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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Jarek Astramowicz X-To: Vince J Kaminski X-cc: X-bcc: X-Folder: \Vincent_Kaminski_Jun2001_7\Notes Folders\Discussion threads X-Origin: Kaminski-V X-FileName: vkamins.nsf Vicek - sadzilem, ze moze bedziesz chcial to przeczytac. Pozdrowienia - Jarek ---------------------- Forwarded by Jarek Astramowicz/WAR/ECT on 2000-04-17 17:15 --------------------------- Iona Maclean 2000-04-13 08:23 To: Jackie Gentle/LON/ECT@ECT, Eric Shaw/LON/ECT@ECT, Jarek Astramowicz/WAR/ECT@ECT, Brian Stanley/EU/Enron@ENRON, Philip Davies/LON/ECT@ECT, Ed Cattigan/EU/Enron@ENRON, Nigel Beresford/EU/Enron@ENRON, Andrew Morrison/LON/ECT@ECT cc: Subject: Enron in Europe: Emerging Europe: Enron Plugs On in Poland --- Power Market's Vast ... ---------------------- Forwarded by Iona Maclean/LON/ECT on 13/04/2000 07:23 --------------------------- Enron Capital & Trade Resources Corp. From: djcustomclips@djinteractive.com 13/04/2000 07:30 Please respond to nobody@mail1.djnr.com To: 96939@mailman.enron.com cc: (bcc: Iona Maclean/LON/ECT) Subject: Enron in Europe: Emerging Europe: Enron Plugs On in Poland --- Power Market's Vast ... Emerging Europe: Enron Plugs On in Poland --- Power Market's Vast Potential Holds Allure, But an Uncertain Future --- After Six Years, Profit From Company's Power Operations Remains Years Away By Elizabeth Williamson 04/13/2000 The Wall Street Journal Europe 9 (Copyright © 2000, Dow Jones & Company, Inc.) NOWA SARZYNA, Poland -- From a small power plant humming among the birches near the Ukrainian border, Enron Corp. has staked its claim on the Polish energy market. Yet after six years, the company is still seeking a mother lode. The Houston-based energy producer and trader entered Poland in 1994, nabbed one of the first power-trading licenses to go to a foreign company and began work on Elektrocieplownie Nowa Sarzyna, Poland's first new, foreign-operated heat-and-power plant. Other companies followed, including Electricite de France, RWE AG of Germany, Vattenfall AB of Sweden and Tractebel SA of Belgium. The prize could be a rich one. All of these companies hope to profit as Poland sells its state energy assets and frees prices before joining the European Union. A wholesale power bourse is due to open in Warsaw in July. And the country's transmission links to markets East and West could make Poland the power-trading hub of Central Europe. But after six years in Poland, Enron has yet to earn a profit. Net income from Nowa Sarzyna, which is to begin commercial production later this month, is at least five years away. Power-trading operations might generate profits next year, if the new bourse gets moving. But that is "one big question mark," says Jarek Astramowicz, Enron Poland's president. Indeed, despite its promise, Poland's energy sector remains a sizzling tangle of aging plants, archaic market agreements and complex, shifting regulations. Enron, with $40 billion (41.69 billion euros) in annual revenue, is an innovator and an investment bellwether for its peers. But in a power market as negatively charged as Poland's, the company also is an example of how shaky market conditions can keep even the savviest competitors offline. "These are very large operations and to some extent they can bear some risks," says Pawel Kaminski, energy-sector operations officer at the World Bank in Warsaw. "But eventually they have to generate some return." Enron pioneered wholesale gas and electricity trading in the U.S. It entered Europe in 1989, setting up in London as the U.K.'s energy sector liberalized. It entered the Nordic market in 1996, and today is the Nord Pool's largest-volume trader. Enron says it takes about two years to find a site and obtain permits for a power plant, and a further 29 months for construction. Just four years after entering the U.K., Enron finished its 1,875-megawatt Teesside plant. Teesside's capacity and cost, at GBP 795 million (1.32 billion euros), are many times larger than Nowa Sarzyna's. Yet Teesside was completed in only two-thirds the time. The company declines to compare development times in various countries. "I wouldn't necessarily put Poland into the same category as Russia," says Philip Davies, regulatory and government-affairs manager at Enron Europe in London. "But obviously, given Poland's (planned economy) past, it probably takes a bit longer to work through the regulatory process and get to the starting point." At Nowa Sarzyna, it took Enron nearly twice the usual time to reach the starting point, even though Mr. Astramowicz already knew the site, and the Polish power industry's rules. The Nowa Sarzyna plant was Mr. Astramowicz's brainchild, and he burned out the engine in his first BMW as he traveled between Warsaw and the town to craft the deal. A freelance energy-sector entrepreneur before joining Enron, Mr. Astramowicz sold his interest in Nowa Sarzyna