December 2011 – Page 2 – The Irish Economy

All three ‘programme’ countries, Greece, Ireland and Portugal, are committed to privatisation of state assets.

In Portugal, the state owns 25.05% of EDP, a listed electricity generation, distribution and supply business, which also owns some gas operations. A slice of EDP’s operations are in Brazil, some in Spain, most in Portugal.

The state also owns 51.1% of REN, a listed business which owns the electricity transmission business and the high-pressure gas pipeline network in Portugal, as well as some LNG and gas storage operations. It has no significant activities outside Portugal. Both EDP and especially REN embrace regulated activities. Both gas and electricity were originally state-owned in Portugal.

The government has announced the sale of 21.35% of the shares in EDP to the Three Gorges power company of China for €2.7 billion, which will leave the government with less than 4%. The shares are widely held and Three Gorges will be the biggest shareholder. The government has also announced its intention to sell part of its stake in REN, presumably taking it below majority ownership.

These developments are interesting in view of the Irish government’s decision to eschew vertical separation at the ESB and to seek to sell a minority stake in the existing company. Portugal went for vertical separation of the network companies some years back, along the lines of the recommendation for Ireland in the of the Review Group on State Assets which reported in April 2011, and has now decided to exit ownership in powergen/supply more or less altogether. In addition, they seem willing to go below majority control of REN, the networks business. The State Assets report recommended retention of state ownership, at least for the time being, in these businesses.