Electrabel N.V.

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Electrabel N.V.

Blvd. du Regent 8
Bruxelles
B-1000
Belgium
Telephone: + 32 2 518 61 11
Fax: +32 2 518 64 00
Web site: http://www.electrabel.com

Public Company
Incorporated: 1892 as Compagnie Hydro-Electrique Anversoise
Employees: 14,642
Sales: EUR 10.85 billion ($13.39 billion) (2003)
Stock Exchanges: Euronext Brussels
Ticker Symbol: ELEB
NAIC: 221122 Electric Power Distribution; 221210 Natural Gas Distribution; 221310 Water Supply and Irrigation Systems; 221330 Steam and Air-Conditioning Supply; 515210 Cable and Other Subscription Programming

Electrabel N.V. is Belgium's dominant electric power producer, controlling more than 95 percent of all domestic power generation and distribution. In Belgium alone, Electrabel produces nearly 13,000 MW from a diverse park of nuclear, hydroelectric, coal, and gas-fired and wind-powered generation plants, serving nearly four million customers. Electrabel also has powered itself into the ranks of Europe's top five power companies, with an additional 16,000 MW of generation capacity outside of Belgium. Electrabel's international operations include The Netherlands, Luxembourg, France, Spain, Portugal, Germany, Poland, Hungary, and Italy. The company's total output amounted to more than 137,000 GWh in 2003, with Belgium accounting for about 60 percent of that total. Together, the company's operations produced revenues of EUR 10.85 billion ($13.39 billion) in 2003. Listed on the Euronext Brussels Stock Exchange, Electrabel is majority controlled by France's Suez, and operates within that company's Tractebel subsidiary. In the early 2000s, Electrabel and Suez have been negotiating a transfer of Tractebel's European power generation operations to Electrabel so that Tractebel can concentrate on its international holdings beyond Europe. As of 2004, Tractebel's holding of Electrabel topped 55 percent.

Emerging Belgian Power Leaders in the 1900s

Electrabel in the 2000s represented more than 100 years of consolidation in the Belgian power sector, creating the country's dominant electrical power supplier and one of Europe's top energy companies. The earliest member of the future Electrabel family was founded in 1892 as the Compagnie Hydro-Electrique Anversoise. Backed by a starting capital of BEF 2.75 million, that company focused on generating electrical power for the Antwerp market.

In 1905, the Antwerp-based group formed a joint venture with the city's tram operator, Compagnie Generale des Tramways, to build and operate an electrical power generating plant in the town of Merksem, outside of Antwerp. The new company was named Electricteitsmaatschappij der Schelde (EMS). By 1908, EMS had completed the new plant and had begun providing power to Antwerp.

EMS ultimately became the dominant power producer in Antwerp, supplanting Compagnie Hydro-Electrique Anversoise in the Flemish-speaking city. In 1956, EMS orchestrated a merger with three other power generating companies in the Flanders region, including Société d'Electricité de l'Escaut, founded in 1905. The merger created a new publicly listed group, Sociétés Reunis d'Energie du Bassin de l'Escaut, or EBES SA. The following year, EBES made its first acquisition, buying Société d'Electricité du Littoral.

By then, many of the other members of the later Electrabel had also been formed. One of the largest of these was founded in 1901 as Société Intercommunale Belge d'Electricité, or INTERCOM. Starting with a capital of just BEF 300,000, INTERCOM was a major motor for the development of Belgium's electrical power market. INTERCOM itself launched a number of regionally operating power generating and distribution companies. For the most part, INTERCOM's earliest power generation capacity was distributed to customers through INTERCOM's subsidiaries. In 1921, however, after building a new generator at Monceau-sur-Sabre, INTERCOM began direct distribution operations for the first time. However, INTERCOM restricted this activity, at least initially, to its institutional customers.

In the years following World War II, INTERCOM began a long series of acquisitions, culminating in the 1961 merger with Gazelec. Other INTERCOM purchases included Henelgaz, Société d'Electricité du Nord de la Belgique, and Compagnie Belge pour l'Exploitation du Gaz et de l'Electricité. These acquisitions helped propel INTERCOM into the top tier of Belgium's still fragmented power generation industry.

Another major Belgian power group also emerged during this period. In 1933, two Meuse region power generators, Centrale Electrique de l'Entre Sambre et Meuse and Société d'Electricité de la Region de Malmedy, merged to form Centrales Electriques de l'Entre Sambre et Meuse et de la Region de Malmedy. That company became more familiarly known as Esma.

