German Budget Woes Scupper Full Buyout of Tennet Power Grid

(Bloomberg) -- Chancellor Olaf Scholz’s ruling coalition ditched a plan to buy the entire German unit of Tennet Holding BV’s power grid, after the cost proved too much for the government’s stretched finances.

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Discussions on a full sale by the Dutch state-owned grid operator to German development bank KfW have ended after more than a year of negotiations, Tennet said Thursday in a statement.

The government in Berlin had hoped the deal would mark a first step in consolidating the country’s four power grids and accelerating the energy transition, as it needs massive investments to link offshore wind power produced in the north with its industrial heartland in the south.

But after years of crisis firefighting, policymakers are facing constraints on spending, with the deal at one point said to be valued at around €22 billion ($23.6 billion). Late last year, a court ruling on off-budget funds forced the government to recalibrate its fiscal plans, exacerbating the squeeze and leading to significant delays in the talks on the Tennet stake.

“I regret that it was not possible to merge these four transmission system operators into one company, as this would have ultimately made electricity in Germany cheaper,” Economy Minister Robert Habeck told reporters Thursday during a visit to South Korea. “That doesn’t mean that we shouldn’t start working on another solution immediately.”

Philipp Nimmermann, one of Habeck’s deputies, said that given Tennet Germany’s “important role in the energy transition,” the government is still interested in a “strategic minority stake” as part of a consortium.

“We therefore remain in close dialog with the Dutch government,” Nimmermann said in a statement distributed by the ministry.

Tennet had been exploring alternative plans to offload its German operations in case the deal fell through. Last month, it said a sale to private investors or an initial public offering were among options. The Dutch government had given Germany a deadline of July 1 for the purchase, and officials from both countries met on Wednesday.

Tennet said it remains fully committed to executing its large investment plans in both countries, backed by the Dutch state.

“The federal government of Germany has informed the Dutch state that it cannot deliver on the planned transaction due to budgetary challenges,” according to the company’s statement. “The German government is committed to support such alternative solutions.”

The failed sale leaves the Netherlands with a €1.6 billion hole in its 2024 budget, Dutch Finance Minister Steven van Weyenberg said in a letter to parliament. An additional solution is needed for Tennet’s short-term financing needs until an alternative is found, he added.

The purchase was contested domestically for months within Scholz’s fractious three-party coalition, with Habeck of the Greens, who is also vice chancellor, pushing for a full purchase of the grid.

While the deal wouldn’t have been reflected in Germany’s federal budget per se — the coalition had agreed to finance the purchase via loans from KfW — the parties couldn’t agree on which ministry will take over the repayments.

With tense budget talks for 2025 ongoing, the pro-business Free Democrats feared that a purchase of the Tennet grid would not go down well with voters who expect the party to stick to its course of strict fiscal austerity.

--With assistance from Wout Vergauwen, Diederik Baazil, Kamil Kowalcze, Cagan Koc, Eyk Henning and Christoph Rauwald.

(Updates with German deputy minister starting in sixth paragraph)

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