CEZ Can't Fund New Czech Reactors on Its Own, Minister Says

(Bloomberg) -- Czech utility CEZ AS can't invest billions of dollars in new nuclear reactors without government assistance, in spite of what the nation's prospective leader says, according to the government's industry minister.

The Prague-based utility, while profitable, must protect the interest of minority shareholders by offering some form of state guarantee in any nuclear project, according to Industry and Trade Minister Jiri Havlicek. He rejected the view of billionaire Andrej Babis, whose ANO party is poised to win this month's general election, that CEZ should finance new reactors on its own.

“Without the participation of the state –- whether in the form of taking over CEZ's nuclear assets or some form of indirect state support –- there won't be any new nuclear units,” Havlicek said in an interview. “CEZ is definitely profitable, but you have to look at this complex question as a whole and take into account minority shareholders and the profitability of the project.”

The Social Democrat-led government, which controls about 70 percent of CEZ, has repeatedly called for new nuclear capacity as aging coal-fired power plants and Soviet-era reactors are retired in the coming decades. 

So far, the state has failed to agree on providing the financial guarantees that would render such a massive project profitable. CEZ canceled a $15 billion tender for a new reactor in 2014 after electricity prices slumped by almost two-thirds from the levels in 2008 when the decision to build was made.

Babis, a former finance minister whose ANO party has governed with the ruling Social Democrats in an uneasy coalition, has often criticized the CEZ management for being too independent. He pledged in a Bloomberg interview last week that as prime minister he would bring the company under more direct government control.

The risk of saddling investors and taxpayers with a giant bill for new nuclear units has weighed on CEZ shares this year as its European peers such as RWE AG surge. The Czech utility has gained 3 percent since January despite year-ahead power prices trading near the highest in almost four years.

CEZ rose 0.8 percent to 443 koruna ($20) by 3:40 p.m. in Prague, while Europe's Stoxx 600 Utilities Index dropped 0.7 percent.

Havlicek's ministry is preparing three scenarios for funding the nuclear project -- all involving the state -- and urged the next government to use them as guidance.

“It's obvious there are no easy solutions,” the Havlicek said. “It's not possible to simplify it like Mr. Babis did. Profit generation at CEZ can't be the only source.”

To contact the reporter on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net.

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net, Andrew Reierson, Rob Verdonck