Esma too began a growth drive in the 1950s, as Belgian power consumption soared during the long period of economic prosperity. In 1956, Esma bought Compagnie d'Electricité des Ardennes, as well as the Centrale d'Electricité, Eau et Gaz de Malmedy. By 1960, Esma had added several more companies, including Compagnie des Distributions Electriques and the Compagnie d'Electricité de Walcourt et Extensions. Featured among Esma's acquisitions were two Luxembourg-based companies, Société d'Electricité de la Province du Luxembourg and Compagnie Luxembourgeoise d'Electricité. Following these purchases Esma adopted the new name of Société d'Electricité de Sambre et Meuse, des Ardennes et du Luxembourg—or Esmalux, for short.

Esmalux consolidated its position as an emerging power generation and distribution leader with three new acquisitions in 1962, Electricité du Val de Poix, Electricité de Bastogne, and the J. Lambert company. In 1971, Esmalux grew again, acquiring Electricité de la Vierre. Then, in 1976, Esmalux joined a three-way merger with UCE LinaluxHainaut and Compagnie Nationale d'Eclairage—founded in Brussels in 1906—forming UNERG.

Unified Power Leader in the 1990s

The Belgian power market moved steadily closer to consolidation through the 1970s and 1980s. UNERG, INTERCOM, and EBES emerged as the country's three major privately held power generation groups. INTERCOM had grown during this period through the 1976 acquisition of Union Intercommunale des Centrales Electriques du Brabant, and the purchase of Intersambre in 1982. UNERG in the meantime added the Société de Production d'Electricité d'Amercoeur that same year. The company also began developing electricity generation and gas distribution operations outside of Belgium.

In the mid-1980s, INTERCOM and UNERG launched an effort to restructure the country's power generation grid. In 1985 the two companies agreed to an exchange of customers in an effort to coordinate their territories of operation. Under terms of that agreement, INTERCOM picked up UNERG's industrial customers in the Hainaut area, while INTERCOM transferred its own industrial customers in Liege to UNERG. Following that agreement, INTERCOM picked up a new subsidiary, Electricité de Herve, in 1986.

The Belgian power sector, however, remained fragmented. The approach of European economic unification, however, placed new pressure on the sector to consolidate. Under terms of the unification process, trade barriers were slated to be lowered in the early 1990s. Barriers to cross-border utility ownership were also lowered, leading up to the opening of national power markets—typically operated as government-owned monopolies—to competition.

Talks began among Belgium's three power generation leaders, and by 1990, EBES, INTERCOM, and UNERG had reached an agreement to merge their operations into a single company, renamed as Electrabel. Also joining the merger were a number of smaller companies, including Société d'Electricité d'Eupen et Extensions, Sautrac, and Interescaut. Two other companies joined Electrabel by the end of 1991, Electro-nucleaire and Antwerpse Gasmaatschappij. While INTERCOM and EBES were absorbed completely in the new company, UNERG contributed its electricity production and transmission business, then changed its name to Powerfin in order to continue building up its gas and electricity operations outside of Belgium.

Emerging European Leader in the New Century

By 1992, Electrabel had consolidated its near monopoly status in Belgium. The company then accounted for nearly 95 percent of all of Belgium's electricity supply. The company, which had a market capitalization worth some BEF 304 billion, was also profitable, with net profits topping BEF 22.5 billion that year.

Company Perspectives:

Strategy

Electrabel is determined to pursue its development in Europe whilst remaining the leader in Benelux. It is constantly improving its performance in all of its business segments and at all levels. Whatever the country or the customer segment concerned, its objective is to provide its customers with quality local products and services.

To achieve this, it forms alliances with local partners and draws on its strength as a major European company. In the production field, Electrabel intends to reinforce its profile as a "low cost producer," in particular by using its trading assets. Its objective is to increase sales without increasing production resources to the same degree.

Finally, the company is guided by four constant values: customer-orientation, performance, caring for staff and a sense of responsibility.

The European power generation market braced itself for the coming competition. While many of the European Union members dragged their feet on liberalizing their domestic energy markets, the Benelux countries moved forward, signaling the start of a new era of European energy consolidation. Electrabel quickly joined in that process, buying 80 percent of the largest electrical power generator in The Netherlands, EPON, in 1999.

