In 2009 A2A chose to invest in Montenegro on the basis of two fundamental industrial objectives.
To acquire new capacity from renewable sources, in particular hydropower, and to safeguard a geographic area that is becoming more and more integrated into the Italian and European system, thanks to the interconnection between Italy and Montenegro by a 1000 MW undersea cable that Terna is realising. Hydropower has always been one of the main strengths of A2A (about 2 GW installed), and in Italy there are no significant opportunities for new large-scale plants of this kind. Montenegro is already a major hydropower producer (almost 670 MW, equal to ¾ of the installed capacity in the country) and has great potential for further development (estimated at 1.3 hydroelectric GW).
On the basis of the objectives stated at European level furthermore, Italy had to import 12 billion kilowatt-hours of energy from renewable sources. The Italian government stated at the time that 6 would have to be derived from the Balkans.
In January 2009 the Government of Montenegro started the process of opening up the capital of the company to a strategic partner. The Privatisation Council of Montenegro and the Agency for Restructuring and Foreign Investment in Montenegro, along with EPCG, made use of a team of international and local advisors led by UniCredit Markets & Investment Banking.
The tender provided for the sale by the Government of Montenegro of approximately 11.5 million shares and the subscription by the strategic partner of a capital increase of 11.5 million shares. As a result of such operation, the new member would then have a holding of 18.3% of EPCG.
Within the framework of the transaction, there was also an obligation on the part of the buyer to offer a bid for the remaining shares of the company held by minorities on the basis of the same conditions defined by the Government of Montenegro. In the event of complete acceptance by minorities, the new investor could hold a maximum share of 45% of EPCG.
In addition to A2A, the tender saw the participation of other international groups: a Greek consortium consisting of the leader, the Public Power Corporation and the Restis group who, having made a binding purchase bid against the rules of the tender was disqualified from the procedure (despite having offered a higher price), the Norwegian NTE and Russian Inter Rao, were excluded by reason of insufficiencies in the documentation submitted.
A2A was assisted by Mediobanca as financial advisor and by the law studios Cleary, Gottlieb, Steen & Hamilton and Morrison & Associates (along with local law studios) for the legal aspects.
At the conclusion of the tender and the subsequent public bid for purchase, A2A acquired 43.7% of EPCG, assuming the management in their capacity as industrial partner. The contract for the operation was signed by A2A and the State of Montenegro on 3 September 2009. The important parts of the contract were communicated by A2A press releases at the time. The contract, subject to approval by the Government of Montenegro, was then made public and is now contained on the website of the Government of Montenegro - Council for Privatisation.
The transaction involved a total investment of approximately €436 million, comprising the shares purchased from the Government of Montenegro, the capital increase planned for EPCG, the shares acquired from minority shareholders following the tender and the operations performed during the process of the tender itself. On May 26, A2A had collected about 16% of EPCG in various operations on blocks on the Montenegrin stock market.
In July 2014, an operation was completed that, by increasing the capital for the government of Montenegro, its overall effect was to compensate between EPCG's receivables from the largest defaulting energy industry customer in the country and a number of EPCG's tax liabilities for a total amount of about € 45 million. Following this operation, the shares within the company changed slightly, leading the government of Montenegro to hold about 57% and A2A 41.75% of the shares, with A2A’s same management rights retained.
The offer price was determined on the basis of the assessment carried out by the advisor Mediobanca and also taking into account the capital value of EPCG, below which the Government of Montenegro would not have sold the quota especially if you consider that a part of the privatisation was carried out through an increase in capital.
Relations with the Montenegro authorities have always been centred on an open discussion of the topics having priority for EPCG at EPCG Board of Directors’ meetings on the one hand, and during various official meetings on the other. Naturally EPCG and A2A have had confrontations over the past 5 years with several unfavourable framework conditions, considering that between the end of 2009 and the end of 2011 energy tariffs fell by about 30% and that EPCG actually found itself supplying the country's largest industrial customer, the aluminium producer KAP, at an extremely low rate and below production cost, with a heavy impact on EPCG's profitability.
Starting from the end of 2014, close dialogue between the top management of A2A and the government of Montenegro began as the deadline for the shareholders' agreements approached, in an attempt to find a new agreement between shareholders that might meet several clear profitability criteria for A2A and for developing the country for the government. During 2015, some common ground was found and the existing agreements on EPCG's management by A2A were extended until 15 December 2015. In recent months, relations with the government have always been marked by utmost receptiveness and dialogue, in an ongoing attempt made by A2A to reach an agreement that can define EPCG's management according to new-shared criteria in the interest of both parties.
As at 31/12/2015 the investment in EPCG was stated at € 279 million in A2A's separate financial statements.
The flow of funds caused by the operation was performed according to the instructions contained in the bid and in the tender documents. The funds relating to the capital increase of EPCG subscribed by A2A (approx. € 96.2
million) were deposited into the account of EPCG at Prva Banka. The amount deposited by EPCG at Prva Banka reduced progressively over time, both as regards investments of EPCG in Montenegro, and because the amount deposited was partially redistributed to other banks.
EPCG is the only electricity producer and distributor in Montenegro. Since approximately 3/4 of the installed capacity consist of hydroelectric power plants, actual production depends much on weather conditions.
Considering the historical averages of the last 30 years, average production is about 3.1 TWh/year, of which 1.7 TWh hydroelectric.
The domestic demand for electricity in Montenegro has historically been about 4 TWh/year.
EPCG's operating results for the last six years are the following:
The negotiations with the government of Montenegro continue with the shared desire to find a final agreement in the forthcoming weeks, as a basis of preliminary agreement on several fundamental points in the interest of both Parties has already been found.