Solar and brown coal bickering to ‘highlight’ 2011

Oil, natural gas, coal and electricity will be key words this year when it comes to economic data

Jedním z hlavních témat v energetice zůstane i pro letošní rok dostavba Temelína. | na serveru Lidovky.cz | aktuální zprávy Jedním z hlavních témat v energetice zůstane i pro letošní rok dostavba Temelína. | foto: © ČEZČeská pozice
Jedním z hlavních témat v energetice zůstane i pro letošní rok dostavba Temelína.

The energy sector will continue to be in sharp focus this year. Oil, natural gas, coal and electricity will also this year be key words in the search for material economic information. We can expect prices to rise and for these price rises to become bones of contention for Czech politicians and major players in the energy sector.

Coal

The fiercest battle is bound to be fought over brown coal (lignite). By promising to push up the price of brown coal — and shift part of the profit margin from coal burners (co-generation plant and power plant operators) to coal extractors — Pavel Tykač, the new 100-percent owner of mining company Czech Coal, is certain to provoke a reaction from ČEZ and Energetický a průmyslový holding (EPH). ČEZ, headed by Martin Roman, and EPH, headed by Daniel Křetinský and Petr Kellner, will try to push brown coal prices into the opposite direction.

Tykač’s adversaries are heavyweights in the energy business and are likely to apply their political contacts to prompt government or Parliament to complicate matters for Czech Coal. We might be witnessing attempts at regulating the selling price of coal or increasing the coal extraction charge mining companies pay to the state or a push for the introduction of some other special tax.

The innocently sounding phrase “increasing the extraction charge” in practice could be equivalent to nationalizing the mines. Nonrenewable mineral resources are state property — mining companies merely have the right to extract these resources provided they pay a certain percentage to the state.

The European Commission also plays a role in the struggle between Czech Coal, on one hand, and ČEZ and EPH on the other; the EU executive arm is expected to issue its verdict this year on whether ČEZ and EPH have been unlawfully hindering competition on the brown coal market in their pursuit to build brown coal-fired power plants.

It has already been more than a year since European Commission representatives raided the offices of ČEZ and EPH. This investigation has, so far, yielded just one formal conclusion — that EPH hindered the controllers in their work, and the holding now risks a financial penalty amounting to up to 1 percent of its total turnover.

Also, the conflict among shareholders of mining company Sokolská uhelná — where František Štěpánek and Jaroslav Rokos have for considerable time been pitched against Jan Kroužecký — promises to be suspenseful this year. Štěpánek and Rokos control the company while Kroužecký, who owns a 30 percent stake, is backed by financial investors who, according to Štěpánek, are Pavel Tykač and Grzegorz Hóta.

In 2009 this case saw not just law suits and criminal complaints but also the emergence of forged documents and the commencement and, a few months later, repeal of a distrainment procedure against mine owner Kroužecký.

Compared to his brown coal-extracting colleagues, Czech billionair Zdeněk Bakala, who owns Prague-listed black coal mining company New World Resources (NWR), is living a quiet and sheltered existence. The price of black coal is rising and so are NWR shares, allowing the company to look about for possible acquisitions. A current and very appealing opportunity for NWR presents itself in the Ukrainian government’s plan to initiate a massive privatization of all the country’s mines.   

Oil

The price of crude oil on the world market is once again on the rise and some experts estimate this year it will exceed the $100 per barrel threshold. Logically this will also lead to considerable fuel price increases and, in turn, to a revival of the political debate surrounding the consumer tax — which takes up a significant proportion of the high gasoline and diesel prices at the filling stations. The price of crude oil on the world market is once again on the rise and some experts estimate this year it will exceed the $100 per barrel threshold.

The high price of black gold provides Karel Komárek’s KKCG holding, which has already been attempting to expand its operations beyond its tiny South Moravian oil fields for many years, with new investment opportunities. In Russia, Komárek’s interests are being represented by Pavel Švarc, who is set to come up with some interesting new projects.

In the Czech Republic, meanwhile, oil transport and fuel trade company Čepro is expected to continue its legal battle with Czech fugitive and alledged crime boss Radovan Krejčíř's “offshoots” and to further increase its economic performance.

It is possible that the plan involving the sale of its EuroOil network of filling stations reappears on the table since energy companies like Russian group Lukoil are eager to expand their business activities in the Czech Republic.

According to Czech Position’s sources, oil pipeline operator MERO will persist in its efforts to buy a stake in the TAL oil pipeline that links the IKL pipeline with the port of Trieste. An ownership stake in the TAL pipeline would secure the company a much better negotiating position with respect to oil transfer capacities of this pipeline if the Russia’s main Druzhba (“friendship”) pipeline would start to dry out.

Natural gas

Natural gas is getting ever more divorced from crude oil. Supplies of liquefied natural gas have caused natural gas prices in Europe to drop. Many of Russian exporter Gazprom’s European customers managed to negotiate corresponding decreases in the price of gas supplied by this company. But RWE Transgas, the dominant natural gas supplier in the Czech Republic, failed to do so, with the German-owned energy giant losing an increasing share of the Czech market to its competitors Pražská plynárenská, ČEZ and EON.

Natural gas storage will also continue this year to be a lucrative business activity. Česká plynárenská, which in 2009 started building a gas storage facility in the defunct Rožné uranium mines, seeks to secure itself a place among the key players in this field.

Electricity

Although the price of electricity on the exchanges went up in recent days, it is unlikely that this indicates some kind of long-term trend. Subsidies provided for solar, wind and other “environmentally friendly” power stations have given rise to an unpleasant paradox. Although on the bourses the price of electric power is low, the price for end consumers is rising. End consumers receive the bill for the artificially high purchase prices of green electricity foolishly laid down by law. As a result, solar panels and wind farms have become goldmines and are shooting up all across the European Union like mushrooms after Chernobyl. The combined power from solar installations ... is already approaching the output of Temelín

And because demand for electricity is not growing at the same pace and green power supplies into the electricity grid are given priority by law, traditional electricity producers are forced to put coal plants out of operation. The combined power from solar installations newly connected to the Czech electricity grid is already approaching the output of the ČEZ’s Temelín nuclear power plant.

We can quite possibly, as a sequel to this solar lunacy, still expect some arbitration suits, with businesspeople active in this field seeking to avert special taxation of their activities. As dubious as the recent legislative changes may be, it seems that this measure at least managed to suppress the boom in photovoltaic power plants.

Unfortunately, there is not much hope for systemic measures which would imply the annulment of the law supporting electric generation from renewable resources and the withdrawal from the commitment to the EU to have 13 percent of electric power produced from these inefficient and uneconomical sources. 

An important topic this year will be the completion of the Temelín nuclear plant. With a view to the huge sum this contract involves, ranging in the hundreds of billions of Czech crowns, and also the strategic significance of the energy source, not just from an economic but also from a political perspective, one can be sure of diplomatic and political offensives coming from the US, Russia and France in support of the offers of their respective companies.