VZCZCXRO9512
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSL RUEHSR
DE RUEHTC #0370/01 1770718
ZNR UUUUU ZZH
R 260718Z JUN 09
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC 2946
INFO RUEHAT/AMCONSUL AMSTERDAM 4231
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 THE HAGUE 000370 
 
SIPDIS 
 
USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT 
 
E.O. 12958: N/A 
TAGS: ENRG ECON PGOV NL
SUBJECT: NETHERANDS: ENERGY MARKET LIBERALIZATION USHERS IN FOREIGN 
TAKEOVERS 
 
Ref: (A)THE HAGUE 132,(B)08 THE HAGUE 246 
 
THE HAGUE 00000370  001.2 OF 002 
 
 
¶1. (U) SUMMARY:  The Netherlands' top two electricity and gas 
utilities have fallen into foreign hands.  German energy giant RWE 
has acquired Essent (30 percent share of Dutch utility market) for 
EUR 9.3 billion (USD 13.1 billion); Swedish state-controlled firm 
Vattenfall has acquired Nuon (34 percent share) for EUR 8.5 billion 
(USD 12.0 billion).  Predictably, these takeovers have provoked an 
outcry from some Dutch politicians.  But the cities and provinces 
that own the utilities could not resist the prospect of cashing in 
on their stakes.  Proponents also hope the large foreign acquirers 
have the financial muscle to make needed investments in the Dutch 
energy sector.  The Netherlands' willingness to sell their 
government-owned companies supplying almost two-thirds of the 
country's energy underscores two facts: 1) the Dutch remain in the 
EU's vanguard in terms of market liberalization; and 2) they are 
keeping their doors fully open to foreign investment.  END SUMMARY. 
 
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RWE BUYS ESSENT DESPITE OPPOSITION 
---------------------------------- 
 
¶2. (U) Dutch utilities are traditionally owned by provinces and 
municipalities in their service areas.  North Brabant province, 
Essent's largest shareholder with over 30 percent, was sharply 
divided on whether to approve RWE's bid (ref A).  RWE indicated it 
was prepared to proceed with a hostile takeover if it did not 
receive the 80 percent shareholder approval it had originally 
sought.  North Brabant's executive body overruled the provincial 
council's earlier "no" vote by green-lighting the sale May 15.  The 
European Commission approved the acquisition June 23, subject to 
divestment of Essent's 51 percent stake in German electricity and 
gas wholesaler Stadtwerke Bremen AG. 
 
¶3. (U) Negative perceptions of RWE's environmental record as a major 
operator of coal-fired power plants almost scuttled the deal.  North 
Brabant extracted concessions from RWE to invest "several billion 
euros" in green energy during 2009-2013 and increase Essent's green 
energy production to 25 percent of its total by 2020.  Up to EUR 40 
million in penalties will apply if RWE fails to make these 
"sustainability investments". 
 
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STATUS OF JOINTLY-OWNED NUCLEAR PLANT UNRESOLVED 
--------------------------------------------- --- 
 
¶4. (U) Essent's 50 percent stake in the operation of the 
Netherlands' only nuclear power plant, located in Borssele, also 
complicated RWE's bid.  Smaller Dutch energy company Delta owns the 
other half of the entity that runs Borssele, whose bylaws stipulate 
the plant must remain public property (ref A).  The fix was to make 
RWE the "economic owner" of Borssele , while Essent remains the 
"legal owner."  Several Dutch Parliamentarians oppose this solution, 
but the government has no clear way of preventing it.  Delta wants 
to buy out Essent's stake in Borssele and has instituted legal 
action to block RWE's plan. 
 
--------------------------------- 
SWEDEN'S VATTENFALL ACQUIRES NUON 
--------------------------------- 
 
¶5. (U) Vattenfall, Sweden's state-owned energy champion, faced less 
resistance than RWE in its purchase of Nuon's production and supply 
business.  Vattenfall's "greener" reputation helped, as did the fact 
that -- unlike RWE -- it had already unbundled its network business. 
 Gelderland province, Nuon's largest shareholder with 44 percent, 
Q Gelderland province, Nuon's largest shareholder with 44 percent, 
approved the bid on May 27.  European competition authorities 
approved the transaction June 22, conditional on the divestment of 
Nuon's retail electricity operations in Germany.  Vattenfall will 
acquire 49 percent of Nuon's shares July 1 and the remainder in 
phases until 2015. 
 
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DUTCH GOVERNMENT APPROVES UNBUNDLING PLANS 
------------------------------------------ 
 
 
¶6. (U) Both deals will see the Dutch utilities' transmission and 
distribution assets split off from the acquired entities and remain 
in public hands.  Essent's network business is named Enexis; Nuon's 
is Alliander.  Economic Affairs Minister Maria van der Hoeven 
approved Essent's unbundling plan May 26 and Nuon's April 8.  The 
government demanded that Essent and Nuon allocate significant equity 
capital to these spun-off, regulated companies and imposed 
restrictions on their dividend payouts in order to put them on sound 
financial footing and ensure adequate investment in their 
transmission and distribution networks. 
 
THE HAGUE 00000370  002.2 OF 002 
 
 
 
------------------------------------------- 
NUMBER THREE DUTCH UTILITY DROPS SALE PLANS 
------------------------------------------- 
 
¶7. (U) Eneco, the Netherlands' third largest electricity and gas 
utility, announced May 15 it was abandoning plans to seek a bigger 
European energy company to buy the company.  In 2008, Eneco had 
informally put itself up for sale with the same rationale as Essent 
and Nuon -- consolidation and greater scale of operations is 
necessary to compete in a deregulated European energy market.  Under 
pressure from the City Council of Rotterdam, Eneco's largest 
shareholder, the company has now reversed course and will go it 
alone -- although it, too, will have to unbundle its regulated 
network assets from its energy production and supply business. 
 
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COMMENT 
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¶8. (U) The Dutch government was disappointed that the EU 
backtracked, under French and German pressure, on energy market 
liberalization.  But this disappointment has not deterred the 
Netherlands from moving ahead with its own sweeping domestic 
unbundling process.  It helped that the provinces and municipalities 
were eager to monetize their stakes in utilities, especially as 
economic contraction hit their budgets.  The acquisitions of Essent 
and Nuon underscore how open the Netherlands is to foreign 
investment, even in a sensitive sector like energy.  The exception 
is the Borssele nuclear plant, which the government and public want 
to remain in Dutch hands.  END COMMENT. 
 
GALLAGHER