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April 5 saw CEZ play down comments from an executive that the Czech state-controlled energy giant might have to slash dividends in a bid to finance its €8bn project to build two new units at the Temelin nuclear power plant.

The funding of the huge nuclear project is the biggest question facing the company. CEZ claims it is able to find the cash from its own sources, although there are suggestions it would have to pull back on other plans. It has also been lobbying the government for help, and has discussed a potential minimum price guarantee for electricity produced at the plant, as well as government-backed loan guarantees.

CEZ's chief strategy officer said on April 5 that to finance Temelin's expansion the dividend policy could be under threat and lowering the current 50-60% policy is a "possibility". "Based on the assumption of low electricity prices, a reduction in the dividend is one of the possibilities," Pavel Cyrani told Dow Jones. The company is also leaving the other options, as discussed with the government, on the table and is also open to bringing a financial partner on board the Temelin project, Cyrani added.

Later the same day, CEZ leapt to insist that its generous payouts are not under serious threat. Slashing the dividend is a "purely theoretical" scenario and would be used only in "extremely unlikely situations" not necessarily related to Temelin, spokeswoman Eva Novakova wrote via e-mail reports Bloomberg.

Encouraged by the state, which holds 70% in the company, CEZ has helped Czech equities push to the front of the emerging markets line for converting GDP growth into dividends. Other Czech companies that have pushed this include NWR and Philip Morris, according to brokers. Investors have got used to that level of payout, and were understandably spooked by the story. CEZ shares shed 1% to fall to their lowest level since early February.

However, opinion is split on the likelihood of the move. On the one hand, the funding challenge on Temelin is clearly huge, but on the other the government is unlikely to be happy to accept a lower payout as it struggles to push through harsh austerity measures to try to balance the budget. Reflecting the finance ministry's need for hard cash, CEZ proposed a dividend of CZK45 - or just above 59% of 2011 profit - on April 3, nudging the upper end of its policy band.

Meanwhile, analysts at Renaissance Capital suggest that the payout is more likely to rise than fall in the coming years. "We judge that the 2011 dividend is likely to mark the bottom of the cycle," they wrote on April 4. "In our view, higher utilisation of nuclear capacity, higher forward prices for electricity in Germany and the commissioning of a series of capacity projects will lead to an increase in dividends of around 25% over the next three years. Moreover, we note that the Czech state's reliance on its CEZ dividend to boost budget revenues acts as a powerful incentive for the comapany to maintain a high payout ratio. For us, CEZ shares continue to offer bond-like returns, plus the prospect of significant capital growth - a rare opportunity among Europe's electric utilities."