Czechs have the energy for another scandal

By bne IntelliNews March 16, 2011

Jiri Kominek in Prague -

A series of corruption scandals has seriously dented the Czech Republic's reputation as a place to do business in the EU, and now the country's political and financial elite appear bent on plunging the country into yet another dubious energy misadventure.

First, there was the biofuel debacle of the mid-2000s, in which farmers, lured by hefty government subsidies, began producing rapeseed (a key ingredient in biodiesel) instead of growing crops for food production, resulting in big price rises at the supermarkets.

This was then followed by the solar energy scandal over the past two years, where again politically connected businessmen pushed through legislation via their political allies that resulted in hefty state subsidies and generous fixed-purchase prices for the green electricity produced. Although the new government late last year imposed a 26% tax on solar farms built in 2009 and 2010 to limit the amount of cash flowing out of the budget to pay for those subsidies - Czech solar output growth in 2010 was the third fastest in Europe - much of the damage has already been done; the Czech countryside is littered with solar panels located on prime agricultural land, which instead of being used to grow crops, is being used to produce electricity, which in turn is driving up food prices again.

Worse, some energy experts predict that as the sun roasts the northern hemisphere this summer, there is a severe risk of power blackouts caused by the national power grid being overloaded by the influx of solar-generated megawatts.

As if that weren't bad enough, reports say foreign investors in the solar business are planning to file a joint legal complaint against the Czech Republic over the retroactive tax.

Given such a sorry history, one might've expected the fragile coalition government to steer clear of any more controversial green energy schemes, but in fact it seems intent on now pushing waste biomass, which will see wood chips converted into energy.

Branching out

In December, it was revealed that LST Trhanov, a forestry company linked to infamous Czech arms dealer Richard Hava, had won an exclusive contract from the Ministry of Agriculture without any tender to produce biomass from wood cutting waste sourced from forests run by state-owned forestry company Lesy CR.

Energy experts say that apart from LST Trhanov, only the state utility CEZ, Prague power distributor Pražská energetika, as well as the city's mass transit authority will benefit from plans underway to use this biomass to fuel the "Electromobility" campaign currently underway, which will see the Czech capital saturated with re-charging terminals for electric cars. "Apart from enriching a select few, the project will result in a dramatic rise in the price of wood used in the construction, pulp and paper, furniture and other industries, since the commodity will suddenly become artificially scarce," one energy sector source tells bne on condition of anonymity.

One company that probably won't benefit, according to local magazine Ekonom, will be the heating company Plzenska teplarenska, which in 2010 installed the largest biomass boiler in the Czech Republic with a view to getting the contract for supplies of wood chips with Lesy CR that ended up going to LST Trhanov.

LST Trhanov was also the beneficiary of another decision by the Ministry of Agriculture when in November, instead of allowing fair competition amongst smaller local logging firms and lumber mills, Agriculture Minister Ivan Fuksa issued what he described as "complex concessions," in effect blank cheques, to the company, as well as other large players including LESS Holding and Wotan Invest, who now have rights to log, measure, appraise, purchase (if they like), transport, sort, and finally sell the lumber from Lesy CR.

Critics argue the state budget will be cheated through lost revenues as well as having to foot the bill for reforestation, which currently calls for planting a greater number of deciduous (leafy) trees that require a longer growing period rather than the up-to-now harmful, yet more lucrative, practice of planting coniferous (pine) trees, which grow quicker and can be harvested more frequently. "The lucrative contracts [to harvest wood] will by far surpass the [planned nationwide €6bn] tender to sanitise ecologically damaged lands [contaminated by industry]," wrote independent forestry and environment expert Katerina Brezova in her blog published by leading online Czech daily

Furthermore, she argues that Fuksa's policy of favouring the big players will drive local and regional lumber mills out of business.

Brezova is not alone in her criticism. In its 2009 annual report, the Czech BIS security service warned that the size, financial value of potential harvesting rights and non-transparent organisational structure of Lesy CR was a magnet for special interest groups, corruption and cronyism. Fuksa recently responded to criticism by promising to transform Lesy CR into a joint stock company and conduct an IPO. "I intend to ensure the transparency of state forests by placing the company on the stock exchange," Fuksa told Czech national radio.

Experts from the Czech government's national economic advisory board (NERV) say, however, that the state should retain a majority interest in Lesy CR due to its long-term revenue potential. "Only 20-30% of Lesy should be sold on the stock exchange due to the future revenue-generating interests at stake for the state budget. The only risk, however, is that only the few and powerful will benefit [from these revenues]," NERV member Jan Prochazka tells bne.

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