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Fortum CEO: We'll stick to climate strategy, even with coal-heavy Uniper

Pekka Lundmark, head of Finland's biggest energy group, says that buying a massive German fossil-fuel company makes sense for Fortum, despite the Finnish firm's commitment to move more into renewables.

Pekka Lundmark
Pekka Lundmark was interviewed on Yle's Ykkösaamu programme. Image: Janne Toivonen / Yle

The CEO of Finnish energy company Fortum has defended his company's attempt to take over the German energy giant Uniper.

The Finnish company has come under criticism due to Uniper's massive coal holdings, but CEO Pekka Lundmark says that if the deal goes through - against Uniper's will - that Fortum would eventually seek to get rid of the coal capacity. Interviewed on Yle TV1, Lundmark said that Fortum will not compromise its own environmental strategy.

According to Lundmark, the acquisition of Uniper is attractive enough to make it a worthwhile move for Fortum. The majority-state-owned group dominates the domestic market and is flush with cash.

Coal on its way out

"Uniper is a big company that operates in many countries. Yes, it has fossil fuel production, 30 percent of it from coal, [but] this doesn't mean that we like coal anymore than in the past. It will be taken care of in some way in various parts of Europe in time. But 70 percent of it is from other [sources]. As we see it, this is a very attractive opportunity to invest in a big European energy company," said Lundmark on Saturday.

Lundmark notes that Uniper's electricity production capacity is 3-4 times larger than that of all of Finland's power utilities. Fortum owns the Loviisa nuclear power plant as well as stakes in the Olkiluoto plant, others in Sweden as well as the planned Fennovoima project - where it replaced German giant E.ON.

Only positive options

Fortum's bid for Uniper is one that offers the Finnish firm only positive alternatives, argues the CEO. Fortum has made a binding bid for a 47 percent stake in Uniper, worth some 8.05 billion euros. That share is now held by E.ON. If E.ON refuses to sell, it would face a contractual penalty, says Lundmark.

"If [E.ON] doesn't sell, the compensation fee would be at least 750 million and at most 1.5 billion euros," he says.

Uniper rejected an earlier Fortum bid, so if the Finnish firm strikes a deal with E.ON, it intends offer all Uniper investors 22 euros a share in cash. At this point, any rival bid would need to be over 26 euros per share to be competitive, analysts say.

"Baffling" ad campaign

E.ON, Germany’s second-biggest power company, spun off its old fossil-fuel division as Uniper at the beginning of last year.

Uniper's management opposes the Finnish takeover, calling it hostile and going so far as to place ads in Finnish papers arguing that the deal would be bad for Fortum, and that Uniper's 80 percent reliance on coal and gas does not suit Fortum's strategy of moving more into renewable energy.

Lundmark described the ad campaign as "quite baffling", but reiterates that the purchase would be a good deal for his company.

Role of gas set to grow

"Our own calculations do not predict a very long lifespan for coal-fired power plants. We know that nearly all European countries will set getting rid of coal as a target," he says.

Lundmark says that many analysts predict some rise in electricity prices in the 2020s, partly due to Germany's decision to phase out nuclear power, the desire to get rid of coal and brisker emissions trading. At the moment Germany generates about 55 percent of its energy with nuclear and coal.

"If and when we want to get away from this, we need all options. We need plenty of solar and wind, as Germany doesn't have enough hydroelectric capacity. The importance of gas will grow a lot," Lundmark predicts, citing its role in quickly balancing out natural fluctuations in renewable electricity production.

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