EnBW CEO Warns New Tax Could Jeopardize Nuclear Generation

FRANKFURT -(Dow Jones)- Germany's plans to impose a tax on nuclear fuel rods could jeopardize the "viable operation" of the country's nuclear power plants, Hans-Peter Villis, chief executive of the country's third-largest utility EnBW Energie Baden-Wuerttemberg AG (EBK.XE), said Friday.

His comments are the starkest warning yet from one of the country's four nuclear operators that the levy could herald the end of nuclear power generation in Germany.

The government plans to impose taxes on nuclear power plant operators are part of a package to cut public budget deficits. The duty on nuclear fuel rods is expected to contribute EUR2.3 billion in tax income a year--a total of EUR81.6 billion between 2011 and 2014.

The country's nuclear reactors are operated by EnBW, E.ON AG (EOAN.XE), RWE AG (RWE.XE) and Vattenfall Europe AG (VTT-XE).

"The tax proposed by the federal government on fuel rods in nuclear power plants...would cost EnBW somewhere between around EUR500 million and EUR700 million a year based on the information currently available," EnBW's Villis said in the company's second-quarter earnings report.

Analysts expect E.ON and RWE to bear the brunt of the levy--around EUR900 million and nearly EUR700 million, respectively. The smaller reactor operators EnBW and Vattenfall would be burdened with around EUR460 million and EUR230 million per year, according to analyst estimates.

Demonstrating the challenges the tax would present for utilities, RWE's Chief Financial Officer Rolf Pohlig in June didn't rule out cutting its investment plans and dividend payments to shareholders if the tax were imposed.

RWE and rival E.ON declined to further comment on the tax.

The Finance Ministry, which is in charge of the nuclear fuel tax plan, wasn't immediately available to comment.

Investor reaction to the tax plan has been negative. Since the government first proposed the nuclear fuel rod tax on June 7, E.ON and RWE have underperformed the Dow Jones Utilities Titans 30 index by around six percentage points.

Compounding the uncertainty, the government hasn't clarified whether or not it will extend the life-span of reactors as part of the tax package.

Germany is in the process of gradually phasing out all of its remaining 17 nuclear reactors by around 2022, but the government has said it plans to extend their operating lives to help achieve its ambitious climate-protection targets.

By 2020, the country wants to reduce carbon dioxide emissions by 30% compared with 1990 levels, a target analysts said will be difficult to achieve without nuclear, which accounts for around 25% of Germany's electricity output and produces fewer greenhouse gases than coal or natural gas.

The draft law for the levy, seen by Dow Jones Newswires, suggests that nuclear operators will have to make concessions beyond the tax payment for longer nuclear lifespans.

The government and numerous leading politicians in Chancellor Angela Merkel's Christian Democratic party have repeatedly said that the tax on nuclear fuel rods will be linked to a planned extension of reactor operating lives. But the government also has said it intends to claim at least half of the earnings operators would generate from longer reactor lives.

Still, the nuclear fuel rod tax itself is "likely to offset all the benefit of a 10-year life extension," Nomura analysts said last week in a note to clients.

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com

(END) Dow Jones Newswires

07-30-10 1052ET