Temelin could scupper CEZ sale

By Siàƒ¢n Green

The withdrawal of Electrabel from the sale of CEZ does not bode well for the Czech government’s plans for its electricity industry and its future in Europe.

Belgian power group Electrabel announced in mid-October that it had decided to pull out of the upcoming sale of a majority stake in the Czech Republic’s power utility, CEZ. It said that the political uncertainty surrounding the Temelin nuclear power plant was too great for it to go forward with a bid.

Electabel’s move came just two weeks after it was shortlisted to bid for the utility by the Czech government, and indicates that the controversy and difficulties surrounding nuclear safety in the country will not die down.

Other companies that have been shortlisted to bid include Electricté de France, a joint venture between Italy’s Enel and Spain’s Iberdrola, and another joint venture between International Power of the UK and the USA’s NRG Energy.

The Czech government hopes to raise Kc200-250bn ($5.4-6.8bn) from the sale, which is a precursor to liberalization, and is also seen as important to the country’s accession to the European Union and vital to reducing its large budget deficit.

The government’s National Property Fund is to sell a 67.6 per cent stake in CEZ later this year to a strategic investor. The stake will be sold as part of a package that includes six distribution utilities. The country’s natural gas industry is to be privatized at the same time in a sale comprising Transgas and eight regional distributors.

CEZ and the Czech electricity market is a popular target for overseas investors. The company produces around 65 per cent of the country’s power, selling its output to eight regional electricity companies and some large industrial consumers. It operates ten fossil-fired power stations, 13 hydropower plants, two nuclear power plants as well as some renewable energy plants. CEZ also owns and operates the 220 kV and 400 kV high voltage transmission grid.

In 1992, CEZ began an extensive modernization and environmental retrofit programme to improve the efficiency and performance of its fossil fuel fired power plants. Total investment in this programme has reached Kc46bn, and enabled the installation of desulphurization facilities, ash precipitators and modern plant control systems. The company also closed down its most obsolete plants.

CEZ is also responsible for imports and exports of power, and its low-cost generating base means that the strategic investor will be able to capitalize on opportunities for increased power exports to the European Union. In 1999 the company had electricity sales of Kc50 678m.

Also included in the sale is the Temelin nuclear power plant, a Soviet-designed 2 x 981 MW power plant. Since the plant was commissioned in late 2000, it has been hit with technical problems and beseiged with criticism from nearby Austria, which believes that the plant is unsafe.

Some potential bidders for the Czech assets indicated to the government that Temelin should not be included in the CEZ sale. E.On indicated that it would not be interested in bidding for nuclear assets, particularly in view of Germany’s stance on nuclear power and opposition to Temelin, while British Energy said it was only interested in nuclear assets.

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Electrabel’s decision to pull out of the sale now leaves just three bidders. The Belgian company said that it had evaluated the political uncertainties and risks surrounding the ‘nuclear part’ of the sale, and on that basis decided to withdraw.

As Electrabel announced its decision, the Czech Republic’s Nuclear Safety Authority said that it had approved preliminary tests at Temelin’s Unit 2, which is expected to become operational in 2002. This sparked new protests in Austria, whose border lies just 60 km from the Temelin plant.

The Czech government needs to resolve the Temelin ‘controversy’ in order to expedite its accession to the European Union. With Austria acutely opposed to the continued operation of the plant, it faces delay in its accession if it does not respond to Austria’s fears.

Austrian opponents to Temelin have put pressure on the Czech government to close Temelin, but CEZ and the Czech government are unlikely to go this far: they see the plant as a modern, efficient and clean facility that the country needs to meet its electricity requirements. They also keenly point out that the plant has passed independent inspections, and that its control systems have been modernized.

The Czech Republic has yet to close the energy chapter of its EU entry bid, a document that requires the approval of all 15 EU nations. The Austrian government has stopped short of saying that it will veto the country’s accession, but Austrian Chancellor Wolfgang Schussel said recently that the energy chapter would not be closed unless Austria is satisfied with safety standards at the plant.

But in spite of pressure from Austria and Germany, the EU’s enlargement commissioner, Gunther Verheugen, has stated that the Temelin dispute should not hinder Czech entry to the EU. This is good news to the remaining bidders for CEZ, who do not want to see themselves caught up in a dispute that could hinder the chances of Temelin ever becoming fully operational. While controversial, Temelin will become a major revenue earner for CEZ, accounting for some 20 per cent of CEZ’s output.

EDF, which owns and operates nuclear power plants in its domestic markets and also has extensive experience in the eastern European market, is the analysts’ favourite to succeed in the tender. Nevertheless, whoever proves successful in the privatization, must be prepared to own and operate the bundle of assets for a full ten-year period – a tall order in today’s fast-moving, liberalized environment.

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