CEZ puts troubled Albanian unit on the block

By bne IntelliNews December 18, 2012

bne -

With the Albanian energy regulator due to rule on a request by the government to revoke CEZ's operating license in the country, the Czech utility said on December 17 that it is putting its troubled Albanian subsidiary up for sale. However, CEZ could find it tricky to negotiate a route out of the country.

With tension ratcheting higher in Albania following over a year of arguments, the power company said in a statement: "CEZ has initiated a process to sell its Albanian [electricity] distribution business. Potential buyers may express interest during January, and a decision on the subsequent steps will be made afterwards."

However, according to CTK, CEZ spokeswoman Barbora Pulpanova added that the company will decide on a further course of action only when potential buyers show their interest. The group is also still in talks with the Albanian side about how to solve the situation, she stressed.

The announcement came in the wake of comments from Eduard Elezi, a lawyer at Albanian power regulator ERE, who, according to Reuters, said the board is set to meet after December 20 to rule on the government's application to revoke CEZ's licence to operate the grid.

Tirana made that request as relations hit a new low last month after CEZ cut off several of the country's water companies for non-payment of bills. The authorities forced the company to hook them back up, and said it would seek to have CEZ's licence revoked. CEZ promptly threatened to sell the loss-making unit. The pair then appeared to step back from the brink, perhaps in the hope that cooler heads might prevail.

However, with the marriage having been troubled since CEZ bought a 76% stake in what is now called CEZ Shperndarje in 2009, reconciliation seems unlikely. While CEZ claims it's forced to run the company at a loss due to a hike in wholesale prices from the state-owned generator but a refusal from the regulator to raise consumer tariffs, the government claims that it's mismanagement that's the problems.

Analysts at Equilor suggest CEZ has little to lose in offloading the Albanian subsidiary. "This unit's losses caused weaker third-quarter figures, so this step is not so surprising," they write. "On the other hand, CEZ wrote off the Albanian unit's equity value to close to zero, so any revenue for the company is a positive effect."

Moody's suggested last month that CEZ's immediate departure from Albania would mean a loss of almost €200m. At the same time, the move would prevent further losses, the ratings agency added, according to CTK.

However, the Czechs look unlikely to find an easy route out of the Balkan country. On the one hand, Elezi claims to Reuters that companies cannot not move their assets without asking permission from ERE first, and that CEZ has not asked the regulator yet.

On the other, the line of suitors for the unit will remain short while it's under threat of losing its operating licence. A government official last week told a parliamentary committee that a possible option is for the government to buy CEZ out for the symbolic price of €1.

According to Reuters, although Elezi said ERE's commissioners are examining CEZ Shperndarje's reply to Albania's initial bid to revoke the company's licence, and that ERE will make a decision after December 20, the regulator could take another month to reach a ruling.

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