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Vattenfall sells German lignite assets

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World Coal,

Swedish utility Vattenfall is to sell its loss-making German lignite business to a consortium comprising Czech energy company, Energetický a prumyslový (EPH), and its financial partner, PPF Investments.

EPH already owns lignite assets in Germany through its MIBRAG subsidiary, which operates the Profen and Vereinigten Schleenhain opencast mines with production of more than 20 million tpy.

This experience meant EPH was “well positioned to assume the responsibilities related to the ownership of Vattenfall’s lignite assets,” said EPH board member, Jan Špringl. Vattenfall’s operations and MIBRAG will be operated separately.

EPH will take on €3.4 billion of assets and €2 billion of liabilities and provisions, including those for decommissioning and recultivation. In addition, Vattenfall will provide about €1.7 billion in cash as part of the transaction, EPH said.

Vattenfall’s lignite operations are the second largest in Germany and include the opencast mines at Jänschwalde, Welzow-Süd, NOchten and Reichwalder, as well as the power plants at Jänschwalde, Schwarze Pumpe and Boxberg. The company also own one unit at Lippendorf power plant, which EPH already supplies from its MIBRAG Vereinigten Schleenhain mine. The combined installed capacity of these plants is 8 GW with a total of 7500 employees.

“This divestment of our lignite assets is good strategically but also financially given current and expected market conditions,” said Magnus Hall, Vattenfall’s President and CEO. “We are now accelerating our shift towards a more sustainable production. The sale means more than 75% of our production will be climate neutral compared to about 50% today.”

The acquisition is subject to approval by the Swedish government. Closing and change of ownership is expected in 3Q16.

The lignite operations have been losing money as a result of a policy shift towards renewables and away from nuclear power and fossil fuels. This has resulted in a collapse in German electricity prices as cheap renewable power has been given priority feed-in to the country’s electricity grid.

Over the past five years, German wholesale power prices have slumped by two-thirds from €60/MWh to just €20/MWh – sending the profit margins of energy companies into freefall.

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