March 11, 2016 / 9:15 AM / 3 years ago

Sweden's Vattenfall struggles to lure buyers for lignite sale: sources

OSLO/FRANKFURT (Reuters) - Swedish utility company Vattenfall is struggling to attract buyers for its lignite mines and power plants in eastern Germany with less than a week left to submit binding offers, sources close to the matter said on Friday.

Vattenfalls CEO Magnus Hall presents the company's sales report during a news conference at the headquaters in Stockholm, Sweden February 3, 2016. REUTERS/Maja Suslin/TT

The sale, launched at the end of 2014, includes roughly 8,100 megawatt (MW) of lignite-fired plants, which generate about 10 percent of Germany’s total electricity, as well as mining activities.

The deal was initially expected to fetch as much as 3.5 billion euros ($3.9 bln), but falling European power prices and future costs of plant and mine decommissioning means that the value has dropped sharply.

One source close to a potential bidder, who did not wish to be identified, said “total cash flows for Vattenfall from the transaction would be negative”, expressing doubts that the sale process can go through.

German electricity group Steag, Czech power producer CEZ (CEZP.PR), a consortium of energy group EPH and financial group PPF, and privately held Czech Coal’s lignite miner Vrsanska Uhelna expressed non-binding interests last year.

Vattenfall set a March 16 deadline to present binding offers.

Potential buyers, however, have been put off by Vattenfall’s request to guarantee that the Swedish company would have no obligations in any case of insolvency of lignite assets.

Failure to sell lignite assets could force Vattenfall to look for alternative ways to divest them as the Swedish government wants it to get rid of polluting assets and to focus on renewable energy, such as wind power.

It is looking at options, including setting up a fund or foundation to take over the business, or sell it in parts, a source familiar with the matter said, adding it was unclear whether Vattenfall, a buyer or the German state would run a such foundation.

German business daily Handelsblatt, which earlier reported the possibility of a foundation being set up, also said Steag has decided not to make a binding offer, but it could still be involved as an operating manager of such a fund.

CEZ refused to say if it will submit a bid.

Vattenfall declined to comment on Friday. A source familiar with the sales process said: “Vattenfall will definitely not sell the assets at any price.”

The utility, which reported a record $2.31 billion annual net loss for 2015, due to impairments on lignite and nuclear power plants, has said it planned to make a final decision on the sale during the first half of 2016.

The results were partly dragged down by a 15.2 billion Swedish crown ($1.8 bln) writedown relating to lignite assets due to lower production margins and greater business risk in the second quarter.

Moody’s ratings agency, which placed Vattenfall’s long-term A3 credit rating on review for downgrade in February, has said it expected the lignite sale to go through, but proceeds were likely to be affected by low energy prices.

German power prices fell to around 20 euros per megawatt-hour in 2016 from 34 euros/MWh at the end of 2014, when Vattenfall launched the sale. Forward prices show they are expected to remain low until around the start of the next decade.

Additional reporting by Jan Lopatka in Prague, Tom Kaeckenhoff and Vera Eckert in Frankfurt; Editing by Susan Fenton

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