ČEZ solar probe probably has political undercurrent

The surge of interest in two huge ČEZ solar deals probably comes down to attempts to discredit Defense Minister Alexandr Vondra 

Tomáš Hlaváč 10.6.2011
 | na serveru Lidovky.cz | aktuální zprávy foto: © ČESKÁ POZICE, Richard CortésČeská pozice

A popular SMS message has been doing the rounds recently following the stepped up activities of the special Finance Ministry auditing team commonly referred to as the FAÚ. The message, which roughly translates as “One, two, the FAÚ’s coming for you,” has on recent evidence been enough to strike terror into the hearts of businessmen and politicians alike.

According to the latest reports, the unit, which is sometimes referred to in media shorthand as the “financial police,” is now aiming pretty high with the early warning SMS message apparently landing up on the mobiles of managers of one of the country’s biggest companies, state-controlled power giant ČEZ.

The business daily Hospodářské noviny (HN) earlier this week reported that the FAÚ was probing the circumstances surrounding the purchase last year by ČEZ of two massive solar power projects. The company Amun.Re, according to HN, won the contract to construct the facilities without a public tender and with excessive profit margins. HN also indicated that the deal might have been used for money laundering.

The reaction to this news on behalf of Amun.Re was not long in coming. The company took out a full-page ad in Friday’s edition of HN to refute allegations in the original article — and gave notice that it would sue the paper for the damage to its reputation. The damages would be used for ecological profits, the company said.

In the ad, Amun.Re denied making exorbitant profits on the deal. It said the terms the subject of tough negotiations with the costs per MW of capacity in line with industry norms. Furthermore, the terms of the contract meant that it bore most of the risks for the turnkey delivery of two massive solar farms, not ČEZ. The company also refuted any links with any Czech political personalities or any illicit connections with ČEZ managers. Amun.Re added that all its activities are legal and above board and it can’t be accused of money laundering.

If the whole episode demonstrates one thing, it is the high-powered links between the FAÚ and some parts of the Czech media.

But the coincidence of the whole issue blowing up now, when the Kč  5.1 billion ČEZ deal in the north of the country near the former Ralsko military training area was already given ample coverage at the height of the Czech solar boom at the end of 2010, also deserves examination.

Coalition power battle

The fresh focus on the deal would appear to be part of a power battle within the government coalition. The target of the new probe would appear to be Defense Minister Alexandr Vondra of the Civic Democrats (ODS) and his close collaborators. One of those collaborators is ČEZ manager Vladimír Schmalz, who was responsible for the solar power plant deal.

The target of the new probe would appear to be Vondra and his close collaborators, like ČEZ manager Vladimír Schmalz, who was responsible for the solar power plant deal.

As Amun.Re pointed out, the profit it made of around Kč  670 million from the deal hardly looks excessive. ČEZ can expect an annual operating profit from the solar facilities of around Kč 686 million. In other words, for the whole of the facilities’ 25 year lifespan they should earn Kč 17 billion for the initial investment of Kč 5.1 billion.

ČEZ will also be earning every year more than the profit made by Amun.Re for constructing the solar facilities. Contacted by Czech Position, Schmalz said he was perplexed why the financial police were looking into this deal.

Aside from the media spotlight on the deal itself, a fair bit of attention has also been devoted to the corporate structure of Amun.Re. Here, there are indeed layers, which to put it politely, do not usually feature in normally constructed companies.

Czech Position delved into the ownership of Amun.Re and found that the company is jointly owned by Martin Shenar and half, through the company Wilsea, by the Cyprus-based holding Cheerlade.  The special shares in the hands of Cheerlade give it the right to 75 percent of the profits of Amun.Re in spite of the fact that it only has half the shares.

This type of unusual corporate construction is not illegal, but it is usually made use of when the partner benefitting is making some extra contribution to the company apart from the common equity one. The format is also useful for getting an advantageous loan or for using personal connections for landing a contract. According to avialble information, a loan was not needed because ČEZ provided Kč 2.0 billion up front to cover initial costs. So what was the purpose of the corporate and equity construction?

From the commercial register, it’s not difficult to ascertain that apart from Shenar, the other representatives of Amun.Re come from the legal firm Šachta & Partners. The firm represents Cheerlade and all its subsidiaries in the Czech Republic, most of which are fairly small and involved in renting property; information about them is not readily available.

Both the news servers iDNES and iHNED have highlighted the many layered cooperation between Šachta & Partners and Ivo Rittig, who is often linked by the media to the ODS party.  That would not be unusual were it not for the fact that Rittig is also liniked to ČEZ. From memory, among one of the companies featuring in a consortium bidding for a ČEZ tender for outsourcing its IT activities was Alseda Datam, which is directly linked to Rittig. The tender was eventually cancelled by ČEZ in 2010.

In its newspaper ad, Amun.Re insists that Rittig has no involvement in the company activities and that any attempts to make those links stem purely from tabloid journalism to pump up speculation and interest.

Cyprus blind alley

Czech Position was able to look into the ownership of Cheerlade through the Cyprus company register. Unfortunately, this venture was for all extents and purposes a journey up a blind alley with one Cyprus-registered anonymous holding company leading to the next one. One interesting fact is that most holdings, such as Cheerlade, have a corporate director who is not a person but another company. Such directors follow the commands of the real owner. One company can in effect perform the function of corporate director for hundreds of different companies and be sited at the same address. One interesting fact is that most holdings, such as Cheerlade, have a corporate director who is not a person but another company.

Cheerlade’s corporate director is the Cyprus-based company Altruco Management Limited. It could be a coincidence that the same company features as the corporate director for Cyprus-based Rittig & Partners Limited, the parent company of the firm with the same name in the Czech Republic, which are both owned by Rittig.

Czech Position asked Rittig for an explanation. The following was provided by his lawyer David Michal of Šachta & Partners: “Cheerlade is a company that from its creation has belonged to members of the legal firm Šachta & Partners. Ivo Rittig is not connected with its activity nor with the activity of Amun.Re. Given the fact that Ivo Rittig has long been a valued client of this legal firm, it is normal that the headquarters of his Czech and foreign firms are sited at the same address as those of our other clients. That is the case for Rittig & Partners Limited, which has the same address as the company Cheerlade and has the same service provider, that is manager, which is the company Altruco Limited. As is usual in Cyprus, it is an office address, where around more than 500 other companies are located.”