The local MF Dnes daily newspaper reports that some of the potential bidders for the government’s package of CEZ and distributor stakes are re-considering their bids in light of the long list of conditions attached to the purchase. The newspaper quotes representatives of E.ON, the German utility, and AES of the US. For example, the need to meet some of the conditions (e.g., experience with nuclear power) makes it necessary for some of the contenders (e.g., AES) to form consortia, and this may be difficult. The newspaper also suggests that Electricite de France, with its strong nuclear-power track record, is an ideal partner for potential partnership with other bidders. Another condition mentioned is the commitment to buy a large quantity of Czech coal for at least 15 years. Although all this is only at the level of considerations and there is no real news, any indication of potential interest in CEZ privatization possibly weakening is not good for the stock, which could be negatively affected.
Separately, the ministry of industry has submitted a proposal to the ministry of finance regarding the so-called “system services” in the power sector. The proposal attaches a CZK 187 CZK/MWh price to the system services, which are necessary for the functioning and stability of the entire power grid, which are currently provided by CEZ, and the cost of which is not borne by the independent power producers (IPPs). It is being proposed that, if the IPPs do not participate in providing these services, the price they receive should reflect that. This would reduce their competitiveness (they would have to raise their prices then to maintain their current profitability) and could lead to CEZ recovering some domestic market share at the IPPs’ expense. If agreed, the new pricing system is to be effective on January 2001. The ministry of finance has the final say in approving the change, and currently faces a strong pressure from the IPPs, who value these services at only 80 CZK/MWh. Should the proposal be approved as it stands now, we would raise our domestic sales projections for CEZ for next year. At the moment we assume an unchanged domestic market share of CEZ.
Also, Prime Minister Milos Zeman said yesterday, after signing a new accord on Temelin with the Austrian prime minister, that the Czech Republic would shut down the nuclear plant should it fail the EU-standard assessment of its environmental impact and safety—a pledge he has made before in the past. Moreover, given our optimism regarding the outcome of such an examination, we do not think this statement should affect the stock.