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Report: State to take 60 percent in merged utility

  • 2007-04-18
  • By TBT staff
VILNIUS - The state is likely to acquire a 60 percent stake in the planned merger of three utilities that Lithuania needs in order to participate in the new nuclear plant project, according to reports.

Parliamentarians have begun debating the consortium, consisting of three energy companies 's Lietuvos Energija (Lithuanian Energy) and two power distribution grids Rytu Skirstomieji Tinklai (RST) and VST 's that will serve as the nation's investor in the 4 billion euro nuclear power plant that the Baltic states and Poland have pledged to build by 2015 to replace the Ignalina plant.
The draft law foresees the state holding at least 51 percent in the consortium, though the Verslo Zinios business daily quoted Economy Minister Vytas Navickas as estimating that 60 percent is the more likely figure.
Prime Minister Gediminas Kirkilas has said that the government does not need more than a 51 percent stake.
The debate boils down to how big an interest will be given to NDX Energija, a privately-owned company that controls VST, the western half of Lithuania's power distribution grid.

And that, insiders say, will depend on whether the value of the three companies being merged will be measured in terms of cash flow or fixed assets.
If the cash flow method is used, NDX Energija stands to win since the firm, which is controlled by VP Market, the Baltics' largest retailer, has focused its efforts over the past three years on improving sales.
However, VST, with 1.3 billion litas (401 million euros) in capital, is the smallest among the three companies, compared with Lietuvos Energija's 2.1 billion and RST's 1.9 billion.

"The greatest practical problem in creating the consortium is in the choice of criteria on which shares in the new entity will be divided," said Raimondas Kuodis, head of the economics department at the Bank of Lithuania.
"Basically, two company valuation models are used. One is based on the value of a company's net assets. But in case of electricity grids, their assets 's cables and equipment 's have a low liquidity and therefore are of no interest to banks," he said.
"The companies will most likely be valued based on their cash flows. That means that the distribution grids, which have been poorly regulated and generated huge cash flows in the past couple of years, will appear to have a much higher value than Lietuvos Energija," Kuodis said.

Financial analysts warn that the merger could be a plan by VP Market to sell their stake in the power distribution company at a price several times higher than the price they paid for it three years ago during the privatization.
Experts say that efforts are being made to push the idea through before the start of a new regulation period in the autumn, when the regulatory environment can change and limits can be put in place on cash flows from the power distribution operations. That would reduce their shares of the new consortium.
Parliament began debating the bill on April 5.