German roundup - Ruhrgas, a skilful company
So far the general perception in Germany – even within the ministry of economics - is that the conditions imposed on E.ON to allow its takeover of Ruhrgas have completely failed both to stimulate competition and to compensate other companies for the increase in market power of the combined E.ON-Ruhrgas group. But why were the obligations so apparently unsuccessful?
Sales of company assets
E.ON-Ruhrgas had to sell the following assets:
27.4% of the stake in EWE Oldenburg;
22% of E.ON and the 11.3% of Ruhrgas in the local distribution company swb AG Bremen;
22% of E.ON and the 22.02% of Ruhrgas in Bayerngas
80.5% of E.ON in Gelsenwasser;
The share of E.ON (5.26%) and Ruhrgas (36,84%) in the East German gas major VNG Verbundnetz Gas. Ten percent of the Ruhrgas share had to be offered prior to the municipal shareholders of VNG. The rest of the Ruhrgas share had to be offered to a strategic investor.
All these assets had to be sold with priority to strategic investors. The aim was to increase competition. But the result was, in the words of Hans-Joachim Gornig the managing director of the German affiliate of Gazprom ZGG, “a new strengthening of the state influence in the energy market.”
The EWE shares were sold to the municipal shareholders that now own 100% of the company. The shares in swb and VNG had been sold to EWE. The municipal shareholders in VNG took the 10% and pooled their influence with EWE. According to market rumours E.ON helped the municipal shareholders to finance the purchase.
The Gelsenwasser share was sold to Stadtwerke Bochum
“The general perception in Germany is that the conditions imposed on E.ON have completely failed to stimulate competition”
and Dortmund that are controlled by the municipalities. Their attempt to find an additional strategic partner failed. Bayerngas is now completely controlled by municipal shareholders. The Stadtwerke of Munich, Augsburg, Regensburg and Ingolstadt and the city of Landshut all located in Bavaria used their preemption rights to increase the shares.
Particularly in the case of VNG, the ministry hoped to establish “an active competitor to Ruhrgas”. EWE has a very good reputation as a regional supplier that offers cheap prices though it has never been involved in aggressive competition.
It is unlikely this will change. That Reinier Zwtslerloot, c.e.o. of Wintershall, welcomes the solution seems to back the assumption that EWE/VNG will not disturb the market. Company sources from VNG say that the two companies have begun to investigate where potential synergies exist.
On the other hand sources from the ministry, when asked why the ministry accepted EWE’s offer, say that co-bidders Gaz de France and Wintershall/Gazprom failed to present promising plans to increase competition.
Perhaps the ministry simply chose the wrong assets to sell. Many market participants demanded that E.ON should sell Thüga where the company pools its stake in more than 130 Stadtwerke.
Unbundling of Ruhrgas
From the 1st January Ruhrgas had to separate transportation from the sales part. Ruhrgas founded Ruhrgas Transport GmbH & Co KG. The company is located on the same site as Ruhrgas AG although it has changed the main entrance to another street. A trader commented that it doesn’t appear to have implemented real Chinese walls. Furthermore, Ruhrgas only transfered the bare minimum to the legally unbundled subsidiary in order to be able to handle transportation contracts. There are rumours that the ministry was not satisfied by the presented solution, though it nevertheless accepted it.
Release of volumes by Ruhrgas
Ruhrgas had to release volumes in three different ways:
In cases where the company supplies distribution companies with more than 50% of the volumes under longterm contract, it had to release 20% of the supplied volume;
It had to offer Bayerngas and swb AG Bremen special cancellation rights for their contracts. During the next three years the company can cancel each year one third of their contracts with Ruhrgas;
In the course of the mentioned gas auctions Ruhrgas has to offer altogether 200 bil.kWh during six years at Waidhaus and Emden;
So far the release programme has had absolutely no impact on the German gas market. A trader summarised last year’s auction and the release of volumes under long term contract in a letter to the ministry as follows: “The main reasons for the failure of the gas release programme are the inadequate structure of the product offered in the gas auction and the absence of any impact of the release of volumes under long-term contract.”
Indeed Ruhrgas managed to keep almost totally the 20% of the volumes under long term contract. According to Ruhrgas customers in cases the where they really wanted to switch supplier Ruhrgas shifted the volume risk totally to the 20% without decreasing the price for the rest of the contract where the risk was lowered. WINGAS labelled it “a very clever program of strengthening customer relations”. For Wulf Bernotat, the c.e.o. of E.ON it was a way of “demonstrating, that Ruhrgas’s long-standing relationships with resellers and end-customers offer compelling advantages to both Ruhrgas and its customers,” he said, speaking at the annual shareholder meeting at the end of April.
Bayerngas will (at least this year) not opt out of one third of the procurement contract. One reason rumoured in Munich is the fear of a retaliation strategy of Ruhrgas in Bavaria where Ruhrgas in that case may approach distribution companies and resellers directly. swb AG has yet to make a final decision but market sources say that Ruhrgas makes it difficult to source from a new supplier.
Perhaps it is too early for a final conclusion. At least the gas release programmes remain on the agenda and companies’ strategies may change. It is certainly not unusual that Ruhrgas pursues its own interests. But until now the obligations imposed by the ministry has not created any new momentum in the German gas market. Even some incumbents are frustrated by that fact.
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