CEZ: Czech electricity price should converge to German levels in 2008-2009

According to CEZ's CEO Martin Roman, Czech Republic can expect electricity price to converge to German levels in 2008 or 2009. Currently the electricity price in the Czech Republic is EUR 44/MWh compare to price in Germany EUR 53.6/MWh. He also stated that for the moment as CEZ is in the phase of M&A process he doesn't expect increase of dividend pay-out ratio which is currently in the range of 40-50% but it could happen in following years

Our view: We currently expects that the Czech baseload electricity price will converge to German levels in 2009 at conservative assumption of EUR 50/MWh. CEZ started to talk about faster convergence already in February when the company released its FY 2006 results. We will reconsider our convergence scenario once we get information also about the NAP II. allocation for most of the states as CO2 credits represent integral part of electricity price. Regarding dividends we expect the dividend for 2006 to be CZK 21/share, which fits into 40-50% pay-our ratio range.