* To invest less in power stations, energy grids
* German nuclear fuel tax to hit earnings, dividends
* To review medium-term goals, including dividend plans
* GDF Suez/International Power deal ups competition
* RWE shares fall 1.07 pct, lag firmer utility sector index
(Adds comment from German government, updates shares)
By Peter Dinkloh
FRANKFURT, Aug 12 German utility RWE (RWEG.DE)
said it may invest less in power stations and grids because of a
planned tax on nuclear power in Germany, just as GDF Suez's
GSZ.PA takeover of International Power IPR.L creates a giant
French utility GDF Suez, which is set to inject some of its
assets into British peer International Power and own 70 percent
of the enlarged company, plans to vie for customers in several
RWE markets including Britain, Benelux countries and Turkey.
The new utility, set to be the world's largest, aims to get
access to cheaper loans through the combination, meaning it can
offer energy more cheaply than before while RWE might increase
the returns it demands and reduce investments.
"We'll consider which investments still make sense" if the
German government introduces the nuclear fuel tax, Chief
Executive Juergen Grossmann told journalists on Thursday.
"Possibly we will tighten the screws internally and raise
our hurdle rates."
Plans by the German government to introduce a tax on uranium
and plutonium, the plants' fuel, have infuriated utilities. A
finance ministry draft law obtained by Reuters showed the
government expected to raise 2.3 billion euros ($2.96 billion)
annually between 2011 and 2014 with the tax. [ID:nN15223620]
Grossmann declined comment on what impact the GDF
transaction could have on RWE, but an additional burden from the
tax could curb RWE's ability to compete while the combined power
producers improve their position.
"The new IPR would offer considerably greater growth than
IPR (as a) standalone," JP Morgan analyst Edmund Reid said.
Germany's 17 nuclear power stations, operated by the
country's four largest utilities -- RWE, E.ON (EONGn.DE),
Energie Baden-Wuerttemberg (EBKG.DE) and Vattenfall [VATN.UL] --
have become a focal point of energy policy in Europe's largest
The government is considering extending the lifespan of
nuclear power plants and plans the tax on nuclear fuel to claw
back profits that power providers made by charging customers for
carbon certificates they got for free.
"The group now has to review its medium-term goals up to and
including 2013," RWE said on Thursday in reaction to those
RWE has said recurrent net income -- net income adjusted for
extraordinary effects and the basis for calculating dividends --
would rise 5 percent a year on average through 2013 and that
dividends would remain at least stable through 2013.
The company's plan to pay out 50-60 percent of its recurrent
net income as dividends remained in place, Chief Executive
Grossmann said in a conference call for analysts, backtracking
from a statement the company had made in a press release earlier
The "regulatory uncertainty remains (the) main challenge for
the share," said LBBW analyst Bernhard Jeggle.
Still, RWE's first-half operating profit rose 21 percent and
it reiterated that recurrent net income and operating earnings
would climb about 5 percent this year. [ID:nWEA3921]
RWE shares eased 1.07 percent to 53.63 euros by 1504 GMT,
lagging competitors on the STOXX Europe 600 utilities index
.SX6P, which advanced 0.37 percent.
For a graphic on European regulated and unregulated
For a graphic of utility share prices and power prices:
One of the highest emitters of carbon dioxide in Europe and
beset by regulatory uncertainty, RWE trades at 8.3 times forward
earnings, according to Thomson Reuters StarMine. That is a 28
percent discount to 18 peers including Italy's Enel (ENEI.MI)
and France's EDF (EDF.PA).
Germany's nuclear power stations, amongst the utilities'
most profitable large-scale power plants, are slated to be
closed in the mid-2020s. But some members of the German
coalition government and the power providers aim to extend their
lifespan, saying they want to share the extra profits.
An extension will be decided as part of a broader plan for
the future energy supply of Germany. But the fact that the
government has yet to decide on it would also put pressure on
RWE's medium-term targets, the company said.
A spokesman for the German government said that it would
decide on the country's plan for future energy supply at the end
(Additional reporting by Andreas Rinke; Editing by Michael
Shields, Sharon Lindores)
($1 = 0.7759 euro)