Czech Republic (6) -- Analyses-- July-September 2006

About CEZ

20.09.2006

CEZ, which controls about 60 percent of the Czech electricity market, is considered a strategic company, and its possible privatization has opponents among energy experts. Critics say the government should not sell state assests to cope with immediate financial problems. "Selling such a valuable stake just to patch a hole in the budget would be a waste," said Zdenek Andrlik, an energy analyst at consulting company Interel. HVB Bank Chief Economist Pavel Sobisek said he would only support the sale of CEZ shares if the money it raised would go toward pension reform. The sale would reduce the government's stake in CEZ to 51 percent. During the past several years, CEZ has seen significant growth, and this trend is expected to continue. Andrlik said that, if the stake is sold on the open market, it could be bought by a random investor, which could potentially hurt the company in the future. An unwanted investor could, for example, hinder CEZ's expansion plans, he said. The company's consolidated net profit in the first half of 2006 amounted to 16.4 billion Kc, up more than 25 percent from the same period last year. Sales during the first half of this year reached 77.2 billion Kc, while they were estimated at 60.7 billion Kc during the same period in 2005. CEZ acquired power companies in Romania and Bulgaria earlier this summer, and it is seeking to buy other power companies throughout Central and Eastern Europe. CEZ's shares fell 1.4 percent to 806 Kc on the morning of Sept. 18 in reaction to the news, and could decline even further, according to analysts. The government does not need Parliament's approval to sell its stake. Prime Minister Mirek Topolanek said at the end of August, however, that his Civic Democratic-led government would not privatize state-controlled stakes in companies. His government is not expected to get the vote of confidence it needs from the Chamber of Deputies before the Oct. 4 deadline.

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