Elusive Billionaire Mints It Betting Against Europe's Green Plans

(Bloomberg) -- The potential sale of German coal mines and power plants owned by Swedish energy giant Vattenfall AB had become a flashpoint before the negotiations even began. Many in Germany wanted to see the planet- warming facilities shut down, not passed to someone else. The would-be buyer was a small Czech company few had heard of.

At times, when the 2016 talks hit an impasse, one of the executives representing the buyer would make a phone call or send a WhatsApp message. On the other end was Daniel Kretinsky, an elusive Czech businessman who controls EPH Group. Kretinsky was always available but stayed in the background, according to a person familiar with the negotiations, who declined to be identified because the meetings in Berlin were confidential.

In the span of a decade, Kretinsky has used that discreet dealmaking style to assemble one of the largest portfolios of fossil fuel businesses in Europe. In the process, he’s moved millions of tons of carbon off the ledgers of the region’s highest-polluting energy companies and onto EPH’s books. EPH, of which he’s the majority shareholder, has become one of the largest polluters in Europe, the second-biggest coal miner in Germany and a major transporter of Russian gas into the continent.

Kretinsky was acting on a bold assumption: Europe’s vaunted green transition will be a messy, prolonged affair that requires burning coal and gas for longer than anticipated. The 47-year-old former lawyer has built a fossil fuel empire estimated at more than $17 billion by scooping up dirty assets at fire-sale prices from utilities rushing to decarbonize. Unencumbered by the investors and regulators that pressured those public companies to cut emissions, his privately held company has been able to freely reap the profits from burning dirty fuels. The gamble has paid off, for now, with the war in Ukraine stoking energy prices.

Kretinsky himself has amassed a personal fortune of more than $9 billion as of April 4, according to . That’s propelled him to oligarch heights, with a French castle and stakes in everything from Foot Locker and the UK’s Royal Mail to West Ham United Football Club, the French newspaper and other businesses. EPH didn’t respond to a question about Kretinsky’s wealth.

He’s one of the most striking beneficiaries of a worrying global trend: the transfer of publicly held fossil fuel assets into the arms of private businesses, which typically have looser climate goals and don’t answer to investors concerned about environmental, social and governance ( ESG) issues. Private entities acquired $13.6 billion worth of upstream oil and gas assets from publicly traded companies in 2022, a 31% jump from a year earlier, according to data compiled by consulting firm Wood Mackenzie for . A third of North Sea oil and gas infrastructure is already in private hands, according to Common Wealth, a UK nonprofit.

This pattern is extending the life of some of the world’s most polluting facilities and hampering Europe’s efforts to green its economy. It’s also a key reason carbon dioxide emissions often rise when fossil fuel majors divest.

Among those trying to profit while extracting as much as possible from polluting assets on their last legs, Kretinsky is one of the biggest winners. He’s “not the only one skeptical about the pace of Europe’s green transition,” says Jan Osicka, a professor at Masaryk University who’s studied Kretinsky’s acquisitions and estimated the size of his portfolio. But because he has resources others don’t, “he’s buying everything that smokes.”

Kretinsky became chair of EPH in 2009 after the private bank where he worked as a lawyer created the company to house a group of small Czech energy assets. His pivotal move came in 2013, when EPH took a significant stake in Slovakia’s Eustream gas pipeline, a reliable and steady source of cash. Over the next few years, Kretinsky snapped up coal mines in Germany and Poland, followed by more carbon-spewing assets in France, Ireland, Italy, the Netherlands and the UK.

In 2020, the year European lawmakers approved the world’s most ambitious climate plan, EPH was generating about half its electricity from coal and its plans to expand into gas outstripped those of every other European energy company, according to the environmental group Ember. The strategy worked. In 2021, EPH reported €18.9 billion ($20.4 billion) in revenue, rising more than €10 billion from the previous year, while the operating profit hit €1.5 billion. By June of last year, it had become the largest Czech company by revenue.

As his empire grows, Kretinsky has remained soft-spoken and inscrutable, according to those who’ve met him. “He’s not a rowdy vodka guy,” says Jerome Lefilliatre, a reporter at the French daily , who interviewed him in 2019. “When we met, he was drinking green tea.”

In that conversation, Kretinsky revealed that he collected Renaissance art, admired the financier J.P. Morgan and disliked journalists. (He declined to be interviewed for this story.)

