The future is being built here

A buzz saw disrupts the morning calm. Metal strikes metal. It’s the start of a new working day at the construction site of the new power station units in Marl Chemical Park. Heiko Mennerich regards it as a reassuring sound, because as Head of the Energy & Utilities Business Line he knows that Evonik’s sustainable future is growing a little bit more every day. “When the gas and steam turbine power stations are completed, these coal-fired ones will be decommissioned,” Mennerich exclaims above the roar of a passing excavator and points over his shoulder. The old coal-fired power stations with their 130- and 244-meter smokestacks tower behind him. They seem like two giant dinosaurs compared with the considerably smaller new power station units. “Smaller and considerably more efficient,” Mennerich adds.

Mennerich approaches a narrow steel skeleton on which workers in protective clothing are busy working. It is only as tall as two shipping containers, one stacked on top of the other. He points through the steel girder at a blue tarpaulin beneath which you can see a type of power plant. “That is one of the new gas turbines. A centerpiece of the facility, so to speak,” he explains. The power station generates electricity and steam on a CHP basis. “We achieve an overall energy efficiency ratio of more than 90 percent, which is very efficient and represents a great investment compared to the old power stations,” Mennerich emphasizes. On balance, this is enabling the power generation infrastructure in Marl to be completely renewed. Phasing out coal therefore not only makes sense for Evonik in terms of sustainability, but it is also financially affordable.

Supplying Marl Chemical Park with steam and Evonik Deutschland with electricity is essential – but not part of Evonik’s core business. “We are a specialty chemicals company. That is why this kind of investment is better made in specialty chemicals and not in power generation,” Mennerich explains. There are important reasons for this: if investment expenditure is financed using internal financial resources, that reduces free cash flow. And the latter is important for Evonik’s advancement and resilience, especially in eventful times such as these. Evonik’s capital markets rating also depends on whether investments are made in its core specialty chemicals business. Because that is where Evonik primarily earns its money. As far as the new power stations were concerned, it was therefore clear to Mennerich from the outset: “We are not going to purchase them, but need to find an intelligent financing solution. That is why leasing came to mind.” He adds: “Finance gave us a massive amount of support when the contracts were being negotiated.” With these words he turns to Evonik Accounting expert Kristine Scholz, who is visiting him at the construction site today.

From beneath her hard hat and protective glasses Scholz looks at the skeleton structures consisting of blue steel girders. A red crane is lifting a wooden crate. The lettering on it says Siemens. “A large number of project partners were involved in the negotiations, including Evonik, general contractor Siemens Energy and several banks. All the partners had very different requirements of the agreement”, says Scholz. Mennerich adds: “the technical requirements of the new power stations are enormously complex.” As he speaks, he points to one of the omnipresent pipe bridges featuring an apparent jumble of countless thick and thin steam pipes. “We have the technical expertise in the Business Line and incorporated it into the drafting of the contract with Siemens. But the financial and legal aspects are every bit as complex.” He again turns to Scholz: “without the superb, professional and sustained support from our central functions, like Legal, Finance, Taxes and Accounting, we would not have been able to negotiate the finance for this project successfully.”

The crane continues to hoist the crate in the direction of the top platform on the blue steel structure. Meanwhile Scholz is explaining her role: “we partnered with the Business Line during the negotiations. During the process we were mindful of the impact the financing model is set to have on Evonik’s consolidated balance sheet.” Thus, for example, Scholz pointed out to the external project partners “that new accounting guidelines need to be complied with in respect of the accounting standards applicable to leasing.” Information of this kind avoided time-consuming, retrospective corrections.

Meanwhile the crane has deposited the crate on the platform. A worker attempts to remove the chain that’s as thick as a human arm from the hook. Yet it is not disengaging. “When the contracts were then virtually ready to be signed, an unexpected hurdle had to be negotiated,” Scholz recalls. Siemens in its previous incarnation split into two companies. The separation of Siemens Energy from the corporation entailed the following for Scholz and her team: “we had to revise the contracts extensively. That really was a major effort.” While Scholz is telling her story, a colleague comes to assist the worker on the platform. By joining forces, they managed to remove the chain from the hook. Scholz continues: “but we then mastered the challenge together.” Nonetheless, the contract negotiations were completed on time to coincide with the scheduled start of construction in the summer of 2020. “That was a massive team effort, which was only achievable with excellent team spirit,” is Mennerich’s positive résumé – with regard to the financial terms as well.

“In addition to balance sheet issues, what also mattered was whether the leasing terms were acceptable to Evonik,” Evonik Finance expert Michael Buddeberg explains. He was tasked with ensuring they were. To this end he provided the Business Line with support, while the financing terms were being negotiated with the lessor and the refinancing banks. The outcome: “we achieved good financial terms for the leasing transaction,” says Buddeberg. Mennerich agrees: “we can be satisfied with the outcome. Incidentally that applies to the entire working relationship within the Evonik negotiating team. It was trust-based, solutions-focused and was always enjoyable, despite the hard work.”