Czech intelligence agency to track Čepro sell-off

Since PM Nečas failed to name reps to talks on the sale of strategic state energy firm Čepro, the BIS intelligence agency has stepped in

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Instead of forming a long-term strategy for developing  key state-owned oil infrastructure and distribution firms Mero and Čepro, the Czech government will allow buyouts by foreign firms; the so-called advisory council of economic ministers has approved a “Proposal for Company Strategy of Čepro” and plans to hold a tender for a consultancy to advise on acquisition and merger of the strategic firm.

Two Central European oil majors have expressed interest in buying into the highly profitable Czech state enterprise Čepro: Hungary’s MOL (which controls Slovak refiner and distributer Slovnaft) and Poland’s PKN Orlen (which owns Czech refiner Unipetrol).

Solely owned by the Ministry of Finance, Čepro operates a 1,100-kilometer pipeline network for the distribution of petroleum in the Czech Republic and Slovakia and owns 192 Euroil filling stations in the Czech Republic. MOL and PKN Orlen are also coveting Mero — the operator of the Czech crude oil pipeline network and storage facilities that are in the hands of the Ministry of Industry and Trade (MPO). And now the Czech government is planning to sell at least a minority stake in Čepro.

What’s striking is that it appears Prime Minister Petr N?čas (Civic Democrats, ODS) is not concerned about the details of the prospective sale: the Government Office has not appointed a representative to attend the inter-ministerial commission on the Čepro sale, despite the fact the ministries concerned appointed representatives back in the summer. The Government Office long hesitated over the appointment of one of two candidates, but on Sept. 2 announced that it does not have an expert with knowledge in the area and therefore would not appoint a representative to the commission.

What about security?

Of course no one in the commission expected the Government Office to send a petroleum or petrol pipeline expert but someone who would represent the state’s economic and security priorities. N?čas could have at least sent his chief advisor, Martin Říman, who following his replacement by Martin Roman as head of the ČEZ supervisory board, should have the time and capacity.

It appears N?čas’ and the Government Office has decided to boycott the Čepro commission and in the event the process takes a bad turn, the prime minister will make a determined intervention. Because of the government’s hesitation and eventual incomprehensible decision not to send a representative, the commission first convened on Sept. 21, two months later than initially planned.

While N?čas and his close circle appear not to be concerned about the fate of the strategic state enterprise Čepro and possibly Mero, Czech Position has learnt that the National Security Office (NBÚ) — and moreover, the Czech counterespionage and intelligence agency, the Security Information Service (BIS) — certainly are. High-placed officials in the Ministry of Industry and Trade and the Ministry of Finance have informed Czech Position that NBÚ and BIS representatives will attend all the commission’s meetings.

Details on the sale next year

The advisory board of economic ministers — the ministers of finance, industry and trade, labor and social affairs, transport, agriculture, interior, foreign affairs, regional development, and defense — has been charged to ensure the merger of Čepro with one of the interested regional refiners should be realized so as the state retains a majority stake in the petrol distributor.

While such as solution may appear logical, in reality arrangements whereby a strategic partner holds, for example, a 49 percent stake and also has managerial control, are typically troublesome for the state and often result in the state not being able to direct strategy and nor implement specific company policies.

For the time being at least, such considerations are premature: There are many potential scenarios for the integration of Čepro with one of the refiners under consideration and a clearer picture of the options should not be expected before the spring of 2012.

In the coming weeks a consulting firm to advise on the partial sale of Čepro should be selected, but as yet it is not known how the firm will be chosen. If an open tender is held, Čepro would have to reveal sensitive information to the tender participants and the process would be protracted. It is therefore expected that just a few firms who meet the conditions set by the commission will be invited to bid, but it has yet to be decided whether the MPO will call and finance the tender alone, or whether the Ministry of Finance will also be involved.

The commission is to convene next on October 19 when the new chairman, deputy minister of industry and trade František Pazdera, will chair the negotiations for the first time after replacing Tomáš Hüner as deputy industry and trade minister. Initially, the commission was to be headed by Feputy Finance Minister Zdeněk Zajíček — who is also the head of the ODS branch in Prague 5 — but in the summer the advisory council of the economic ministers decided instead to entrust the post to then deputy industry and trade minister Hüner.