NETHERANDS: ENERGY MARKET LIBERALIZATION USHERS IN FOREIGN

UNCLAS SECTION 01 OF 02 THE HAGUE 000370 SIPDIS USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT E.O. 12958: N/A TAGS: ENRG ECON PGOV NL SUBJECT: NETHERANDS: ENERGY MARKET LIBERALIZATION USHERS IN FOREIGN TAKEOVERS Ref: (A)THE HAGUE 132,(B)08 THE HAGUE 246 THE HAGUE 00000370 001.2 OF 002 ¶1. (U) SUMMARY: The Netherlands' top two electricity and gas utilities have fallen into foreign hands. German energy giant RWE has acquired Essent (30 percent share of Dutch utility market) for EUR 9.3 billion (USD 13.1 billion); Swedish state-controlled firm Vattenfall has acquired Nuon (34 percent share) for EUR 8.5 billion (USD 12.0 billion). Predictably, these takeovers have provoked an outcry from some Dutch politicians. But the cities and provinces that own the utilities could not resist the prospect of cashing in on their stakes. Proponents also hope the large foreign acquirers have the financial muscle to make needed investments in the Dutch energy sector. The Netherlands' willingness to sell their government-owned companies supplying almost two-thirds of the country's energy underscores two facts: 1) the Dutch remain in the EU's vanguard in terms of market liberalization; and 2) they are keeping their doors fully open to foreign investment. END SUMMARY. -------------- RWE BUYS ESSENT DESPITE OPPOSITION -------------- ¶2. (U) Dutch utilities are traditionally owned by provinces and municipalities in their service areas. North Brabant province, Essent's largest shareholder with over 30 percent, was sharply divided on whether to approve RWE's bid (ref A). RWE indicated it was prepared to proceed with a hostile takeover if it did not receive the 80 percent shareholder approval it had originally sought. North Brabant's executive body overruled the provincial council's earlier "no" vote by green-lighting the sale May 15. The European Commission approved the acquisition June 23, subject to divestment of Essent's 51 percent stake in German electricity and gas wholesaler Stadtwerke Bremen AG. ¶3. (U) Negative perceptions of RWE's environmental record as a major operator of coal-fired power plants almost scuttled the deal. North Brabant extracted concessions from RWE to invest "several billion euros" in green energy during 2009-2013 and increase Essent's green energy production to 25 percent of its total by 2020. Up to EUR 40 million in penalties will apply if RWE fails to make these "sustainability investments". -------------- --- STATUS OF JOINTLY-OWNED NUCLEAR PLANT UNRESOLVED 
 -------------- --- ¶4. (U) Essent's 50 percent stake in the operation of the Netherlands' only nuclear power plant, located in Borssele, also complicated RWE's bid. Smaller Dutch energy company Delta owns the other half of the entity that runs Borssele, whose bylaws stipulate the plant must remain public property (ref A). The fix was to make RWE the "economic owner" of Borssele , while Essent remains the "legal owner." Several Dutch Parliamentarians oppose this solution, but the government has no clear way of preventing it. Delta wants to buy out Essent's stake in Borssele and has instituted legal action to block RWE's plan. -------------- SWEDEN'S VATTENFALL ACQUIRES NUON -------------- ¶5. (U) Vattenfall, Sweden's state-owned energy champion, faced less resistance than RWE in its purchase of Nuon's production and supply business. Vattenfall's "greener" reputation helped, as did the fact that -- unlike RWE -- it had already unbundled its network business. Gelderland province, Nuon's largest shareholder with 44 percent, Q Gelderland province, Nuon's largest shareholder with 44 percent, approved the bid on May 27. European competition authorities approved the transaction June 22, conditional on the divestment of Nuon's retail electricity operations in Germany. Vattenfall will acquire 49 percent of Nuon's shares July 1 and the remainder in phases until 2015. -------------- DUTCH GOVERNMENT APPROVES UNBUNDLING PLANS -------------- ¶6. (U) Both deals will see the Dutch utilities' transmission and distribution assets split off from the acquired entities and remain in public hands. Essent's network business is named Enexis; Nuon's is Alliander. Economic Affairs Minister Maria van der Hoeven approved Essent's unbundling plan May 26 and Nuon's April 8. The government demanded that Essent and Nuon allocate significant equity capital to these spun-off, regulated companies and imposed restrictions on their dividend payouts in order to put them on sound financial footing and ensure adequate investment in their transmission and distribution networks. THE HAGUE 00000370 002.2 OF 002 -------------- NUMBER THREE DUTCH UTILITY DROPS SALE PLANS -------------- ¶7. (U) Eneco, the Netherlands' third largest electricity and gas utility, announced May 15 it was abandoning plans to seek a bigger European energy company to buy the company. In 2008, Eneco had informally put itself up for sale with the same rationale as Essent and Nuon -- consolidation and greater scale of operations is necessary to compete in a deregulated European energy market. Under pressure from the City Council of Rotterdam, Eneco's largest shareholder, the company has now reversed course and will go it alone -- although it, too, will have to unbundle its regulated network assets from its energy production and supply business. -------------- COMMENT -------------- ¶8. (U) The Dutch government was disappointed that the EU backtracked, under French and German pressure, on energy market liberalization. But this disappointment has not deterred the Netherlands from moving ahead with its own sweeping domestic unbundling process. It helped that the provinces and municipalities were eager to monetize their stakes in utilities, especially as economic contraction hit their budgets. The acquisitions of Essent and Nuon underscore how open the Netherlands is to foreign investment, even in a sensitive sector like energy. The exception is the Borssele nuclear plant, which the government and public want to remain in Dutch hands. END COMMENT. GALLAGHER