Vattenfall’s entry into the Polish market
Vattenfall is a state-owned company. It is wholly owned by the Swedish government. Today Vattenfall is the fifth largest electricity producer in Europe and the largest generator of heat.1 It acts in all parts of the electricity value chain: Vattenfall is active in electricity trading and generates, distributes and sells heat as well as it is active in services and consulting for the energy sector. Vattenfall has directly or indirectly 5 million customers and is active in Sweden and Finland as well as in Germany, the Baltic countries [...]
Table of Content
1)Basic facts about the company Short history of Vattenfall with focus on Poland
2)Motives for the operation; selection of entry mode
Motives for the operation
Selection of entry mode
4)Challenges and surprises vs. opportunities in the market
5)The impact of formal and informal institutions
1) Basic facts about the company
Vattenfall is a state-owned company. It is wholly owned by the Swedish government. Today Vattenfall is the fifth largest electricity producer in Europe and the largest generator of heat.1 It acts in all parts of the electricity value chain: Vattenfall is active in electricity trading and generates, distributes and sells heat as well as it is active in services and consulting for the energy sector. Vattenfall has directly or indirectly 5 million customers and is active in Sweden and Finland as well as in Germany, the Baltic countries, Poland, Austria, Holland, the Czech Republic, Southeast Asia and South America. Vattenfall employed 32.231 employees in 2005. The company recorded revenues of approximately $13.7 billion during the fiscal year ended December 2005. The net profit was approximately $2.6 billion during fiscal year 2005.2
Short history of Vattenfall with focus on Poland
1909 - The Birth of Vattenfall
The parliament's decision to establish Kungliga Vattenfallstyrelsen (the Royal Waterfall Board) indicated the state's wish to engage actively in electricity production. Trollhättan Canal and Waterworks Administration became the Royal Waterfall Board, marking the birth of Vattenfall.
1980s - Low consumption and deregulation
Conditions for all power companies changed with the sharp decline in electricity consumption from the mid-1980s onwards. Great Britain and Norway undertook electricity market reforms around 1990, and the EU Commission affected development through the 1990 Transit Directive.
1996 - Competition introduced
Vattenfall’s monopoly in the Swedish market ended with the deregulation of 1996. This deregulation has resulted in substantial changes in the constitution and operation of the energy industry. At this time Vattenfall started planning to expand its business in other countries, as many countries in Europe had either deregulated or were on the way to deregulate their energy market. Vattenfall moved outside the Nordic area, acquiring the Finnish network company Hämeen Sähkö. An office was opened in Hamburg and efforts to consolidate Vattenfall’s brand intensified, raising awareness of Vattenfall among stakeholders and the general public.
1997- 2001 - International expansion
In 1997, Vattenfall’s growth strategy was initiated with the vision to be a leading European energy company. Deregulation of the German electricity market occurred in 1998. Vattenfall acquired a majority of east-German company holdings. In 2000 Vattenfall became a major player in Poland by acquiring Warsaw's electricity and district heating company, Electrocieplownie Warszawiskie (EW), and Poland's largest electricity supplier, GZE.
2) Motives for the operation; selection of entry mode
Motives for the operation
With the Swedish deregulation of the electricity market in 1996 Vattenfall started planning to expand its business in other countries. Vattenfall had the ambition to become a leading supplier of energy in Europe. To reach this goal, Vattenfall concentrated firstly on the neighbouring countries around the Baltic region. Geographical proximity is an important factor in the internationalization strategy of the Swedish firm. The Polish market is a very attractive one:
“Following its recent entry into the European Union - and notwithstanding its thriving economy - the Polish electricity market is set to attract considerable interest. After all, with a population of more than 38 million, it dwarfs the other nine new entrants, while its location is ideal, especially as Europe moves imperceptibly eastwards. […] In overall terms, Poland has the largest power system in central Europe. […] Even with this slight slowdown, Poland’s market is forecast to grow faster than the European average.”3
Selection of entry mode
Vattenfall had been active in Poland since 1992. At first it had a representative office, and since 1995 its representation has consisted of a limited liability company. Vattenfall Poland was the first foreign company to be granted a licence for electricity trading throughout Poland. Its main functions were to observe the market and to get ideas about Polish laws and regulations, especially those concerning foreign firms’ operating scope in the country. Polish deregulation in the field of energy and power was enacted in 1998 and Vattenfall was already prepared for that.
Three joint ventures
Vattenfall got involved in two joint ventures. It acted as an investor in the energy fields as well as a contributor of knowledge and competence to ensure efficiency in production and marketing of its products.
Vattenfall entered in the first joint venture (Ostrowski Energy Utility) in 1998 to supply heating in the southern part of Poland. In the second joint venture (Ustka Energy Utility) Vattenfall owns 34% of the shares. The equity ownership was bought by Vattenfall in 1999 also to supply heating in some other parts of Poland.
Due to this experiences and knowledge Vattenfall was chosen as the technical advisor for the start-up of a combined heat and power plant. The cooperation started in 1999. Initially, Vattenfall rendered advisory services in the field of heat and power plant management. Thanks to this successful cooperation between Vattenfall was chosen by the strategic investor WZP in Poland to be the advisor for the modernization of WZP’s heat and power plant. Vattenfall was responsible for the technical and organizational restructuring of the plant.
It was also involved in a project to create a high voltage link between Poland and Sweden.
In 2001 Vattenfall took another step in its expansion in Poland by buying Górnośląskie Zakłady Energetyczne (GZE) the first electricity distribution company to be put up for sale by the government.
In 2004 the company has invested $ 305 million in Poland making it the fifth largest investor in the country. Its strategy today is:
“After a period of rapid growth, Vattenfall has been working to consolidate its operations since 2001. This work has primarily consisted of two aspects: improving the company’s ability to create value and to integrate and consolidate acquired companies.”4
1 Warsaw Business Journal, http://www.wbj.pl/cf/cf_sn_05/articles/1.htm
2 Figures from Company Website, http://www.vattenfall.com/www/vf_com/vf_com/Gemeinsame_Inhalte/DOCUMENT/360168vatt/417846keyx/P 02.xls
3 Warsaw packed, Hawkins, Nigel, 11/12/2004, Vol. 22, Issue 17
4 Company website, http://www3.vattenfall.com/annual_report_2005/filter.asp?filename=page_005.html