PowerGen favoured to buy eastern German firm

POWERGEN's attempt to break into the German energy market received a large boost yesterday after it was installed as favourite to buy a big lignite producer in the former East Germany.

The Treuhand privatisation agency confirmed that it was negotiating the sale of Mitteldeutsche Braunkohle (Mibrag) exclusively with PowerGen and its American partner, NRG Energy.

The Treuhand is confident that the sale will be concluded within six months. It said a rival western German consortium was out of the running.

The consortium has offered about DM1bn ( pounds 417m) for Mibrag, which broke even last year with production of 35 million tonnes and sales of DM1.6bn.

As with many companies being sold by the Treuhand, Mibrag needs massive modernisation and environmental clean-up investments in the short term. However, analysts emphasised that long- term prospects were good for a cheap energy source such as lignite. Much of the slimming-down needed is already in place. Mibrag employs 15,000 people, down from 57,000, with a further 5,000 jobs already scheduled to be cut this year.

The Treuhand said the PowerGen consortium had scrapped plans to build two power stations near Leipzig to burn Mibrag coal.

Instead, it was now talking to Veba, a German firm that is buying the other main eastern German lignite mining company, Lausitzer Braunkohle, about sharing the construction of a power plant near Schkopau.