Czech utility CEZ announced on July 12 that it has launched arbitration proceedings seeking hundreds of millions of euros from Bulgaria for failure to protect its investments. The move is just the latest in a long and bitter fight between the state-controlled power group and Sofia.
The Prague-listed company complains that Bulgaria has taken a "number of actions" that have damaged its business – the bulk of which is a sales and distribution unit in the west of the country - and the wider energy market. CEZ has struggled in Bulgaria since it was pushed to the fore in 2013 protests against power prices which eventually toppled the government.
"The situation in the Bulgarian energy sector is critical and especially the pricing decisions of the local regulator have not been, on a long-term basis, in line with the expectations at the time of the privatization process," CEZ said in a statement. "Therefore, businesses operating in the energy sector have in recent years faced declining profitability or losses and low liquidity."
"We are prepared to protect our investments by all possible means and arbitration is therefore the next logical step," said Ivo Hlavac, chief external relations and regulation officer.
The company - which is 69% state owned - has fought moves by the regulator to remove the distribution licence of CEZ Bulgaria and to reduce regulated prices. Sofia's anti-monopoly commission has issued several fines to the Czech company over abuse of market position, the last one coming in May.
CEZ entered Bulgaria in 2004 as part of an ambitious drive to build itself into a regional giant, which also included acquisitions in Romania and Albania. However, without the clout it enjoys at home, the company has struggled through weak energy markets and political instability. It was pushed out of Albania in 2014, in a case that required a state-level deal to secure compensation for CEZ.
The company said the same year, as it cancelled an international tender to build extra nuclear capacity, that it hoped to revive M&A activity. However, with Finance Minister Andrej Babis seeing the company as a cash cow, and facing stiff competition from the ravenous EPH energy holding, it is yet to seal any deals, despite professing interest in Slovenske Elektrarne and Vattenfall's German assets.