The World from Berlin Energy Merger a 'Bad Day' for Germans

Swedish energy giant Vattenfall has announced plans to take over its pesky Dutch competitor Nuon. But as German commentators see it: When energy giants join forces, competition dies, prices increase and consumers get a raw deal.

Vattenfall hopes to expand even further in Europe -- and rid itself of a pesky competitor.

Vattenfall hopes to expand even further in Europe -- and rid itself of a pesky competitor.

With its announcement Monday that it intends to purchase the Dutch utility company Nuon, Swedish power giant Vattenfal has signalled its continued expansion into the greater European energy market and a desire to increase its holdings in the renewables sector. For German consumer groups, though, the planned deal signals an unwelcome decrease in competition, which -- over time -- might lead to higher prices. Both Nuon and Vattenfall are present in the German energy market.

In a joint press conference on Monday, the companies announced a planned €8.5 billion ($10.8 billion) merger that would see Vattenfall purchase 49 percent of Nuon's shares in the next few months and acquire the remaining 51 percent over the next six years.

The announced merger comes only a month after German energy giant RWE purchased the Netherlands' largest energy provider, Essent, for €9.3 billion.

The current merger plans represent another story of David vs. Goliath. But, in this version of the story, David loses.

Along with E.on, RWE and EnBw, Vattenfall is one of Germany's top four energy providers. The state-owned company is active in Germany, Poland, Great Britain and the Nordic countries and reported 2008 revenues of €15.2 billion. In Germany, the companies' major markets are Berlin and Hamburg -- the country's two largest metropolitan areas -- and the eastern part of the country.

With its purchase of Nuon, Vattenfall officials say they hope to expand the utility's activities in natural gas and renewable energies and pursue the company's stated goal of becoming climate neutral by 2050. The purchase would, for example, make Vattenfall Europe's largest offshore wind company.

Nuon, which was formed in 1994 by the merger of some Dutch regional providers, is currently the Netherlands' second largest energy provider behind Essent and is owned by three provincial authorities and the city of Amsterdam. In 2008, the company reported sales of €6.1 billion from its estimated 3 million customers in the Netherlands, Belgium and Germany. Nuon has managed to win over 300,000 customers in Germany.

The takeover still requires the approval of Nuon shareholders and regulatory authorities in Holland, Germany and at the Euroepan Commission, and opposition is already mounting -- especially from consumer groups in Germany.

"Every merger chokes competition," Aribert Peters, the head of the German Association of Energy Consumers (BVE), told SPIEGEL ONLINE. "It always brings the danger of higher prices." Peters also called on Germany's Federal Cartel Office to block the deal from going through.

Commentators at Germany's more conservative papers likewise seem to lack much enthusiasm for the deal.

Conservative Die Welt writes:

"This is a big day for the Swedish state-owned Vattenfall and a bad day for German consumers. By taking over the Dutch energy company Nuon, Vattenfall head Lars Josefsson has not only bought his way into the lucrative natural gas business; he has also taken care of one of his company's annoying little competitors. Nuon's 'Yummy Power and Gas' ad campaign had already found many takers in Vattenfall's key markets of Hamburg and Berlin. And now Nuon Germany will be subsumed by Vattenfall. The consumer's freedom of choice is smaller; the range of products is narrower; and prices will probably go up."

"The takeover of Nuon should also offer an occasion for critical self-reflection on the part of German politicians involved in energy policies. The Economics Ministry recently instructed the Cartel Office to set official minimum prices that no new supplier could undercut. In doing so, the German agency reponsible for preserving competition actually dug a grave for it. After the office set minimum prices, Nuon stopped being active in the household natural gas business -- profit margins had been made so thin it was no longer appealing. If Nuon completely disappears from the market now, Germany's energy politicians will share in the blame."

The center-right Frankfurter Allgemeine Zeitung writes:

"It took a long time for … Vattenfall to flesh out its expansion strategy targeted on the northern part of central and western Europe with another purchase. Since his shopping trip in northern and eastern Germany at the beginning of the decade, CEO Lars Josefsson has been on the lookout for other profitable power and gas markets, but only to have the door slammed on his face."

"For both (companies), it is an attractive deal: The Dutch owners have been pressured to sell by the government, and the Swedes can expand their activities in renewable energies and in the natural gas market."

"But, with Vattenfall's takeover of Nuon, an independent competitor will disappear from the German energy market. The irony is that Nuon was actually the one that actually succeeded in luring away 10 percent of Vattenfall's customers in Berlin and Hamburg. Now these customers will be pulled back into the Vattenfall empire."

The Financial Times Deutschland writes:

"Germany's (energy) retail market has been and will continue to be lacking in sufficient competition. This takeover is another setback."

"It is increasingly clear that the important goal of liberalizing the European energy market is not really attainable using the existing means. Opening the markets has not done what the politicians had hoped for -- they have neither brought greater competition nor sinking prices for consumers. Instead, it has led to an oligopoly of major market players."

"The truth is that none of this was secret. There's no way politicians and regulators can be surprised that (energy) suppliers would want to take advantage of increased wiggle room to press ahead with their consolidation goals."

-- Josh Ward, 1:00 p.m. CET


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