UPDATE 3-Oil refiner ERG to focus on renewables instead

Wed Dec 19, 2012 11:23pm IST

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* ERG to grow in renewables in Romania, Bulgaria, Poland

* Main owner says likely ERG will exit refining next year

* Shares end up almost 10 pct (Adds interview comments with executive, shares)

By Stephen Jewkes

MILAN, Dec 19 (Reuters) - Italy's ERG said it planned to invest 500 million euros ($661 million) to end-2015 as it presses ahead with a transformation from refiner to renewable energy company.

In its first business plan since 2008, the group said on Wednesday it would focus on investing in renewable energy projects mainly in Romania and Bulgaria as it looks to wind power to drive its business.

"We are focused on developing wind power with a good geographic mix," executive Deputy Chairman Alessandro Garrone told Reuters, noting that after a recent acquisition around 20 pct of its wind capacity was outside Italy.

ERG earlier said it expected its core earnings to be around 600 million euros in 2015 and confirmed a dividend policy, which in recent years has offered 0.4 euros per share.

"Our expectations for growth are already excellent. If we do better we'll grow the dividend," Garrone said.

ERG shares closed up 9.8 percent while the European utility index was up 0.2 percent.

Earlier this year the company bought a wind farm in Romania through its LUKERG Renew joint venture with Russia's Lukoil .

Garrone, a member of the family that controls 63 percent of the Genoa-based group, said ERG was also looking at Poland for possible growth opportunites.

ERG expects an average 13 percent equity internal rate of return in its renewables business, which is supported in Italy by incentives and a clear regulatory framework.

In December ERG agreed to buy wind assets from France's GDF Suez to become Italy's largest wind energy player and one of the top 10 in Europe.

Besides its renewables and refining businesses, ERG also has a joint venture with France's Total which manages a network of petrol stations.

Garrone said he expected consolidation in the sector in coming years, adding ERG would be "on the buying side."

ARRIVERDERCI REFINING

Garrone, whose family also owns Serie A soccer team Sampdoria, said he expected ERG to exit the refining business next October.

"I think it is likely. We can't predict the future but the path is fairly clear," Garrone said in an interview before he presented the company's 2013-2015 business plan.

The outlook for refiners, battered by weak demand and heavy competition from Asia, is clouded due to Europe's sluggish economy.

Italian refiner Saras recently signed a commercial agreement with Russia's Rosneft that some analysts think might pave the way for a sale of part of its refinery in Sardinia.

ERG expects to invest just 28 percent of its overall spending in the refining and marketing sector to end-2015.

The company has already sold most of its stake in a refinery in Sicily to Russia's Lukoil to reduce its exposure to the volatile industry.

It has an option to sell its remaining 20 percent to the Russian group in October 2013.

"We see confirmation of the exit from refining, the healthy free cash flow generation and the dividend policy and EBITDA visibility ... as supporting elements," a Milan-based broker said.

($1 = 0.7568 euros) (Additional reporting by Giancarlo Navach; Editing by Lisa Jucca and Anthony Barker)

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