Czech government asserts power to decide on CEZ bid for Slovak power assets

By bne IntelliNews July 17, 2014

Tim Gosling in Prague -


The Czech government is pushing CEZ to look closely at a bid for Slovakia's dominant power producer Slovanske Elektrarne (SE) and will make the final decision, the country's trade minister said on July 16, signalling the tighter control Prague is taking at the Czech utility.

Italian giant Enel sparked a scramble when it announced on July 10 that it is selling its power generation assets in Slovakia as part of a broader €6bn programme of asset sales, begun in 2013 and aimed at reducing debt. CEZ management had previously strongly suggested it would like to buy its Slovak peer, but is thought to face competition from Russia and France, as well as closer to home.

It "would make a lot of sense" to combine with the Slovak utility and re-establish the power company that existed before Czechoslovakia split into two separate countries in 1993, Industry and Trade Minister Jan Mladek told Bloomberg in an interview. "After CEZ management analyzes the offer, the state as its main shareholder will decide whether to go for it or not," Mladek said. The government controls about 70 percent of CEZ's shares.

CEZ CEO Daniel Benes said in April that the company is looking at a new acquisitions drive after dropping a €10bn or so tender to expand the Temelin nuclear power plant. He added that CEZ's loss to Enel in the €840m privatization of a 66% stake in SE in 2006 was a cause of regret. “The biggest failure in CEZ’s history was that we didn’t buy Slovenske Elektrarne. So if that asset is up for sale, we will gladly enter into negotiations about it,” he said.

However, the final decision on a bid is likely to come neither from Benes nor Mladek. The trade minister's Social Democrat (CSSD) party, which - nominally at least - leads the governing coalition - was incensed last month when powerful Finance Minister Andrej Babis took control of the CEZ management board. The billionaire filled the company's seats with members of his party Ano, which continues to outstrip the CSSD in polls.

Nuclear option

While lack of hard government support - in the form of guaranteed prices for the power produced - pushed CEZ to drop the Temelin tender, Mladek appeared to confirm that the company is bound to restart efforts to expand Czech nuclear capacity, as bne reported recently. The country will probably build one reactor at Temelin and one at the Dukovany plant in the future, Mladek told a press conference.

A purchase of SE would also put the company back at the negotiation table with nuclear suppliers. By way of contrast with CEZ's struggles to fund the Temelin expansion, Enel has received over €500m in support from the Slovak government towards a €3.9bn expansion of the Mochovce plant, despite the fact that the project is seriously over budget and behind schedule.

However, that may be a trump card for one of CEZ's likely competitors for the SE stake. Russia's state nuclear agency Rosatom is the ultimate supplier of technology and fuel for Mochovce, and thus is keen to see the project completed. 

In early June, SE announced it had sealed an €870m loan from Russian state-controlled giant Sberbank. Analysts noted that a loan of this size is unusual for a Slovak company without syndication. It's also around the volume of investment needed to finish the expansion of Mochovce, and the deal has raised no little speculation that it points the way to a Russian bid for Enel's stake. 

Rosatom has been sniffing around Central European nuclear assets for some time. It offered to buy into Temelin as part of its bid in the tender for the project, and early this year sealed the contract to expand Hungary's Paks, in a deal greased by a €10bn loan from Moscow to Budapest. However, handing Russia ownership of an EU nuclear facility may be a step too far even for the strong pro-Russian contingent in Bratislava.

Energy security would certainly seem to offer EU bidders an advantage. Speculation suggests GDF Suez is interested, although the company has refused to comment. The French utility sold its interest in Slovakia's major gas importer and transporter SPP last year. 

Czech-based energy holding EPH was the buyer, and clearly has a strong working relationship with the government of Prime Minister Robert Fico. Some say too strong, casting suspicion on recent deals, and claiming shady ties with closely-held Slovak financial group J&T, which took majority control of EPH last month. 

While that could place EPH in pole position should it decide to bid for SE, it may not be as clear as that. CEZ and EPH have been strongly criticized in the past for working together to carve up the Czech power market, but upper hand remains with the state-controlled company.  

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