Vattenfall's Problem? It's Swedish

June 4, 2015 | 00:00
Vattenfall's Problem? It's Swedish
Vattenfall's Problem? It's Swedish
Almost all electricity producers in Europe are in trouble, among them the Swedish utility Vattenfall. It, however, is facing a special problem: It is Swedish. This Scandinavian country likes to see itself as a forerunner for climate sustainability, the clean face of an unspoiled environment. One fact, however, casts a dark shadow over this wishful image: Vattenfall. This company, moreover state owned, owns one of Germany’s largest lignite industries, and as a result, to the great dismay of many Swedes, every year Vattenfall alone has produced more CO2 than the whole of Sweden.

In addition to the economical uncertainty all German utilities have to deal with, Vattenfall is under further pressure in order to improve Sweden’s green image. Even though the company has already decided to divest from the lignite mines and lignite fired power stations in Eastern Germany, Lars G. Nordström, chairman of Vattenfall’s board of directors, maintains, “If we were a completely German company and were not under the pressure of Swedish opinion, we probably would not be so worried. But now we are worried.”

Vattenfall’s owner structure with just one shareholder, the state, adds to the turmoil the company has to struggle with. After Germany’s unification the then social democratic government of Sweden gave Vattenfall green light to expand into Europe in order to gather economical resources to be able to meet the foreign competitors on their way to conquer Sweden’s just deregulated electricity market. The Swedes were lucky; at the beginning of the 21st century, the East German lignite industry was offered to them on a silver plate. As a former insider said, “We got our German assets at a very good price, about SEK 70 billion (about €7.3 billion).” Despite heavy investments, in the years 2005 to 2012 45 percent of Vattenfall’s combined net profits of SEK 128.740 billion (€ 13.843 billion) originated from Germany (with a minor part coming from Poland).

Too little or too much leadership

In 2006, the centre-right government with the conservative Fredrik Reinfeldt at its helm took over, and Vattenfall continued and partly extended its business in Central Europe. Towards the end of its term, the government was criticised for not having exercised proper control over Vattenfall and having given the company’s management almost free reign. This was especially the case when in 2009 the Dutch utility Nuon was acquired at a cost of €9.9 billion. Today’s social democratic Prime Minister Stefan Löfven has called it “the worst deal in Sweden’s business history”. Until the end of last year about €5.6 billion had to be written off and the end of the story is not in sight yet.

In autumn 2014, Sweden voted in a new government. The outcome of the election resulted in an until then unknown political situation, close to chaos. The Social Democrats established a coalition with the Green party. This, however, is not enough to form a majority. Prime Minister Stefan Löfven, a former leader of the Metal Workers Union, asked the Left party for support, however the government is still 16 votes short of a majority (175 votes) in the Riksdag (Parliament). But with the Swedish strive for consensus, the former non-socialist coalition partners, now in opposition, allow the government’s passing of its budget through parliament while they are going to abstain to vote.

Having the Green party in government means major changes in Sweden’s energy policy. In domestic policy this is felt in a drastic tax increase on petrol, against the previous assurance by the Social Democrats that no changes would be made. Furthermore, the junior coalition partner announced that it would like to see the closure of at least two of Sweden’s ten nuclear power stations within the coming four year period of the Riksdag.

So, what happened a few weeks ago? Vattenfall announced the premature closure of the two oldest reactors, Ringhals 1 and 2 in western Sweden. Instead of 2025, they are now planned to disconnect from the grid between 2018 and 2020. Of course, this decision has been taken by the company alone, purely for economical reasons and without political pressure. However, Vattenfall- CEO Magnus Hall added immediately after the press release, that without the new efficiency tax on nuclear power the two reactors, which stand for eight percent of Sweden’s electricity production, would not have needed to be closed.

Lignite in Germany

Now to Germany: Shortly after the election, the Green party announced, that it would not agree on the sale of Vattenfall’s lignite assets, and that it would prefer the shutdown of mines and power stations. Not only the industry was shocked. After some harsh words by the Minister of Enterprise and Innovation Mikael Damberg (Social Democrat) it was said the Greens have backed down. Instead, the Left turned up with the same demand. When recently touring the Lausitz mining fields, the Left’s party leader Johan Sjöstedt declared, “Climate is more important than the tax payer.”

Vattenfall’s image in Eastern Germany has changed drastically. There is nothing left of the period when the Swedes were regarded as White Knights. Today the miners in the Lausitz get the feeling that they do have a rich uncle in Stockholm who liked to collect the huge profits but now tries to hide the miners in the cellars from the Swedish public because he is ashamed of them (because of the dirty lignite).

