NEW OWNER FOR THE LIGNITE BUSINESS

Germany Mining & Generation, with its 7500 employees, has a new owner. The sale of Vattenfall's lignite operations was completed on Friday 30 september.

 The buyer, a consortium with Czech energy group EPH and financial partner PPF Investments, has now taken over the power plants Jänschwalde, Boxberg, Schwarze Pumpe, Lippendorf block R as well as the open-cast mines Jänschwalde, Nochten, Welzow-Süd, Reichwalde and the recently closed Cottbus Nord mine.

For Vattenfall the divestment marks the end of a 15-year long era. At the same time it is the start of a new one, with a clear focus on low carbon intense solutions.

"It's been a long sales process and it feels good that the deal is now definitely closed, " says Magnus Hall, Vattenfall’s President and CEO. "For Vattenfall, this also becomes a clear inflection point for our transition to a company based on low-carbon energy and sustainable solutions. "

Long and complex road to the finish line
The process to sell the lignite division has been going on for nearly two years, starting with the decision by Vattenfall's board of directors in October 2014. After a full year of preparatory activities, the division was officially put on sale in September 2015, through an advertisement in the Financial Times. The agreement with EPH/PPF was signed in April this year. The next step was for Vattenfall's owner, the Swedish government, to confirm the deal, which took place in the beginning of July. Finally, on 22 September, the EU gave a green light after reviewing the deal on competition grounds.

Stefan Dohler, Head of BA Markets, has been one of the leaders of the huge project which has involved more than 100 people:

"The long process was partly a consequence of the complex transaction where we wanted to make sure that a potential buyer could really understand what we offered," he says.

The process was delayed in early 2015 when the German government announced plans to change their policy on lignite. This eventually resulted in a decision to introduce a 2,700 MW lignite-power security reserve, which also includes two blocks in the Jänschwalde power plant.

"When this was settled last autumn we could kick start the external process," Dohler says. The second divestment project leader has been Thijs van Lotringen, Head of Mergers & Acquisitions.

While the deal is now closed, some things still remain in connection to separating Mining & Generation from the Vattenfall Group.

"We will keep supporting the new owners with some services for a while, mainly around IT, dispatch&short term optimisation and shared services until Mining & Generation has built up its own infrastructure and competence in these fields. In the mean time we will have to keep the businesses of the two companies separated and build Chinese walls in between them, " Dohler says.

Fifteen years of ownership
Vattenfall has owned the lignite operations since the early 2000’s when the power company VEAG and open-cast mining company LAUBAG was acquired. By that time, lignite had already been mined in the region for more than 200 years. During the 15 years as an owner, Vattenfall carried out major investments in modern and efficient facilities and power plants. Also a pilot plant was built in Schwarze Pumpe to evaluate and develop CCS technology.

“Lignite has undoubtedly been an important part of Vattenfall's operations, and it is still important for Germany where it accounts for 10 percent of the energy supply. In purely economic terms, lignite has been a reasonable investment in line with our yield requirements. However we have in recent years been forced into large write-downs as electricity market prices have dropped. As we now sell the business, we will get a better balance in our production portfolio and our exposure to the electricity market price decreases”, says Magnus Hall.

Stefan Dohler says:
"The divestment is the right step for both Vattenfall and the lignite business. On the other hand there are a number of trusted and highly valued colleagues that we now say goodbye to, so personally, there are mixed feelings."

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