Page 12 - bne_Magazine_April_2018

12 I Companies & Markets bne April 2018
CEZ Republic no more as Czech utility faces major shake-up
Nicholas Watson in Prague
It promises to be a crucial six months for the Czech Republic’s nuclear industry as a model for building and financing a new nuclear reactor at the Dukovany power plant takes shape.
According to Jan Stuller, special envoy for nuclear energy at the Czech Ministry of Industry and Trade, his nuclear energy committee is working towards putting together an agreement over the investment model for building the reactor.
There are three options on the table: the reactor’s construction is done through subsidiaries of the 70% state-owned CEZ
with some form of state guarantee; by the state buying those subsidiaries; or by CEZ once the state has squeezed out minority shareholders.
A key part of this is whether or how CEZ will be restructured. Ladislav Kríž, spokesman for CEZ, has confirmed to bne Intel- liNews that a transformation study was prepared last year by a team of internal strategists, external lawyers, consulting companies and investment bankers. From this, the preferred option of CEZ’s management in any company shakeup would be to spin off the utility’s distribution, renewable energy, small-customer sales and energy services into a new com- pany (CEZ ESCO) and to sell 49% of that entity to investors, while the state would take control of 100% of the remaining nuclear, coal, natural gas and hydroelectric assets, as well as coal mining and energy trading.
Central and Eastern Europe’s largest utility with a market capitalisation of around €11bn, splitting up CEZ is going to be a major shakeup of the business and political scene of a country that has sometimes been referred to over the years as CEZ Republic.
On February 7, Babis said the Czech government would appoint an expert team to assess a proposal to split the majority state-owned CEZ, though he does not appear to support the idea – in public at least – and is still insisting that CEZ should finance the building of any new reactors on its own without any state guarantees, hard or soft.
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Few believe this is feasible, however, given CEZ’s stretched balance sheet and the difference between CEZ’s borrowing rates and the government’s being about 9% versus 3%. CEZ’s minority shareholders, who hold 30% of the shares, are also against new nuclear projects and could file a lawsuit arguing that Dukovany would destroy shareholder value.
“There is a vast consensus on building new nuclear resourc- es... but financing is one topic where we do not have
a consensus,” Stuller tells bne IntelliNews. “In November I would love to see the answer to three questions: the invest- ment model, the financing model and how we should select the supplier.”
At the same time, the Czech government is currently working on providing further answers for the European Commission over its request to get around certain EU requirements governing public tenders.
Kristýna Križanová, adviser to the vice-minister, Section
of Energy, at the Ministry of Industry and Trade, tells
bne IntelliNews that the Czech government has been holding talks with the European Commission about seeking an exemption to tender rules for the electricity market, though the issue “is getting really complicated and we are not sure we will be granted the exemption... Right now, we are in the process of responding to additional questions from the commission and we have a deadline of the end of March before another round of talks with the commission”.
Fear of fiasco
This latest project is actually the Czech Republic’s second attempt to complete a nuclear tender, after the previous one to build two more reactors at the Temelin nuclear plant was finally put out of its misery in 2014, the victim of a series of over-optimistic financial forecasts and incompetent official decisions.
Fearful of a repeat of that fiasco, a key part of this new project is getting Brussels to agree to exemptions to the strict rules that govern public tenders in the bloc, downgrading the issue