The Czech government is planning to merge the country’s eight regional electricity distribution companies with the state owned energy utility CEZ. The state, which holds stakes in all the distribution companies as well as controlling CEZ, was forced to postpone the privatisation of the latter after bids from foreign investors did not meet the expected value placed on the company by the government.
Under the deal the government would sell its stakes in the eight regional distribution companies to CEZ. Exact figures are not available but the total cost to CEZ could be as much as $1.7 billion. However the deal could be financed by CEZ giving up its control of the electricity transmission company CEPS to the government. A cash settlement would make up the difference between the value of the assets. The move would give CEZ a majority stake in five of the eight distribution companies.
It has been suggested that part of the rationale behind the move is an attempt to prevent distribution companies buying power from producers other than CEZ. The largest Czech distribution company, Severomoravska Energetika, decided to purchase a large part of its requirement this year from the Swiss company Entrade after failing to agree prices with CEZ.
It is not clear whether the Czech government will be able to push through the deal before the general elections scheduled for June. Some observers believe the package must be cleared by the anti-monopoly office. Others, however, think that the deal will fall under the commercial code for government privatisations which will make the whole process easier to accomplish.
The deal is expected to be carried out in two stages. In the first the state holding company, the National Property Fund, will buy a 66 per cent stake in the transmission company CEPS from CEZ. CEPS would also transfer a further 15 per cent stake to the government’s Social Insurance Company. Both moves are due to take place before the end of the month.
In the second stage CEZ would buy majority stakes in the five distribution companies where the National Property Fund exercises control and would take a 34 per cent blocking minority stake in the remaining three companies. CEZ would then have to pay a cash balance of between $850 million and $570 million. While financing this purchase should not be a problem, the move is likely to hinder CEZ’s ambitions to invest in other European electricity companies. It has been eyeing Slovak distribution and generation companies.
One of the companies likely to be significantly affected by the merger of CEZ and the distribution companies is E.On Bohemia, the Czech subsidiary of the German company E.On which owns minority stakes in three distribution companies. The company said it had no official position on the company plans. However other minority shareholders have expressed fears that control by CEZ will lead to their losing places on the boards of the distribution companies. An E.On spokesman pointed out that minority shareholders’ powers were already extremely limited.
