Evonik owner RAG warns of collapse as EU wants coal mines closed

16 September 2010 19:16  [Source: ICIS news]

TORONTO (ICIS)--RAG-Stiftung, the majority owner of Germany-based specialty chemicals major Evonik, is warning that an earlier-than-planned phase-out of the country's subsidised hard coal production could trigger its insolvency and collapse, a company spokesman said on Thursday.

The company warned of such a “worst-case scenario” in a letter to Germany’s economics minister Rainer Bruderle, RAG spokesman Ulrich Winkler told ICIS. He was confirming a report by German daily Westdeutsche Allgemeine Zeitung, which said it had obtained a copy of the letter.

“An early coal phase-out would put pressure on RAG to sell off Evonik much faster, and such pressure would not be good,” Winkler added.

In its letter, RAG warned that a collapse would trigger “large-scale jobs cuts.”

Germany’s coal phase-out is directly linked to the strategies and plans at Evonik. Under German legislation from 2007, RAG-Stiftung was set up as a coal foundation to oversee the phase-out. Proceeds from the eventual sale of Evonik are meant to cover billions of euros in environmental costs related to the closure of the coal mines.

Under the original plan, the phase-out is due to be completed by 2018, with a review set for 2012. However, the EU has been pressing Germany in past weeks to bring the phase-out forward by four years to 2014.

Germany’s government may yet welcome an earlier phase-out, which would help it save an estimated total of €5bn ($6.5bn) in subsidy payments at a time when it was seeking to cut deficits and reduce debts, commentators said.

Michael Vassiliadis, head of Germany’s chemical union IG BCE, warned earlier that ending subsidised coal production four years ahead of schedule could precipitate divestments and hit employment at Evonik, which has a staff of some 40,000.

While RAG is Evonik's majority owner, private equity firm CVC owns a 25.01% minority stake in Evonik which it bought in 2008 for €2.4bn.

($1 = €0.77)

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By: Stefan Baumgarten
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