Rzeczpospolita energy debate

Energy sector bound to find capital

Investment needs of Polish energy companies reach 100 billion zlotys. What is better for companies: the stock exchange or an industry investor?

The recent weeks showed that the financial market is a good place to leverage funds for the energy sector. However, the Polish electric energy sector is too attractive to encounter any problems with finding investment money, also from other sources- agreed participants in the debate led by „Rzeczpospolita" during the Economic Forum in Krynica.

- The interest in the shares of Polska Grupa Energetyczna, which we have observed in recent days, has gone beyond our greatest expectations. Today, not only can we expect successful increase of PGE's capital, but also the sale of the shares controlled by the State Treasury – said Jan Bury, the Deputy Minister of Treasury supervising companies from the electric energy sector. By issuing new shares, the company decided to earn nearly 6 billion zlotys on the stock exchange. In the meantime, the investors were ready to spend approximately 45 billion zlotys in return for its shares. It means that the money for investments can be found in the market and also among Polish investors – added the deputy head of the ministry. He also emphasized that the Polish electric energy sector, perceived as underinvested and outdated, turned out to be attractive for investors.

According to Jan Bury, PGE, whose IPO on Warsaw Stock Exchange is planned on the 6th  of November, plans to strengthen its position in the region in the nearest perspective. In two, three years Polska Grupa Energetyczna plans to purchase a few considerable energy assets in Central Europe. I am convinced that it will be possible thanks to the strong position of the group – pointed out the deputy minister. Germany is one of the countries, where PGE's acquisitions can be expected. The opinion that leveraging investment funds is not difficult was shared by Mirosław Bieliński, the president of Gdansk-based Energa. The energy group, led by him, is to be sold to an industry investor next year.

- Well planned investments will always find capital. The presence of a sales market, appropriate technology and good location are the three prerequisites, whose simultaneous fulfilment causes that funds can be found for realization of every energy enterprise- said Bieliński.

The needs are great

The whole energy sector, due to many years of underinvestment, has faced a real need of finding in the coming years even 100 billion zlotys for new capacities or power grids. According to Ludwik Sobolewski, the President of the Warsaw Stock Exchange, the stock market is capable of providing a significant part of these funds. – As every stock exchange, we need companies, which have high capitalization and a considerable free-float (a number of freely traded shares - ed.). Meanwhile energy companies are the most valuable investment targets and I have no doubt that they will be in demand. International institutions search for opportunities to invest in big, stable companies – he explained.

He remarked that initial public offerings of state-owned companies contribute to development of the WSE in itself. – The coming week will be record-breaking in the history of our floor. I would call it „a week of giants". The shares sold by PKO BP and PGE are worth in total 12 billion zlotys. As the current situation shows – there is a strong demand for them – recapitulated the head of WSE.

During our debate, he announced also introduction of a new stock index, called Energy, due to a stronger presence of energy sector companies on the stock exchange,. It will include CEZ, Enea, and soon Polska Grupa Energetyczna, but also raw material suppliers such as Bogdanka or NWR.

Piotr Wiła, the head of the investment banking division in BZ WBK, paid attention to the fact that institutions search actively for stable investment opportunities, which increases their interest in the Polish energy sector. In his opinion out of 100 billion zlotys, which must be invested by the companies from this industry, about 20 percent may come from the increase of their initial capital.

What about an industry investor?

The advantage of industry investors over leveraging funds from the financial market was noticed by Filip Thon, the President of German RWE in Poland. – Privatization can proceed in two ways: by initial public offering or the involvement of a strategic investor. IPOs gain social support, but still the issue remains, in which way the money from the stock exchange is used: as an income to the state budget or investment in new power generation blocks, which are indispensable in the energy sector today – he said.

If we want to apply modern technologies, for example technologies that guarantee high efficiency of power plants, such as brown coal drying technologies or application of high-temperature materials in power generation technologies, or if we want to use the possibilities offered by trade in energy on liquid wholesale markets, we need to think about industry investors, with experience in the sector and their own know-how. The private capital in Poland, which originates from the energy sector, can stimulate a faster increase of efficiency and restructuring of companies. That is why it contributes to their greater competitiveness in the European market – recapitulated Filip Thon.

Regulatory issues

The head of stock listed Enea, Maciej Owczarek, said that finding investment funds is not the main problem of energy companies because difficulties in running a business come from the unstable legal environment in Poland.

- Optimization of our operational costs recedes into the background, when it turns out that the financial result of the whole group can be affected by one administrative decision – he recapitulated.

Other participants in the energy market agreed with his statement, stressing that financial results of companies can be destabilized by the disputable issue of compensations for terminated prematurely long-term contracts (after conclusion in the 90's between producers and Polskie Sieci Elektroenergetyczne, they had to be terminated later under the pressure from the European Commission). On the top of that is the issue of energy price monitoring by the Energy Regulatory Office in transactions between companies and the smallest recipients. The participants in the debate agreed that greater predictability of decisions in this area and full liberalization of energy prices would facilitate investment decisions by energy companies. Jan Bury added that beginning in 2011 energy companies will be obliged to introduce increased quantities of energy to the commodity exchange.

- Price liberalization will translate into greater price fluctuations. However, the vertical integration of energy groups, introduced in recent years, has currently reduced to a great extent the market risk, to which the companies have been exposed – recapitulated Piotr Wiła.

"Rzeczpospolita", 2 November 2009