The role of CEZ in the Czech power industry may change

CEZ Power Company noted the governmental decision to call off the tender which had been aimed at privatising CEZ and the six distribution companies.

CEZ has always regarded the entrance of a strategic partner as an essential precondition for maintaining and strengthening the position of Czech power industry within the competitive environment of the European market.

The European market will be soon divided between five or six newly merged multinationals that will be able to cover a wide range of services such as supply of electricity, gas, water, telecommunication services etc. CEZ is a strong and stable company in the context of Central Europe, but it cannot and will not be one of the above mentioned five or six multi-utilities, especially now, when the Czech gas industry has already acquired such a partner. Even without the strategic partner, CEZ still remains a prosperous company with good chances of maintaining its market share and consequently generating profit for its shareholders. However, since it currently does not cover the mining - production marketing chain, it will not be able to play its role as we have known it so far, i.e. it will not be able to stabilise the entire power industry and provide security for all participants in this market.

The current situation convinced us that last year we had been right to focus not only on the privatisation process, but also on preparing the CEZ company for liberalisation, with the aim of succeeding in the newly opened electricity market under any potential circumstances. CEZ considerably reduced its costs, rationalised the internal operation of the company and improved all of its efficiency indicators, which enabled it to further reduce the price of its electricity supply for next year. Its new offer of so called Rainbow Electricity" for the year 2002 is even cheaper than the electricity it supplied for the domestic market last year. CEZ assumes that the price of the supply will be approximately 5% cheaper than the limit set by the Power Regulation Authorities. The fact that CEZ has been transformed and is able to succeed in the competitive environment can be documented by the outstanding volume of electricity sold in the framework of the new Rainbow Electricity" commercial programme, which covers a complex offer with a wide range of different prices and times of supply," said Mr. Jaroslav Mil, CEZ General Manager.

We are convinced that joint privatisation of CEZ and the six distribution companies would help establish an extremely effective and competitive unit. This would be profitable for the Czech customers, who might consequently benefit from lower prices of electricity in comparison with their western neighbours. The property relations, established by the selected method of privatising the power industry, would not have any negative impact either on the liberalisation process or on the Czech electricity market. The competition among suppliers, along with the fact that the consumers could choose their suppliers, would remain intact. For it is necessary to take into account the fact that the distribution of electricity within individual regions will always remain a natural monopoly. It will be the businessmen, not the producers, who will have crucial impact on the future prosperity and existence of suppliers in the power industry.

Without the above-mentioned ownership chain, we are not sure whether the end customers will be able to benefit from the cheap electricity procured by CEZ. This trend is already to be seen in the current situation, when CEZ is reducing the cost of its electricity, but this has no effect on the price the end customers have to pay. Ever since 1992, CEZ has been selling its electricity to the distribution companies for the same price of about 1.14 CZK/kWh. If we take into account the inflation rate, the price of its electricity has in fact decreased approximately by half in real terms. It would be difficult to find any other company which has been selling its products for constant prices over a decade and now is lowering them even further.

Ladislav Kriz, Press Officer

11. 1. 2002