Return from the State to REN does not guarantee tariff reduction, former ERSE alert

O the former president of the Energy Services Regulatory Entity (ERSE) believes that the acquisition of the position of Pontegadea, a company of the Ortega family, owner of Zara, by Parpublica allows the State to return to the shareholder structure of REN as a reference shareholder, although without holding control of management.

“ It can give you greater ability to follow and influence some strategic decisions and, eventually, representation in the social bodies ", said Vítor Santos à Lusa. With this participation, you can appoint an administrator (non-executive) for a total of 15.

The Chinese State Grid, with 25% of REN's capital, remains the largest shareholder, which is the maximum voting rights a shareholder can exercise.

According to Vítor Santos, the additional influence of the State should be analyzed taking into account the regulatory framework to which REN is subject.

The company manages granted infrastructure and is subject to certification as a network operator and has its investment plans subject to the intervention of ERSE and the Directorate-General for Energy and Geology (DGEG) and the approval of the Government.

“ Therefore, the essential issue is to realize what additional goals the State intends to achieve as a shareholder that it cannot achieve through energy policy, concessions and regulation,” said the person responsible who was president of ERSE between 2007 and 2017.

The former Secretary of State for Industry and Energy, in the Government of António Guterres, considers that the current energy and geopolitical context can justify a greater presence of the State in strategic infrastructure capital, highlighting the increasing importance of energy security, resilience of critical infrastructure and strategic autonomy.

“ There may therefore be strategic reasons for the State to want to be present in the capital of REN”, he said.

It also identifies risks, including the need to clearly separate the different roles of the State as a shareholder, grantee and responsible for energy policy, as well as the opportunity cost of public resources used for acquisition.

“ Thus, the question should not be raised in terms of public versus private ownership, but rather in terms of the concrete benefits that this participation provides in relation to its cost”, he argued.

With regard to a possible impact of State entry on electricity or gas tariffs, Vítor Santos does not establish a direct relationship between the operation and a decrease in prices.

“ I do not see a direct relationship between the acquisition of REN 13.7% by the State and a reduction in tariffs”, he said.

The revenues from REN’s regulated activities, recognised investments and asset remuneration are defined by regulatory mechanisms of ERSE and not by shareholders, he recalled.

“ There may be indirect effects if the new shareholder structure contributes to more efficient investments or lower financing costs. But these effects would have to be demonstrated,” he added.

The Prime Minister again said today that all elements relating to the re-entry of the State into the capital of REN will be made available for “the country’s scrutiny” and admitted that the operation may contribute, in the medium and long term, to reduce the cost of electricity.

In statements to journalists in Oeiras, Luís Montenegro said that the operation, which is still conditional on the granting of a visa from the Court of Auditors, will have to comply with the rules applicable to listed companies, stressing that the objective is to strengthen the productive capacity, distribution and integration of renewables, as well as strategic autonomy, allowing to optimize the network and reflect that improvement in access conditions.

The Prime Minister said that the combination of these factors to “medium and long term will have an effect on price”.

According to Vítor Santos, the Portuguese energy sector has changed significantly since the privatization of REN in 2014, mainly due to the return of energy security to the centre of European policy and the increasing importance of networks to integrate renewable energy, storage, interconnections, electric vehicles and large new consumers.

In its assessment, “these changes justify re-evaluating the strategic importance of the presence of the State in REN”, he considered.

Still, Vítor Santos points out that this development does not allow us to conclude that the acquisition of 13.7% is necessarily the best solution, arguing that this assessment depends on the cost of the operation, which has not been revealed, but the market price will amount to around EUR 320 million, the associated governance rights and the concrete benefits expected by the State.

“ In summary, REN is undoubtedly a strategic company, but this does not mean that a company in these circumstances necessarily has to have the State as its shareholder”, he said.