EPH and PPF Investments sign agreement for the acquisition of Vattenfall’s German lignite activities

18. 4. 2016

A consortium of Energetický a průmyslový holding a.s. (EPH) and its financial partner PPF Investments Ltd., today announced the signing of an agreement for the acquisition of lignite operations in Saxony and Brandenburg from Vattenfall AB.

“Based on our involvement and experience in the ‘Mitteldeutsche Braunkohlerevier’, we are convinced that EPH is well positioned to assume the responsibilities related to the ownership of Vattenfall’s lignite assets in Germany in currently challenging market circumstances”, said Jan Špringl, Member of the Board of EPH.

The consortium and Vattenfall have agreed on the following capital structure for the company owning Vattenfall’s lignite operations in Germany: The company records liabilities and provisions, in particular related to re-cultivation and decommission, of approx. EUR 2.0bn. Against these liabilities, it operates significant fixed assets with a value of EUR 3.4bn (according to Vattenfall accounting policy) and additionally is expected to retain approx. EUR 1.7bn of cash. With respect to current difficult economic conditions, the consortium committed to waive dividends for the next years to come.

With the acquisition, the consortium is taking over all regulatory obligations related to the operations, including provisions for decommissioning and re-cultivation. “Given the currently challenging market dynamics, one of the key concerns in the negotiations has been to provide the company with an appropriate level of cash reserves”, said Mr Špringl.

The offer is built on the confidence that lignite will continue to play an important role as the bridging technology providing a secure and the only domestic, non-intermittent energy supply. “On a mid-term perspective, the fundamental dynamics of the energy market are set to recover. With our relevant industry expertise and a cost-disciplined and efficient management of operations we are convinced that lignite is in a position to contribute successfully to the rapidly evolving German power mix”, Mr Špringl continued.

Vattenfall’s operations represent the second largest lignite operations in Germany. They include open-cast mining in Jänschwalde, Welzow-Süd, Nochten and Reichwalde as well as the power generation plants Jänschwalde, Schwarze Pumpe, Boxberg and one block in Lippendorf in the Mitteldeutsche Braunkohlerevier, representing an installed capacity of 8000 MW and a total of around 7500 employees. The consortium is strongly committed to employment in the region and intends to retain existing employment agreements. Both MIBRAG and the Vattenfall operations will be operated separately.

Vattenfall’s German hydro power operations are not included in the acquisition.

The consortium fully respects the direction taken by the German government under the “Energiewende”. “We are convinced that we can contribute to reaching the Energiewende targets, positively contribute to energy security and affordability and to social and economic welfare. In close cooperation with the works council, trade unions, federal and local governments as well as communities and other stakeholders, we want to support the transition that will be necessary to achieve the Energiewende targets as well as to develop new prospects for future generations, while balancing the regional social and economic implications”, said Mr Špringl.

Through its fully owned portfolio company MIBRAG, currently the third largest lignite operator in Germany, EPH has a sustainable presence and expertise in German lignite. EPH has a track record of strict adherence to regulation and the application of industry best practice. EPH’s expertise in recultivation is directly derived from the German context. Since 2009, EPH has operated as a highly reliable owner in Saxony and Saxony-Anhalt investing approx. EUR 500m in the region (including acquisitions of Saale Energie and Helmstedter Revier).

The acquisition is subject to approval by the Swedish government and customary regulatory approval. Closing and change of ownership is expected in the third quarter of 2016.