CTK informed that CEZ signed a general agreement with Bosnian state owned utility company Elektroprivreda RS concerning construction of a new coal power plant (Gacko 660 MW capacity) and extension of the two coal power plants Gacko and Ugljevik and purchase of coal mine, together for up to EUR 2.0bn. Prime minister of Bosnia expressed himself that CEZ could also establish a joint venture together with hydro-power plant Gacko, thus overall CEZ’s investment in Bosnia could exceed EUR 2bn. However he denied any speculations on possible privatization of Elektroprivreda in foreseeable future.
Our view:
The project in Bosnia has already been announced before as a part of CEZ’s expansion plan in CEE and SEE region. Note that the investment of up to EUR2bn is only 20% of the total fire power CEZ has (EUR9bn by 2009). The investment project fits into CEZ expansion and cooperation with the state-owned company could reduce risk CEZ could face in the new environment. We expect the electricity demand in Bosnia&Hercegovina to increase going forward given the electricity consumption reaching 1,832/KWh per capital in 2005 compared to EU average of c9,000 KWh and the Czech Republic of 5,429 KWh. As it is only a general agreement and terms of contract still needs to be negotiated we see the news as neutral for today’s trading but reiterate our Buy recommendation.