• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Big Shift in Strategy at Utility E.ON Spending on Plants, Not Takeovers

Posted on: Wednesday, 21 December 2005, 12:00 CST

By Carter Dougherty

E.ON, the German power and water utility, said Tuesday that it would invest 18.6 billion in plants and networks through 2008, a shift from an acquisition strategy that had turned it into a global leader.

E.ON will now aim for greater growth within its far-flung empire of power stations and energy transport networks as it upgrades existing facilities and builds a smaller number of new ones to meet the voracious demand for energy in its core European and U.S. markets.

"Growing demand, replacement needs and environmental considerations are the drivers of investment spending," the utility's chief executive, Wulf Bernotat, said during a conference call.

The three-year investment package at E.ON, which was created by the merger of utilities VEBA and VIAG in 2000, is its largest ever, excluding acquisitions. Since its creation, E.ON has expanded on a steady diet of purchases in Britain, the United States and elsewhere to encompass assets in electricity, natural gas, wind energy and biofuels. But late last month it walked away from an effort to buy Scottish Power after the British company rejected three progressively higher offers.

Bernotat said that E.ON, based in Dusseldorf, might yet acquire other companies but emphasized, as he did in the case of Scottish Power, that he would apply "strict financial criteria" to ensure that acquisitions pay off quickly.

The investment plans involve spending 7.4 billion, or $8.8 billion, on the company's Central European gas and electricity businesses. It will also build two power plants in Germany and invest anew in the British market.

"Many of the company's assets are now relatively old and it is facing new challenges for the future," said Stephan Wulf, an analyst with Sal. Oppenheim in Frankfurt.

On Monday, E.ON announced that it would sell its 42.9 percent share of the specialty chemicals maker Degussa to the coal-mining company RAG for 2.8 billion. Acknowledging that the company had reached the end of a string of highly profitable sales, E.ON said that it would reward shareholders by paying a special dividend of 4.25 per share.

At the same time, E.ON finds itself in treacherous political waters as it begins work on the North Europe Gas Pipeline under the Baltic Sea, a joint venture with the chemicals manufacturer BASF and the Russian energy company Gazprom to bring natural gas to Western Europe.

The project has drawn the ire of Poland, which fears it could be cut off from Russian gas supplies that now pass through a Polish section of the pipeline. Former Chancellor Gerhard Schroder of Germany also drew unwanted attention to the deal when he was criticized this month for agreeing to head the committee overseeing the project.

But with work now under way, Bernotat said that E.ON was "in the conceptual phase" of further investments in Russia, including a stake in a Gazprom natural gas field and power generation for the city of Moscow.

The E.ON chief also brushed off an increasingly bitter debate in Germany over electricity prices that have risen steadily since last year.

German states are responsible for approving utility rate increases, and the economics minister of Hesse, Alois Rhiel, on Sunday said his office would no longer consider the utilities' requests.

But, noting that others are considering and even approving higher rates, Bernotat said Rhiel was "obliged to check those applications and take a decision." Bernotat added, "He cannot just refuse to make a decision."

Source: International Herald Tribune

More News in this Category