PGE and PGNiG seen as frontrunners to buy Fortum's Polish assets - sources

WARSAW/FRANKFURT (Reuters) - Poland's biggest energy group PGE and gas company PGNiG have emerged as frontrunners to buy Polish district heating assets from Finland's Fortum, people close to the matter said.

The Finnish state-controlled utility put its district heating assets in Poland and the Baltic states up for sale in September, seeking to streamline its business, sources said.

State-run PGE and PGNiG said last month that they had submitted an initial bid for Fortum's assets together with state investment fund PFR and IFM Investors.

However, the pair have since said they would not buy Fortum's assets outside Poland, and that PFR and IFM would no longer be a part of the consortium.

Two sources said that the Polish companies had a better chance of acquiring the assests than foreign rivals, including Macquarie, KKR and FSI, due to the support of the government, which aims to renationalise energy assets. One of the sources said that Fortum has short-listed the companies.

PGE, PGNiG, KKR and FSI declined to comment, while Macquarie was not immediately available.

A Fortum spokesman said its policy was not to comment on market rumours around possible future transactions. "We will inform on the matter if and when it becomes actual."

Under the rule of the Law and Justice (PiS) party Poland has increased control over its banking and energy sectors. In 2016 the energy ministry prevented the sale of France's EDF business in Poland to private investors, citing energy security concerns. Eventually Polish state-run utilities bought the assets.

"If the government wants state-run companies to buy the (Fortum) assets, they will do it," one of the sources said.

Following a meeting with Finland's ambassador in Warsaw, Poland's state assets minister Jacek Sasin was quoted as saying: "I am pleased to see that there are opportunities to 'repolonize' heating assets."

Fortum provides district heating in five Polish cities and operates two multi-fuel combined heat and power plants. In 2019, the sale of 3.3 terawatt hours (TWh) of heat and 0.6 TWh of power generated EBITDA of 43 million euros.

Both PGNiG and PGE have plans to expand in Poland's heating sector and switch it to gas from coal.

(Reporting by Agnieszka Barteczko and Arno Schuetze; Additional reporting by Anne Kauranen in Helsinki; Editing by Kirsten Donovan)