In the region about 8,000 people are working in the lignite industry, and a further 8,000 are dependent on it. According to Simone Wendler, chief reporter of the regional daily Lausitzer Rundschau, the Swedes are now detested. The main reason is that the local population are in a state of uncertainty regarding their future. Local and regional politicians and trade unionists have sent several letters to Stockholm, to the government, the parties and Vattenfall asking what their plans are. “We still do not know”, says Simone Wendler and gives an example: for three of the five coal fields, extensions are planned with the resettlement of about 3,000 people. For one region, the basic agreement is ready for signature. The people involved for resettlement, about 1,600, are sitting “on packed suitcases”. First, Vattenfall announced that the final agreement has to be signed by the future owner of the field, but recently the company let it be known that it is not prepared to even sign the initial agreement. The Swedes argue, “The situation has become more complicated as the German government is now discussing new steps for CO2 emissions.” Simone Wendler says,”The people are frustrated, now they have to wait for at least another year.”

However, in general, in the Lausitz region there is still strong support for the lignite industry. According to an opinion poll (Forsa), two of three Lausitzer are of the opinion that the extension of the lignite fields is necessary in order to secure a long-term, reliable and price effective electricity supply. Just 20% think that new lignite fields would be an irresponsible step because of the damage inflicted on nature and environment. 63% see the mining industry as the most important economic factor. Simone Wendler points out, that a majority in the region would like to keep the lignite industry in tact and would like to see Vattenfall even as a future owner. Major changes in the regional economy are described as “social dynamite”, and the journalist explains that many people working in the industry are taking home top salaries, at about €2,000 net a month. Vattenfall, as long as it has been the committed owner of the coal fields, has been regarded as a “company that cares”. Simone Wendler says, “Financially, Vattenfall has done everything possible for the people involved in resettlement programmes.” Rüdiger Siebers, head of the workers council at Vattenfall’s lignite section, has no objections against a new owner, “as long as it knows what it is buying”. This is the crucial question, and right now there is no answer. What are the Swedish government’s conditions for a sale, and what does the German government have in mind? An additional tax on older power plants as contemplated by Sigmar Gabriel, federal Minister for Economic Affairs and Energy? What is going to happen to the price of electricity certificates?

Who's buying?

Vattenfall has tried to reduce CO2 emissions of its power plants. For quite a long time the slogan was: 'No new power plants without CCS' (Carbon Capture and Storage). The company invested about €200 million in the development of relevant systems. However, when it came to the test, to store CO2 underground, first there were the protests from the local people and then a federal German law which made the storage infeasible. Now, Vattenfall is cooperating with a Canadian company. Furthermore, the Swedish company tried to cut costs by reducing staff by several thousands and by reorganising its structure at least five times in the last eight years. The latest one came into operation April 1st this year. The announcement says,”Vattenfall’s Lignite Mining and Generation operations will be organised in a separate unit reflecting Vattenfall’s ambition to find a new ownership structure for the lignite business.” But who is interested in this business? According to CEO Magnus Hall, there is some interest in the Lausitz industry, and “towards the end of this year there will be hopefully something on the table which the government can decide upon”.

Interested parties mentioned in the media are US-hedge funds as well as companies active in the mining and electricity generation business from the Czech Republic and Poland. Tilo Berger, economic journalist for the regional daily Sächsische Zeitung, describes the expectations of the Lausitz people as follows: They want a company which knows lignite, but no US or Chinese financial investors, please.

The red-green government in Stockholm does not make a secret of its intention to be a more active owner. “We saw the need”. Whilst the former centre-right government has been criticised for its lax leadership as Vattenfall’s owner, the Löfven-cabinet is now being claimed to politicise the largest state owned company in Sweden. Two headlines from the Stockholm economical daily Dagens Industri read, “The State should not own Vattenfall forever” and “Say no to more power socialism” with the conclusion, “There is nothing wrong with the company, however politicians are bad owners.” Or as a former top Vattenfall insider describes the situation, “Maud Olofsson’s (Minister of Industry in the former government) unwillingness to have a dialogue with Vattenfall was clearly damaging for the company. That resulted in an unnecessary workload and decisions based on the political situation of the day. There was no owner responsibility.” Of today’s situation he says: “The coalition of today, Social Democrats and the Green party, is ill-fated. The issues of nuclear power and coal power have really been politicised. Decisions to shut down functioning nuclear power stations because of overtaxing is a clear example. However, I think Mikael Damberg shows owner responsibility.”

Over the last ten years Vattenfall has been a reliable contributor to the Swedish state’s coffers. However, in 2013 and 2014 the utility ended up heavily in the red and did not pay any dividend. This situation will probably not change in this year. Vattenfall is in trouble, with or without Lausitz.

Image: Strip mining lignite at Tagebau Garzweiler in Germany. By: Ekem CC-BY
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