CEZ PRESS announcement

CEZ Corporation regards today's decision of the Czech government to interlink regional distribution companies as beneficial for maintaining the position of the Czech power industry within the Central-European region. The structure of the Czech power industry will thus become identical with that of all neighbouring countries, whose significant power companies have already been interconnected and it would therefore be entirely illogical and unjustifiable to make it possible for the international procurers to own majority share in Czech distribution companies, as has already been the case with some of the companies, and at the same time deprive a Czech producer of this opportunity. The interconnection with distributors will ultimately prove beneficial for the customer, as it will enable CEZ to supply its consumers with the outcome of its cost-effective production i.e. with the "Rainbow Electricity".

CEZ Power Company has been selling its electricity to distribution companies for the same fixed price over the last ten years. However, the price of electricity supplied to the end consumer gets higher and higher. "The upcoming model will ensure lower production and distribution costs than the existing one", said Mr. Jaroslav Mil, the Chairman of the CEZ board and Chief Executive Officer of the company.

This year CEZ launched its new product, Rainbow Electricity, and cut the price of its electricity even further. The average cost of electricity offered in the framework of the "Rainbow Electricity" scheme is approximately 5% lower than the limit set by the Power Regulation Authorities (97 hellers/kWh) and crashes below the price from 2001, when electricity was sold for 95 hellers/kWh. The autonomous and isolated operation of CEZ and regional distributors has so far only managed to foment the current situation, when more costly foreign electricity producers are gaining market share at the expense of cheap domestic production. Moreover, the rules of the market make it possible to import electricity with minimum responsibility for the operation of the overall electricity supply system.

The neighbouring countries are currently adopting a number of protectionist measures and some states, like Poland, even closed its market altogether. Other countries, such as Germany, have set strict import conditions which practically eliminate any potential business deals. For example, when selling electricity abroad, a Czech exporter has to pay fees amounting to approx. 140 CZK/MWh, only in order to be allowed to enter the foreign market. Foreign producers, on the other hand, do not have to spend a single crown on fees when exporting to the Czech Republic. It is therefore obvious that the domestic producers find it much more difficult to compete and the existing market conditions are everything but equal.

?The interconnection between CEZ and the distribution companies will help to uphold Czech electricity production and secure employment for a number of Czech people. This issue is particularly relevant, taking into consideration the fact that CEZ provides, either directly or indirectly, employment for more than 100 000 people?, added Mr. Mil. What is more, the fragmented electro-industrial sector is also severely handicapped e.g. in comparison with the gas industry, whose production and distribution channels have already been interlinked.

The interconnection between CEZ and the distribution companies does not entail any monopolist tendencies of either producers or suppliers, because the current law, which clearly states that consumers are entitled to choose their own supplier with regard to the market price, remains intact. The duty of the distribution companies to cover the supply of electricity from the independent dealer to the consumer has no relation whatsoever to the linkage between CEZ and REAS. The suppliers will continue to compete for market share and the major consumers have already been enjoying the right to choose their own suppliers for some time, so the consolidation of the sector will not bring any change in that respect.

Ladislav Kriz, CEZ Press Officer

11. 3. 2002