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DE RUEHLJ #0214/01 0970523
ZNR UUUUU ZZH
R 070523Z APR 06
FM AMEMBASSY LJUBLJANA
TO RUEHC/SECSTATE WASHDC 4719
INFO RUCPDOC/USDOC WASHDC
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RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 LJUBLJANA 000214 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/NCE, EUR/ERA, EB/CBA 
DEPT PLEASE PASS TO USTR/ERRION 
USDOC FOR ITA/SAVICH 
TREASURY FOR VIMAL ATUKORALA 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EINV ETRD SI
SUBJECT: SLOVENIA: ENERGY SECURITY AND HYDROELECTRIC POWER 
 
REF: LJUBLJANA 0171 
 
SENSITIVE 
 
¶1. (SBU) Summary: Companies within the state-owned Holding 
Slovenske Elektrarne (HSE) group produce over half of 
Slovenia's electricity.  With the GOS looking for self- 
sufficiency in electricity, HSE's further construction of 
hydroelectric plants will play a key role.  HSE is currently 
evaluating plans to develop two major natural gas-fired 
facilities, one in Slovenia and one in Austria, in a 
partnership between HSE, a Slovenian manufacturer, and an 
Austrian corporation.  Privatization of HSE, however, does 
not appear to be high on its or the GOS's agenda, despite 
interest from a major German power producer.  Following is 
an overview of a recent visit by DCM to HSE and one of its 
subsidiary companies.  End summary. 
 
------------ 
What is HSE? 
------------ 
 
¶2. (U) In July 2001, the GOS established HSE as an 
integrated entity of three hydroelectric plants (Dravske, 
Savske, and Soske), two coal-fired electricity plants 
(Brestanica and Sostanj) and a coal mine located in Velenje. 
Today, HSE is the leading Slovenian power producer, 
comprised of ten companies and more than five thousand 
employees.  HSE companies produce more than 50 percent of 
all electricity generated in Slovenia.  (Note: the Krsko 
nuclear power plant is not/not part of HSE.)  Owned by the 
state of Slovenia, in 2005 HSE reported approximately USD 74 
million in pre-tax profit.  The company receives nearly all 
of its revenue from buying and selling electricity and does 
not own or manage distribution networks. 
 
¶3. (U) One of the key components of HSE's business and 
Slovenia's energy strategy is hydroelectric power. 
Hydropower has been supplying electricity to the residents 
of Slovenia since the construction of the Medvode hydro 
plant, part of the HSE subsidiary Savske Elektrarne. The 
20MW facility, originally built in the 1950s and currently 
undergoing a multi-year restoration, is located in the 
suburbs of Ljubljana.  As noted reftel, hydroelectric plants 
on the Sava, Drava, and Soca rivers provide approximately 
one-third of the electricity that is consumed in Slovenia. 
HSE controls all of the companies that produce hydroelectric 
power in Slovenia. 
 
--------------------------- 
Independence in Electricity 
--------------------------- 
 
¶4. (U) During a visit to HSE, CEO Joze Zagozen told DCM that 
it plans to invest between 1.3 and 2.9 billion Euros in the 
coming decade to develop and expand electrical production in 
Slovenia.  Per reftel, Slovenia currently imports 
approximately 10-15 percent of its electricity.  Zagozen 
said that the goal of HSE and the GOS is to reach self- 
sufficiency in electrical production.  He estimates that the 
planned investment in increased capacity and improved 
efficiency in both coal and hydro facilities will achieve 
that objective.  (Note: Although HSE imports electricity 
from neighboring states, it also exports approximately 300MW 
to Italy because of the higher prices it can charge.) 
 
