Czech PM expects Bulgaria to keep agreements in dispute with ČEZ

Prague/Brussels, Feb 19 (CTK) - Czech Prime Minister Petr Necas said in a press release Tuesday he expected Bulgaria to keep its international obligations as well as the investment protection agreement in its dispute with Czech power utility CEZ.

The problem of high prices of electricity in Bulgaria is politicised and statements by Bulgarian representatives regarding CEZ are "non-standard," Necas said. He added that he wanted to discuss the situation with CEZ CEO Daniel Benes.

Industry and Trade Minister Martin Kuba said he intended to discuss the situation in the European Commission.

After several weeks of protests against high prices of electricity in Bulgaria, Bulgarian Prime Minister Boiko Borisov said Tuesday that the licence of distributing company CEZ Bulgaria of the CEZ group would be revoked.

"I expect Bulgaria as a member of the European Union to keep international obligations, the European law as well as its own laws, including those regarding foreign investment protection," Necas said.

"I will discuss the situation with CEZ CEO (Daniel Benes) and I also want to hear reasons for such an unprecedented step from Bulgarian representatives," Necas added.

According to Kuba, Bulgaria's conduct is unprecedented and the situation is alarming.

"The situation is, of course, very alarming for us, mainly because Bulgaria as a member of the European Union is acting in an entirely unprecedented way," Kuba told CTK and Czech Television in Brussels, where he attended a meeting of ministers responsible for competitiveness.

"The Bulgarian Prime Minister has announced that licence would be withdrawn from CEZ, but it is necessary to realise that in the EU, a withdrawal of licence is not a political decision. It is a decision that can be made by an independent regulator. The regulator can do so only at a moment when somebody points to some gross errors, enables the other party to protest against such accusation, and if it is proven, the process of licence withdrawal can start," Kuba said.

"This is something completely deviating from the legislative framework of the European Union," he added.

Kuba also said he was going to discuss the problem at Tuesday's talks with European Commissioner for Competition Joaquin Almunia.

The European Commission has not commented on the situation very much so far. The Commission's spokeswoman for energy Marlen Holzner only said the responsibility belongs mainly to the member state, particularly on its energy market regulatory authority.

According to Kuba, it is hard to predict what the loss of licence would mean for CEZ and the Czech state as its main shareholder.

Finance Minister Miroslav Kalousek, however, said Kuba was not entitled to speak in behalf of CEZ.

Kalousek has already asked the CEZ board of directors and the supervisory board to supply him materials concerning the situation. He said he expected to receive them by Wednesday morning. Only after that, most likely on Wednesday afternoon, he will comment on the situation in a responsible manner, he said.

Kalousek added he did not expect the government to discuss the matter at its Wednesday meeting.

According to analyst Petr Hlinomaz of the BH Securities company, the question of withdrawal of CEZ's distribution licence in Bulgaria is premature until the mistakes which CEZ allegedly made are known and reasons for the conduct against CEZ are explained.

The development in Bulgaria most likely means a worsening of business conditions. A deterioration of payment morals and a reduction of margins cannot be ruled out, Hlinomaz said.

"I can agree that the problem has a noticeable political dimension," Hlinomaz said.

Bulgaria accounts for about one tenth of total revenues of the CEZ group, Hlinomaz noted.

"Over the past two years, the parent company collected dividend worth about Kc4.2bn from Bulgaria," Hliomaz said.

Bulgaria is the second country in the Balkans in which CEZ is tackling with problems. In January, Albanian authorities revoked distributor CEZ Shperndarje's licence.

According to Hlinomaz, it is not probable the the problems will spread to Romania, where CEZ also runs a distributor company.

Besides the threat of losing licence in Bulgaria, CEZ has also been fined for alleged errors in placing orders.

Bulgarian Energy Minister Delyan Dobrev has recently accused CEZ of realising up to 80 percent of its orders without holding tenders and signing contracts. According to him, CEZ Bulgaria assigned orders to companies liked to parent company CEZ at the amount of BGN35m (Kc454m) in 2011.