Enel and E.ON to Battle over Russia as the Next Frontier

Today the Financial Times is running a rather laudatory executive interview with Fulvio Conti, who heads up the Italian energy group Enel. The majority of the interview is dedicated to a discussion of what is considered to be Enel’s greatest coup – beating out the E.ON bid for the Spanish company Endesa, providing them with diverse electricity assets stretching from Spain to Portugal to Latin America. In the interview, Conti reveals that the compromise deal was possible via a private, face to face agreement with the embattled E.ON Chief Wulf Bernotat, who was happy to accept a diverse collection of assets in Spain, Italy, and France after having had a number of setbacks and other failed acquisitions. While the Endesa affair was certainly one of the most dramatic chapters in the current saga of European energy competition, now the national champions look like they are willing to do anything to establish themselves on the next battleground: Russia.

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Little do these companies know that it is Russia that will establish its interests through them. Conti, who some will recall outrageously obeyed the Kremlin’s boycott of not attending his own speaking engagement at the London Economic Forum, helped Enel become one of the first foreign firms to own stolen Yukos assets. E.ON, on its behalf, has shown that it’s hunger for natural gas to pump into its combine cycle electricity generation plants across Europe knows no bounds. The company has aggressively pursued pipeline deals with Gazprom including the NordStream, and has even followed the Kremlin’s orders to speak out in defense of Russia’s interests at the cost of European energy security. Enel just recently outbid E.ON yet again for a 25% stake in OGC-5, a Russian electricity generator. In his FT interview, Conti boasted of the Endesa deal’s “transformative” impact on the company, and the importance of spreading regulatory risk. Well, it seems that Enel is going to need that diversification for how much they are sinking into Russia. This competition between Enel and E.ON in Russia to acquire as much as possible as soon as possible raises many concerns. First, it is evident that they are willing to tolerate higher levels of risk as long as they are able to beat their competitor to access a market. Second, it is exceptionally clear from the fawning public statements and gestures made not only by E.ON and Enel executives, but also Wintershall, Royal Dutch Shell, BP and others, that a big part of the deal of doing energy business with Russia is proximity to power – you must go home and sing the praises of the Tsar.