Czech Republic

1
Czech Republic

• Monica Shah
• Abby Price
• Kelly Steinhebel
• David Levitt

2
Overview

• ERO regulation
• Ownership of utilities and transmission capacity
• Gas market reform history
• Electricity
• Infrastructure
• Liberalization
• Price regulation
• Summary

3
ERO Regulation

• 2001 Energy Act created Energy Regulatory Office
  (ERO)
• Grant licenses to operate in energy sector
• Regulate and set max prices
• Resolve disputes related to access to
  transmission or distribution networks
• Responsible for opening of market
• Manage privatization

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Ownership of Utilities and Transmission Capacity

• Electric
• CEZ owns majority of production capacity
• - 68 owned by National Property Fund
• Remaining 32 distributed voucher privatization
  in 1992 and 1994
• CEPS owns transmission capacity
• 34 owned and operated by CEZ
• 66 owned by state, considering sale

5
Gas Market Reform Timeline

• 1989 Czech Gas Works (CPP) in initial move
  towards capitalism
• 1994 CPP divided into 8 RDCs and Transgas
• Monopoly on gas imports
• Owns and operates transmission system
• Operates almost all storage facilities
• Sells gas to RDCs
• 1994-98 Privatization begins with vouchers
• 2001 Transgas becomes joint stock company
• 2002 Transgas and shares in RDCs sold to German
  RWE for 3.6 billion

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Shares sold by the National Property Fund of the
Czech Republic 2002

• Transgas 96.99
• Prague Gas 49.18
• Central Bohemian Gas 48.49
• Eastern Bohemian Gas 47.10
• Northern Bohemian Gas 49.18
• Western Bohemian Gas 45.84
• Southern Bohemian Gas 46.66
• Southern Moravian Gas 47.65
• Northern Morovian Gas 40.05
• RWE gas received only minority shares of these
  companies

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Ownership of Utilities and Transmission Capacity

• Gas
• Transgas- sold along with majority shares in 6 of
  8 RDCs to German RWE in 2002
• One-package sale
• Owns 32,000 of gas pipelines
• 2 RDCs Foreign investors own majority shares

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Electricity - Infrastructure

• CEZ
• Joint stock company majority owned by NPF
• Dominant electricity generator
• Most of electricity sold to 8 regional
  distribution companies (REAS)
• CEPS
• Sole transmission operator
• 66 owned by state
• 34 owned by CEZ ? will sell to third party
  ordered by Competition Office
• Exclusive license for transmission until 2026

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Electrical Transmission System
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Electricity - Infrastructure

• Regional Electricity Distribution Companies
  (REAS)
• Natural monopolies in respective regions
• CEZ controls 5 distributors and minority interest
  in other 3

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Electricity - Liberalization

• CEZ must sell minority stake and one of majority
  stake in distribution companies
• Attempts to sell CEZ failed
• Timetable for third party access
• 2002 largest customers (approximately 2/3 of
  demand) able to choose supplier
• 6 out of 77 eligible customers switched suppliers
• 2006 all customers able to choose their supplier

14
Prices

• Moving away from industry subsidy of residential
• 22 VAT in 2002 across the board
• Gas
• Quarterly price adjustments at the retail level
• Monthly price adjustments at the wholesale level
  based on historical ave. fuel price
• ERO determines rate with Transgas input
• Two decreases in 2002, 4-5 increase in 2003
• Electricity
• Individual rates to captive RDCs and end users
  prepared for 2003 with aim of eliminating cross
  subsidies
• Low voltage users 50 of cost is transmission,
  41 generation, 7 service fee
• High voltage users 29 transmission, 60
  generation,10 fee
• Small increase in transmission fee in 2003

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Change in Gas Price
16
Change in Electricity Price
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Summary

• Recent efforts towards privatization to
  accommodate European Union
• Expected entry on May 1st
• Much of privatized industry still held
  indirectly by state, especially electric
• Prices regulated by ERO
• 3rd Party access to electricity grid by 2006, 1/3
  of gas grid by 2008
• Is it working?