LONDON, Jan. 26, 2001 — Moody’s Investors Service has today confirmed the Baa1 rating of CEZ Finance BV, guaranteed by CEZ a.s., and changed the outlook to stable from negative, reflecting the gradual progress being made in the restructuring and liberalisation of the Czech electricity sector with positive benefits for CEZ.

However, Moody’s notes that a number of uncertainties still remain which will not be resolved for some time.

In the change of rating outlook, Moody’s factors the government’s decision in October 2000 to sell most of its majority stake in CEZ, in conjunction with a majority stake in six out of the eight of the regional distribution companies, to a single strategic investor.

This should help CEZ maintain good access to distribution as a hedge to its production output and mitigate the potential sale of the low risk transmission grid, CEPS. A key issue for CEZ will be the strength of any future strategic partner and its financial and business plan for the company.

Additionally, Moody’s factors some progress made on the regulatory front towards liberalisation which gives rise to greater transparency. Tariff rebalancing should continue and this January the decision was taken to split charges for power, transmission and auxiliary services, which should improve CEZ’s lagging wholesale electricity price position vis-a-vis the IPPS (as CEZ was the only producer to have to include auxiliary services in its pricing) and help CEZ defend its eroding, albeit still dominant, domestic market share.

However, the speed and form of further restructuring of the sector as the market is liberalised and CEZ’s progress in preparing for competition from new entrants will remain important for the rating.

CEZ should benefit from an improving fuel mix as desulphurisation of its coal plants is virtually completed and cheaper nuclear power from Temelin is expected to come gradually onstream in 2001, assuming successful completion of tests on the first unit. However, the latter is still subject to a number of environmental objections by the Austrians and some political and technical risk continues to be attached to this project.

CEZ will need to continue to focus on its ongoing cost-cutting programme and its domestic and export sales efforts in the face of overcapacity and relatively low wholesale prices in the central European market which will be compounded by the influx of power from Temelin and pressure on its domestic market share.

Under the current business plan, debt protection measures are expected to gradually improve as indebtedness is expected to reduce going forward, in conjunction with the reduction of CEZ’s historic large investment needs. Nonetheless, competition and still low growth rates in electricity consumption in the Czech Republic are expected to keep operating profits under pressure.

CEZ is based in Prague, Czech Republic. It is the dominant electric generator, meeting over 60% of domestic demand and owning the transmission grid, CEPS. As of FYE 1999 it had turnover of eq EUR1.7bn.