CEZ secures coal supplies, sells plant to end EU probe

PRAGUE Tue Mar 19, 2013 3:45pm GMT

Czech electricity producer CEZ's logo is seen on the company's headquarters in Prague March 17, 2013. REUTERS/David W Cerny

Czech electricity producer CEZ's logo is seen on the company's headquarters in Prague March 17, 2013.

Credit: Reuters/David W Cerny

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PRAGUE (Reuters) - Czech power group CEZ (CEZP.PR) secured long-term supplies for one of its largest plants and cut a deal to end an EU probe, settling two out of a series troubles that have surrounded central Europe's biggest listed company.

CEZ said on Tuesday it had signed a long-term supply deal with coal miner Czech Coal to fuel its Pocerady power plant, ending a long-running pricing dispute and adding up to 2 billion crowns (66.82 million pounds) to its 2013 core profit outlook.

CEZ, with a market value of $15.7 billion, also said it had agreed to sell its Chvaletice plant to a Czech Coal spin-off to end an EU investigation into anti-competitive behaviour.

The deals with its rival complete some of the biggest tasks facing the majority state-owned utility, whose share price is near a multi-year low and which expects a fourth year of falling profit due to weak power prices amid Europe's economic woes.

CEZ had offered to sell either Chvaletice or Pocerady, or three other coal-fired plants, to meet EU regulator demands to divest at least 800 megawatts of capacity. It had been keen to keep Pocerady, one of its most profitable units.

"We managed to successfully complete difficult negotiations," CEZ Chief Executive Daniel Benes said, referring to the coal supply contract.

"We entered talks with big differences in expectations... and managed to negotiate a price that is about half of what they expected at the beginning."

Czech Coal will supply the 1,000 MW Pocerady for up to 50 years, a deal valued at 200 billion crowns ($10.11 billion).

CEZ said it also had the option to sell Pocerady to Czech Coal in 2016, when the plant is set for an upgrade to meet stricter emission controls. A second option to sell comes in 2024 when more refurbishment, or even rebuilding, is due.

Since record profit in 2009, CEZ's annual income has dropped by about a fifth to 40.2 billion crowns ($2.03 billion) in 2012.

It has until now forecast an 8 percent drop in net profit in 2013 to 37 billion crowns and a 6 percent drop in earnings before interest, tax, depreciation and amortisation (EBITDA) to around 80 billion crowns.

Because CEZ can fully utilise its Pocerady plant, the supply deal could add 1.5-2 billion crowns to EBITDA, CEZ said.

CHVALETICE DEAL

Negotiations in the long-running dispute with Czech Coal intensified in 2012, the last year of the previous contract.

CEZ said the price for the brown coal in the new contract was set at 38.80 crowns per gigajoule, up from a previous 33. The price should gradually increase over the next 10 years to reach 65 percent of the black coal price on European exchanges.

Deliveries under the new contract will decrease to 5 million tonnes a year from a previous 8.5 million.

CEZ also agreed to the 4.12 billion crown sale of the Chvaletice plant to Litvinovska Uhelna, a Czech Coal subsidiary that is being spun off and sold to two company managers, according to media reports.

On top of the sale price, CEZ will receive 90 percent of the value of carbon emission allowances granted to the plant on an annual basis. The deal covers 5.3 million tonnes worth of CO2 permits, valued at 412 million crowns at current prices.

Litvinovska Uhelna beat out Czech energy holding EPH for Chvaletice. EPH, whose biggest shareholder is billionaire Czech businessman Petr Kellner, acquired a 49 percent stake in Slovakia's SPP gas company in January and has built up funding to expand in central Europe.

CEZ's hold on the Czech market has gradually slipped with competition from companies like EPH and Czech Coal, which also has power generation ambitions.

CEZ shares dipped 0.4 percent to 573.90 crowns, off lows last seen at the start of the 2008 global financial crisis. ($1 = 19.7851 Czech crowns)

(Editing by Greg Mahlich and Keiron Henderson)

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