Electrabel next turned to Spain, entering a takeover battle with U.S.-based TXU to acquire Hidroelectrica del Cantabrico S.A., that country's fourth largest utility. Although Electrabel gained a 10 percent stake in Cantabrico in 2000, the two sides agreed to end the takeover effort. Electrabel profitably sold its stake in Cantabrico the following year. Instead, Electrabel acquired Dutch power distribution group Spark Energy in 2001.

Electrabel itself had gained new owners. In the mid-1990s, Tractebel, formed from Belgium government-owned Société Générale, had acquired a 40 percent stake in Electrabel. When Tractebel faced a hostile takeover attempt led by Italy's Silvio Berlusconi, the company was "rescued" by French white knight Suez, which took over both Tractebel and its stake in Electrabel. Suez quickly moved to increase its holding in Electrabel, boosting its position to 45 percent by the end of the century. By 2004, Suez had succeeded in gaining a clear majority, boosting its shareholding to 50.1 percent. Electrabel in the meantime operated as a subsidiary of Tractebel.

Electrabel's European expansion plans were given a strong boost from its new owners. In the early 2000s, Tractebel transferred a number of its European power generation facilities to Electrabel. In this way, Electrabel was able to extend its range of operations to Germany, Italy, Hungary, Spain, Portugal, and elsewhere. At the same time, Electrabel, Tractebel, and Suez began discussions over the transfer of all of Tractebel's European energy operations to Electrabel, so that Tractebel would be able to concentrate on its overseas operations. By 2002, the parties had hammered out a basic agreement.

In 2002, Electrabel increased its profile in Italy with a cooperation agreement with that country's Acea, which included Electrabel buying a minority stake in the Italian power producer. Electrabel also began investing in new clean energy capacity, buying a 250 MW wind farm portfolio in Portugal and a 175 MW wind farm portfolio in Italy from Gamesa.

Electrabel also expanded into France, acquiring a stake in Compagnie Nationale du Rhône (CNR). In 2003, Electrabel stepped up its position in that company, the second largest power generator in the country, buying the 22 percent held by government-owned Electricité de France. As a result, Electrabel's stake in CNR neared 48 percent.

Electrabel next turned to Poland as that country, which joined the European Union in 2004, prepared to liberalize its own energy sector. Electrabel appeared a strong candidate to acquire a number of the country's soon-to-be privatized electricity distribution companies. In the meantime, the transfer of Tractebel's European assets to Electrabel was put on hold in early 2004, after the parties were unable to reach an agreement on the price of the transfer. Nonetheless, by then Electrabel had established itself as Europe's fifth largest power generation and distribution group, with annual sales of nearly EUR 11 billion, covering most of the key European markets.

Principal Subsidiaries

Aquinter S.A.; Cocetrel S.C.; Electrabel Customer Solutions S.A.; Electrabel Finance S.A. (Luxembourg); Electrabel Netten Vlaanderen S.A.; Twinerg S.A. (Germany); Electrabel Deutschland AG; Energie SaarLorLux AG (Germany); Castelnou Energia S.L. (Spain); Electrabel España S.A.; Hidrobages S.A. (Spain); Electrabel France S.A.

Principal Competitors

Royal Dutch Petroleum Co.; Enel Distribuzione S.p.A.; Stockholms Stad; Termoelectrica S.A; ENEL S.p.A.; TRACTEBEL S.A.; Alcatel; E.ON Energie AG.

Key Dates:

1892:: The founding of Compagnie Hydro-Electrique Anversoise leads to the formation of EMS in 1905.
1901:: INTERCOM is founded.
1933:: The merger of two electricity companies forms Esma (Centrales Electriques de l'Entre Sambre et Meuse et de la region de Malmedy).
1956:: EMS leads a merger with three other companies to form EBES (Sociétés Réunies d'Energie du Bassin de l'Escaut).
1960:: Esma acquires four companies, including two Luxembourg companies, and becomes Esmalux.
1961:: INTERCOM acquires Gazelec and becomes one of the top power companies in Belgium.
1976:: UNERG is created through the merger of Esmalux with Electrogaz, and others.
1990:: INTERCOM, UNERG, and EBES merge to form Electrabel.
1999:: Electrabel acquires 80 percent of The Netherlands' EPON.
2001:: Electrabel acquires Spark Energy in The Netherlands.
2003:: The stake in Compagnie Nationale du Rhône in France is increased to 48 percent.
2004:: Electrabel plans to enter the Polish power market.