------------------------------- 
Hydroelectric Power to Increase 
------------------------------- 
 
¶5. (U) Zagozen noted that while the GOS will invest 
significant resources to modernize the major coal-fired 
facilities in Slovenia, hydroelectric power is an important 
element of Slovenia's electricity production strategy.  One 
of the few natural resources that Slovenia can draw on, 
Zagozen said the strong water flow on Slovenia's major 
rivers is an asset that HSE must continue to develop. 
Echoing what Post has learned from other sources, Zagozen 
told DCM he felt that an ideal strategy would achieve a 
share of 35 to 40 percent of Slovenia's overall electrical 
needs from its hydroelectric plants.  Despite the relatively 
 
LJUBLJANA 00000214  002 OF 003 
 
 
high investment required to build a hydro plant (three times 
that of coal per installed megawatt), Zagozen said that 
accelerated development of plants along the Soca, Drava, 
Sava, and Mura rivers was necessary if Slovenia is to 
achieve and maintain self-sufficiency in electricity 
production. 
 
¶6. (U) During a visit to the Medvode facility of Savske 
Elektrarne, the HSE firm that operates hydroelectric plants 
along the Sava River, Managing Director Drago Polak told DCM 
that he also expects continued, significant development of 
hydro resources in Slovenia.  Polak said that only 12 
percent of the total available potential of the Sava River 
has been developed, and that plans to take advantage of this 
resource are underway.  He added that in the coming 10-15 
years, 15 more hydro plants are planned to be built on the 
Sava.  Polak said that the power of the Sava river largely 
depends on runoff from Alpine snowfall and, thanks to this 
year's very heavy snowfall, the Sava plants would be 
uncharacteristically productive in the spring and early 
summer months of 2006. 
 
---------------------- 
Natural Gas An Option? 
---------------------- 
 
¶7. (SBU) Zagozen told DCM that HSE is currently 
investigating the possibility of investing in natural gas- 
fired electrical facilities.  Noting that Slovenia currently 
receives a very small percentage of its electricity from 
natural gas, Zagozen said these proposed plants could be one 
way of diversifying production.  Post understands that HSE, 
Talum (a Slovenian aluminum producer), and an Austrian 
company called Verbund have established a joint venture 
company to conduct feasibility studies of two proposed 400MW 
lants, one in Kidricevo in northeastern Slovenia ad a 
similar facility in Austria.  Construction o a plant of 
this size in Slovenia would require rdevelopment of 
existing gas lines, which are insfficient to transport the 
1 billion cubic metersof gas which a plant of this size 
would need annally.  Zagozen noted that any decision to 
move frward on a gas-fired facility in Slovenia would 
dpend on the results of a risk analysis of increasig 
sourcing of natural gas from Russia.  (Note: Sovenia 
imports approximately 60 percent of its ntural gas needs 
from Russia.  Most of this is usd for heating and 
industrial purposes.) 
 
----------------- 
HSE Privatization? 
----------------- 
 
¶8. (SBU) The GOS has said that it intends tosell off at 
least part of HSE and create another major energy producer 
to improve the competitiveness of the market (reftel). 
German energy corporation E.on has expressed interest in a 
possible purchase of 25 percent or more of HSE and would 
provide capital to achieve the goals of HSE's development 
strategy.  Concrete plans for privatization, however, have 
yet to materialize and high-ranking GOS officials have 
indicated that they will move conservatively.  As he has 
said in public fora in the past, Zagozen does not believe 
that privatization is a panacea to better competition and 
that HSE currently has the "optimal combination of 
resources."  Zagozen acknowledged that privatization could 
bring some benefits, but he does not believe that the 
individual companies within the HSE group should be sold 
off.  Synergies within the group must be maintained, Zagozen 
said, and if there is any privatization, the "state should 
remain the majority owner." 
 
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Comment 
------- 
 
¶9. (SBU) The diversity of supply and operational stability 
of HSE bode well for the future of electricity security in 
Slovenia.  Further development of hydropower as an energy 
resource will be a critical part of Slovenia's energy 
strategy and, in light of only muted expressions of concern 
from environmentalists, appears to be on track.  In view of 
 
LJUBLJANA 00000214  003 OF 003 
 
 
the Russia-Ukraine natural gas dispute from January, HSE's 
investigation of a possible increase in gas usage is worth 
noting.  Post contacts tell us that these plans are, 
however, only in the early investigative stages and may well 
never come to fruition.  End comment. 
ROBERTSON