According to Bloomberg, at least 10 EU countries, including Austria, the Czech Republic, Denmark, Finland, France, Germany, Latvia and the UK are likely to miss the deadline of June 30 to submit national CO2 credits allocation plans for the second period between 2008 and 2012. We believe that following the oversupply of CO2 emission credits in 2005, it is likely that the European Commission, or even individual Governments would be cutting the allocations for the second period in order to make the whole system effective.
Therefore, we expect the price for CO2 credits to stabilize in the range of EUR20-30/t in the long run. In the near term, there is no impact for CEZ as it has sold most of its CO2 credits before the market crash and the remainder is to be used to balance opportunity costs of producing electricity of selling the credits. We expect CEZ to be slight net buyer in 2007 due to the increased production reflecting growing electricity demand and closure of production capacities in the CEE region. We maintain our Buy recommendation and see current market price of CEZ as an attractive entry point.