Near the eastern German town of Jänschwalde, a steel machine twice as long as the Eiffel Tower carved a deep furrow in the soil one afternoon in March, exposing a rich seam of soft, brown coal known as lignite. The machine hasn’t stopped working since 1974, excavating a pit that’s grown to the size of Manhattan. Lumps of lignite, a particularly dirty fuel, moved in a seemingly endless line on a conveyor belt to a nearby power plant. As six giant turbines turned, plumes of water vapor mixed with invisible CO2 rose from 10 tall stacks.

The two facilities were part of the focus of the 2016 negotiations in Berlin that Kretinsky had closely monitored. Today they’re prized assets in his portfolio, belonging to a company called LEAG, which is 50% owned by EPH.

Details of the controversial transaction weren’t disclosed. According to estimates by Osicka, the Czech buyers paid only €29 million. That would be a steal considering the properties had assets worth €3.4 billion, against liabilities and provisions of €2 billion. The real coup for Kretinsky, however, was that the transfer included about €1.7 billion in cash that Vattenfall’s utilities had set aside to cover the future cost of dismantling the mines and restoring the land. And the German government said it would pay LEAG an additional €1.75 billion to switch off its lignite plants more quickly. The European Union is now investigating whether that compensation plan was based on correct assumptions regarding the bloc’s carbon price.

The deal marked a stunning milestone for Kretinsky, who learned it was possible to get paid to take on unwanted coal assets. Although operating dirty assets can hurt a company’s reputation, “it doesn’t mean you can’t make money from them,” says the person involved in the transaction who didn’t want to be identified. “It was a rational decision” for EPH to reap profits while it could.

Vattenfall was quick to boast that the divestment had expunged a huge chunk of carbon from its books. “We will lower our carbon emissions exposure by approximately 60 million tons, which is more than 70% of our total emissions in 2015,” Chief Executive Officer Magnus Hall said at Vattenfall’s 2016 shareholders meeting. But those emissions didn’t vanish. They just moved to EPH, where they slid further out of sight from regulators and the public.

EPH makes minimal disclosures on emissions, and its executives rarely give interviews. But data compiled by the Europe Beyond Coal campaign show the Jänschwalde operations continued to pump carbon into the atmosphere under EPH’s control, even as pandemic-era lockdowns caused energy consumption to plunge. From 2020 to 2021, emissions rose at each of four major German coal plants owned or co-owned by EPH, according to satellite and remote-sensing data analyzed by Climate Trace, a nonprofit group. Climate Trace didn’t study other major coal facilities in Germany, where emissions generally rose after pandemic lockdowns were lifted.

Kretinsky’s seeming quest for profits at the current expense of the planet has earned his company some unsavory nicknames. Czech nonprofit Re-set has dubbed EPH a “fossil hyena,” and Osicka and his co-authors called it a “scavenger” in their 2021 study, titled “The Coal Villain of the European Union?”

Still, even one of the biggest skeptics of Europe’s green plans appears to acknowledge it will one day be a coal-free economy. EPH is looking for ways to make money from cleaner alternatives including wind, solar and biomass. LEAG plans to close the Jänschwalde mine by the end of 2023 and wind down the power plant in the next few years. It wants to invest €10.2 billion to turn four lignite mines and four power stations in eastern Germany into a wind and solar hub, and it’s promised to recultivate the destroyed land that will be left behind.

EPH aims to be carbon neutral by midcentury, a spokesman says. By 2030 the company plans to cut its CO2 emissions by 60% from 2020 levels, and it’s invested or committed more than €2.4 billion to sustainable energy production, he says.

Fabian von Oesen, LEAG’s head of renewables, says that the company’s coal profits come with an expiration date. “Using coal to produce energy is a way that’s more than questionable,” he says. “It’s coming to an end.” The dilemma for investors such as Kretinsky is when to get out. EPH wagers that the end will come later than most of its peers expect. Germany’s RWE AG, for example, recently agreed to stop generating electricity from lignite by 2030. EPH has said it could keep burning coal in Germany until 2038.

It’s a bet that requires some nerve.

“It’s absolute folly to invest long term in fossil fuel assets,” says John Morton, a managing director at green investment company Pollination, who spent two years advising US Treasury Secretary Janet Yellen on climate change. “There will come a moment in the not-too-distant future when it will be incredibly difficult to offload these assets to the next guy.”

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