to Enron in 1998. Enron has spent $132 million to build Nowa Sarzyna, a 116-megawatt, gas-fired combined heat-and-power plant. Quiet, clean and efficient, the plant stands in stark contrast to most of Poland's belching, coal-fired behemoths. When it starts up this month, it will sell its electricity to the Polish Power Grid, the country's high-voltage network, under a 20-year power-purchase agreement, or PPA, that Enron won in 1997. Steam output goes to Organika, the chemical company next door, and helps heat the town of Nowa Sarzyna. The Nowa Sarzyna plant is more than 80% financed by commercial-bank loans for which the only collateral is the plant's concluded contracts. "They were betting on their good name," says Michael Davies, a partner with Allen & Overy, the Warsaw law firm that advised Enron Poland's lenders. "They are pushing envelopes all the time." That is especially true in a market with 30% overcapacity, where an energy law didn't even exist until 1997. Says Peter Bisztyga, emerging Europe utilities analyst at Solomon Smith Barney in London: "Because Enron signed a PPA, they are OK . . . (but) I'm really not sure building Nowa Sarzyna was such a good idea." Mr. Bisztyga says Enron could have generated a faster return by renovating an existing power plant. But, he acknowledges, Nowa Sarzyna "allowed Enron to get into the Polish market early and stamp their name on it." In 1994, Polish power plants weren't for sale. Energy asset privatization, discussed for years, began in earnest only this year. By 2002, the Polish government proposes to sell off stakes in dozens of power plants, 33 distribution companies and the Polish Power Grid, a 12,000-kilometer national transmission network of high-voltage lines. The assets have a total book value of 33 billion zlotys (8.4 billion euros), but murky regulations have driven prices down. "The regulations don't promote competition and so you don't really know the price of electricity," says Bengt Wegemo, president of Vattenfall Poland. Earlier this year, Vattenfall paid $235 million for 55% in Warsaw-based Elektrocieplownie Warszawskie, promising $340 million in investment in the heat-and-power plant over the next 10 years. Investors hope the new power market will bring clarity over pricing. Ultimately, 170 licensed energy traders and 200 large power users will trade on the bourse, setting the wholesale price of electricity. The Polish bourse will be modeled on its Nordic counterpart. Enron, the Nord Pool's largest trader, hopes to post Polish trading profits by 2001. But first, say market experts, Poland's 1997 energy law must be amended to ease functioning of the bourse, and free up access to Poland's distribution network. Further, the government says it must solve the competition problem posed by the Polish Power Grid's power-purchase agreements, which account for 70% of energy sales in Poland. Some state-owned plants used the agreements as collateral to secure modernization financing. When prices are freed, these plants might go bankrupt if forced to compete with plants that didn't spend money to modernize. The government is contemplating a special fund to compensate the modernized plants for their extra costs. Though Nowa Sarzyna is a private plant, the price Enron must charge for its power is about twice what outmoded plants charge. "We are hoping that continuous, efficient operation of the plant will generate us a (bigger) profit," Mr. Astramowicz says. Another problem is cross-border power trading, where contradictory legislation essentially gives a monopoly to the Polish Power Grid, also known as PSE. Enron and others protest that PSE shouldn't compete with electricity-market participants who contract with it for transmission service. PSE intends to stay in the trading business, says Marek Zerka, PSE's vice president. In late March, PSE and local company Kulczyk Holding signed an agreement with PreussenElektra AG of Germany to export electricity and coal to EU countries via Germany. "This is great news," Mr. Astramowicz says. "If this joint venture gets access to PSE's cross-border transmission capacity . . . I would expect PSE to confirm open access to all market participants." Enron and others are pushing hard for that access. "As soon as the market becomes open, free and non-discriminatory, we will come out at a decent profit," Mr. Astramowicz says. Folder Name: Enron in Europe Relevance Score on Scale of 100: 78 ______________________________________________________________________ To review or revise your folder, visit http://www.djinteractive.com or contact Dow Jones Customer Service by e-mail at custom.news@bis.dowjones.com or by phone at 800-369-7466. (Outside the U.S. and Canada, call 609-452-1511 or contact your local sales representative.) ______________________________________________________________________ Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved
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