Energy is always a hot topic – especially when high prices set the agenda.  Even E.ON's CEO Wulf Bernotat isn't immune from the hikes. NEE reports on testing times for one of the world's biggest power brokers in the business.

Wulf Bernotat likes to smoke cigars.  It might not be healthy, but it does provide a neat insight into one of the world’s most powerful energy moguls. 

As CEO of E.ON the world’s largest power firm, Bernotat is a man who can afford foot-long Cohiba’s by the trailer-load – he was paid a whopping €4.1 million in 2007.  Yet Bernotat favours the lowly Sumatran Nobel; a diminutive cheroot hailing not from the thighs of virgins in Havana, but Denmark.

This is clearly a man who knows the value of a euro; all the more reason then for Bernotat to be irked about recent headlines… 

The German newspaper Die Welt reported in December 2009 that E.ON Ruhrgas is locked into a contract with Russian suppliers Gazprom.  The upshot is, Ruhrgas are obliged to buy quantities of gas at prices agreed before the slump.  The global downturn has put downward pressure on demand and Ruhrgas are facing a 30% fall in earnings over the deal.  Picture, if you will, Herr Bernotat chewing his cigar like Clint Eastwood in a Spaghetti Western.

Wulf Bernotat. Source: Andreas Pohlmann/E.ON

Renowned for his bullishness and tough demeanour, Bernotat does not mince his words.  He made no bones about panning British power generating infrastructure recently and told consumers to expect to pay more for his company’s supplies:

"The UK is in a very bad situation,” he castigated.  “Roughly 40pc of its power is from coal, and 20pc from nuclear. It all needs to be replaced.”  The British government duly jumped and has now agreed to grant planning permission for several new nuclear plants.

Bernotat heads an industry colossus manned by 88,000 employees across the globe.  E.ON had revenues of €69 billion and profits of €12.5 billion last year.  Eon Ruhrgas may be a small part of the whole, but it is still Germany's largest gas utility. It has 2,600 employees and is represented in more than 20 countries in Europe. 

You should by now be getting an impression of Bernotat’s considerable sway.

“We operate on a worldwide scale, so it is normal that we want to invest where conditions are right so that we can make a good return,” he says. “We are not doing things on a national basis or as part of a government implementation scheme.  Principally, you go where you can get the best possible conditions.”

Bernotat has failed to persuade Gazprom to soften its contractual grip on the gas deliveries.

Wulf Bernotat has already stepped into the fray to persuade Gazprom to soften its contractual grip on the gas deliveries.  So far without success.  The Russian company demonstrated their wilful side when Ukraine faced the prospect of huge fines if it did not pay for all the gas it had contracted to buy, regardless of the amount actually used.

Consequently, Rurhgas’s has no alternative other than reselling the Russian gas for less than they paid for it. Hundreds of millions of dollars have already been lost, the company says.

Of course, this does have a silver lining and Bernotat isn’t likely to get too bogged down with specifics.  Especially since E.On Ruhrgas are minority shareholders in Gazprom – holding 2.5% of the Russian company’s stock.

So, while the high prices will undoubtedly be passed on to the retail market, E.ON will benefit in the long run.  It’s what you might call a win-win situation, and part of the reason Bernotat gets paid the big bucks.

In fact the wider outlook is becoming quite rosy and E.ON has actually raised its annual profit forecast.  Bernotat said the company had previously predicted profit falls of up to 10% – now that figure is more likely to be between 3-5%.

Up to Q3 of 2009, E.On's sales were down by 2% to 59.3bn due to currency variables and the ongoing recession, Bernotat admits.  Even so, the net income for the first nine months of 2009 was €4.5 billion.  Hardly chump change, then.

“We posted solid nine-month results in a year that has been characterised by the economic crisis.  Although we continue to face significant adverse factors, it looks like the worst part of the crisis is over.”

Give that man a cigar.