Банкеръ Weekly



As negotiations between the Privatisation Agency (PA) and the Russian joint stock company United Energy System (RAO UES) for the Varna and Rousse thermoelectric power plants drag on, the Russians seem to be losing interest in the plants. What are the reasons is difficult to explain. Maybe they should be sought in the critics that the President Vladimir Putin directed towards the managers of the energy giant (following the blackout that left half of Moscow without electricity late last May) that they do not pay sufficient attention to the company's current operations but occupy with global problems. Also, the RAO UES managers may be startled by the high price they offered to pay for the two sites (more than EUR500MN). It is true, however, that negotiations for the sale are at a standstill and their term had to be extended by 30 days for the second time - now until August 19.The PA justified the delay with the need of finding answers to questions within the competency of various state departments and institutions, as well as with the July 6, 2005 decision of the Commission for Protection of Competition which agreed with having one of the two privatisation deals signed under condition. Actually, the commission's decision is quite lucky for the Russians. On one hand, it gives them formal reasons to withdraw from the negotiations saying they applied for both companies and sought synergetic effect. On the other hand, it provides them with much broader perspectives to bargain with the PA.RAO UES's feints were also noticed in Russia. In a large article the Vedomosti newspaper announced the holding insisted that the Bulgarian authorities reduce the price for the plants. The reason - during the preparation of the competition Bulgaria did not give the potential buyers the whole information available. According to the newspaper, it was after the victory in the tender that the Russian company learned about the urgent repair of the plants that would cost tens of millions of dollars. An equal amount will be needed for modernisation that will help both plants harmonize with the ecological requirements of the European Union (EU). Enrico Viale, the Enel Regional Manager, criticized the lack of sufficient information in the sale of the power plants in Varna, Bobov Dol, and Rousse in an interview for the BANKER weekly, too.Statements of this kind obviously sound convincing enough to ordinary people, but not to the experts. Simply because both the Russians and the Italians had enough time to inspect the plants and the project documents of each energy unit personally. The ecological commitments regarding the coal plants which Bulgaria took in front of the EU and under the Kyoto protocol are public, therefore it is not professional for the experts of the two companies to claim they were not aware of them during the privatisation procedure.A much more serious problem results from the requests for changing the conditions of the deals. If the PA or the energy regulator yield to the Russians' persistence for raising the return norm from 12 to 18%, the other candidates that received bid certificates will have reasons to murmur. They are the Japanese Mitsui and J Power companies, the French Dalkia, the Greek PPC, the Italian Enel, the English International Power, the American AES, as well as the three new owners of Bulgarian electricity distribution companies - the Czech CEZ, the Austrian EVN and the German E.ON. In that case the competition would be discredited and the deal would be much different from the one we competed for, representatives of the losing applicants told the BANKER.Yet, it's more curious to see if the Russians will appeal against the decision of the Commission for Protection of Competition allowing them to acquire only one of the two power plants - either the one in Varna or the other in Rousse. No appeal has been filed until this paper was published and on July 21 the antimonopolistic commission went on summer holiday which will last until September 12. The Supreme Administrative Court is on holiday, too. In fact, the secretaries of the two bodies keep working, so RAO UES can file its appeal by July 25 (when the legal term for protesting against the commission's decision expires). However, it will be considered no sooner than September. Then the PA will have to extend the negotiation terms once again.Of course, United Energy System of Russia may also give up appealing and choose only one of the power plants. It was rumoured in the branch last week that the Russians had chosen the Varna thermoelectric power plant and had forgotten about the one in Rousse. Should that become true, the PA is going to continue negotiating with UES for the preferred plant and the deal for the other one will be postponed at least till mid-September. The reason is that in both competitions the Czech CEZ ranked second and negotiations will have to be led with it, too. Before that, however, the PA will have to ask the commission to permit the concentration of production activities, as the Czechs already own the electricity distribution companies in Sofia, the Sofia region, and in Pleven, and the possible acquisition of a basic electricity producing plant will definitely give them advantages as an electricity producer and distributor. In fact, the vicious circle of so many permissions and legal decisions may finally get completely closed and as a result the power plants may remain unsold.

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