KKCG enters fight for Czech retail gas market

By bne IntelliNews January 28, 2014

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Having missed out on the acquisition of major energy infrastructure assets in the region, Czech investment group KKCG says it now plans to become a major player in the country's gas retail business. However, it appears to concede that it faces a battle to get its hands on one of the country's biggest gas traders, which is up for grabs.

KKCG unit Moravske Naftove Doly (MND), the largest Czech oil and gas explorer which is ultimately owned by Czech billionaire Karel Komarek, announced on January 27 that it plans to acquire smaller gas retail providers as a part of a plan to start selling gas directly to households.

At a press conference, MND announced its entry on the Czech gas retail market. Sales Director Ludvik Baleka said the company plans to push revenue to CZK1bn (€250m) within three years, and serve 200,000 households. "KKCG has been making a concerted push into the retail segment," spokesman Dan Plovajko said, according to Bloomberg. "You can expect more acquisitions."

However, that target constitutes around 8% of the Czech gas market, according to CTK, suggesting KKCG is not confident of clinching the purchase of one of the country's largest distribution companies: Prazska Plynarenska Holding (PPH), which accounts for around 15%. The race for PPH would bring Komarek up against an old foe/partner. The billionaire has often seen his attempts to buy into the region's strategic energy assets stumped by ravenous local rival EPH.

That group, which features the country's richest man Petr Kellner as a major shareholder, has proved much more successful in its bid to create a Czech-based regional energy player. It has hoovered up assets such as Slovak pipeline operator SPP as European utility giants have pulled out of Central Europe as part of a strategy to lower debt and concentrate on larger emerging markets such as Turkey and Russia.

However, both Czech groups lost out on the acquisition of Czech gas transmission network operator Net4Gas to a consortium of Germany's Allianz and Canada's Borealis Infrastructure in March last year. KKCG did manage at around the same time, however, to announce a new joint venture with Russia's Gazprom to build a new underground gas storage facility in the southern Czech Republic.

Komarek said at the time that the two companies are planning "new joint projects, not only in the Czech Republic, but also elsewhere in Europe and in the Russian Federation." MND has also been busy in recent years pushing to expand its production base, with major investment in Georgia. It bought into Ukraine's Regal Petroleum in 2007, and purchased a 17% stake in Swiss-based, Gazprom-controlled gas trader Vemex in 2012.

On January 16, it announced the acquisition of a new German oil and gas exploration licence as part of ongoing efforts to expand production beyond the home market. KKCG has said it plans to invest more than CZK10bn over the next three to five years into oil and gas exploration and is considering further acquisitions in Turkey, Russia and the Balkans, reports Bloomberg.

Yet it has found the going tougher at home, suggesting it could struggle to beat the sway of its competitors in the race for PPH. It's a fight that will see it up against not only EPH, but also state-controlled giant CEZ.

That's a pair that has been accused of carving up the Czech power market between them, suggesting they may outgun KKCG in terms of influence with Prague City Assembly, which bought German giant E.ON out of PPH in December.

The Czech capital invoked its pre-emptive rights in the wake of an offer from CEZ to buy the 49.3% stake for CZK2.1bn (€76m), and said that it intends to bring in a new strategic partner to run the highly profitable company, which made over CZK600m in 2012. Alongside the Czech suitors, German company Energie Baden-Wrttemberg Aktiengessellschaft (EnBW) is also reported to be interested.

Around 30 companies, according to CTK, currently serve the Czech retail gas market. German giant RWE supplies around half of households. PPH has a market share of 15% and CEZ holds around 10%. Bohemia Energy accounts for 7% and while E.ON retains a 6% share. "Once we reach a critical number of customers here in the Czech Republic, our plan is to expand to other retail markets in the region, though not to Slovakia," Baleka told Bloomberg.

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