005, we aim to achieve a one billion euro pre-tax profit… this will be the result of savings from synergies and a targeted improvement of returns from our operations,” Altmeppen said.

One of Vattenfall’s key strengths was HEW’s and Bewag’s experience with customer bundling, meaning the supply of large industrial companies with many local outlets such as petrol stations or grocery chains, he said.

“We are market leaders and know how to handle supply and billing of these fragmented entities… this is where we are ahead of the competition,” Altmeppen said.

“We also want to win more supply contracts in the local utility sector and abroad.”