Vattenfall Agrees to Sell German Lignite Assets to Czech EPH

  • Sale will reduce Swedish co.'s exposure to fossil fuels
  • EPH to acquire 8,000 megawatts of lignite-fed generation

Vattenfall AB agreed to sell its German lignite plants and mines to Czech power producer Energeticky a Prumyslovy Holding and its financial partner PPF Investments Ltd. as the state-owned Swedish utility seeks to divest polluting coal assets.

Prague-based EPH will acquire Vattenfall’s 8,000-megawatt lignite generation capacity and corresponding mines at the Boxberg, Jaenschwalde and Schwarze Pumpe power plants in the German states of Brandenburg and Saxony, the companies said in separate statements on Monday. They didn’t give the price of the transaction, expected to close by end of August, and which still needs to be approved by the Swedish government.

The Nordic region’s biggest power generator wants to focus on renewables and cut its exposure to fossil fuels including lignite, a rock formed from compressed peat that has been a mainstay of German power generation for almost a century. While EPH sees the lignite unit initially losing money, the Czech utility expects it to turn profitable as Germany winds down its nuclear industry over the next six years and electricity prices start to recover.

“Especially after 2022, lignite will be the only fuel providing baseload power in Germany,” EPH board member Jan Springl said on a conference call. “There will be a recovery in energy prices.”

Decommissioning

The Czech company will take over all of Vattenfall’s German assets, liabilities and provisions including the cost of decommissioning and land re-cultivation. The liabilities come to about 2 billion euros ($2.3 billion), while the units’ fixed assets are worth about 3.4 billion euros and are expected to retain about 1.7 billion euros of cash, EPH said in its statement. Dividends from the unit will be waived for the next three years, according to Vattenfall.

The sale will negatively impact Vattenfall’s income statement by 22 billion to 27 billion Swedish kronor ($2.7-3.3 billion) by the end of the second quarter, the utility said. That’s less than the impact if Vattenfall were to remain the owner, based on its current future price expectations, the company said.

EPH, which teamed up with billionaire Petr Kellner’s PPF Investments to bid for the assets, has also bought aging coal operations in the U.K. and Italy. It’s betting that Germany’s need for lignite to guarantee energy security for years to come will eclipse concerns over greenhouse-gas emissions.

In the seven years since the company was formed, EPH expanded from being a small Czech utility to one of the biggest energy companies in central Europe. Co-owners Daniel Kretinsky and Patrik Tkac went on a debt-fueled buying spree in recent years, adding coal and gas power stations, heating utilities, Slovakia’s gas pipeline grid and even an unfinished nuclear power station to the company’s portfolio.

Spinoff

Recent acquisitions include EON SE’s coal and gas generation activities in Italy, a stake in Enel SpA’s Slovak power company Slovenske Elektrarne AS that includes two nuclear power plants, and the coal-fired Eggborough power plant in the U.K.

To help fund its projects, EPH announced earlier this month it plans to spin off its infrastructure unit and list it in Prague and London. Purchasing Vattenfall’s German assets will help it leapfrog state-owned utility CEZ AS to become the country’s largest energy company.

Vattenfall last year wrote down its German lignite assets by 15.2 billion Swedish kronor. Utilities in Europe’s biggest power market are suffering from the weakest prices since 2002 as the unprecedented shift to renewable energy squeezes margins at coal, gas and nuclear plants.

Vattenfall plans to increase investments in wind power, alone and in partnerships, Chief Executive Officer Magnus Hall said today at a webcast presentation at the company’s headquarters in Solna, Sweden.

The accord “will give more resources to focus more on renewables, which is totally in line with our strategy,” Chairman Lars Nordstroem said at the briefing.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE