Shaking out the Czech transmission & distribution industry – a study of

regulatory concessions

© Utility Consultants Ltd 2003

Prepared by Utility Consultants Ltd

Disclaimer

This research report is of ageneral nature, and is not intended as

specific professional advice. Accordingly, neitherUtility Consultants, nor its’ directors and shareholders,

shall be liable for any loss or damage arising fromaction or inaction based on this research report.

The information herein may date rapidly,but is correct at the time of writing

(11 April 2003).

Contents

Disclaimer

Contents

Introduction

Geographicaloverview

Industrystructure &ownership

Proposedshake-out

Issuesarising

Contactus

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Introduction

The CzechGovernment is in the

process of re-configuringthe electricity industry in

the build up to fullprivatisation

This report examines arecently approved deal thatis intended to strengthen

the Czech industry

This report alsoexamines some of the

anti-trust and subsidy issuessurrounding this deal

This reportis intended only as a brief

overview, and does not dealexhaustively with the Czech

industry or with anti-trustand securities law

Geographicaloverview

Source – United States Government EIA, April 2002

Industry structure& ownership

StredoceskaEnergetika AS

(STE)

VychodoceskaEnergetika AS

(VCE)

SeveroceskaEnergetika AS

(SCE)

ZapadoceskaEnergetika AS

(ZCE)

SeveromoravskaEnergetika AS

(SME)

JihimoravskaEnergetika AS

(JME)

JihoceskaEnergetika AS

(JCE)

PrazskaEnergetika AS

(PRE)

Ceske EnergetickeZavody (CEZ)

Ceska Prenosova(CEPS)

Varying stakes

Dis

trib

uti

on

& s

up

ply

Gen

erat

ion

& t

ran

smis

sio

n

CEZ

CEPS

NationalProperty Fund

(67.61%)

InstitutionalInvestors(17.40%)

Custodians(11.08%)

Individuals(3.91%)

SeveromoravskaEnergetika AS

(SME)

NationalProperty Fund

(48.7%)

CzechGovernment

(35%)

E.On(8.5%)

EdF(9.2%)

JihimoravskaEnergetika AS

(JME)

Municipalities(7.84%)

NationalProperty Fund

(46.66%)

E.On(45%)

Others(0.5%)

JihoceskaEnergetika AS

(JCE)

Others(3.32%) – carries

33.37% votingrights

NationalProperty Fund

(48.05%)

E.On(13.34%)

Municipalities(23.8%) – novoting rights

PrazskaEnergetika AS

(PRE)

City ofPrague

(50.78%)

CzechGovernment

Geso RWE

Precise details not available

ZapadoceskaEnergetika AS

(ZCE)

CzechGovernment

(52%)

E.On(48%)

SeveroceskaEnergetika AS

(SCE)

Municipalities(5.85%)

NationalProperty Fund

(48.04%)

Privateinvestors(28.09%)

Other(17.13%)

StredoceskaEnergetika AS

(STE)

CzechGovernment

(65%)

RWE(35%)

VychodoceskaEnergetika AS

(VCE)

CzechGovernment

(58%)

E.On(42%)

VCE

PRE

JMEJCE

ZCE

SCE

STE SME

Proposedshake-out

Broadobjectives

Strengthen marketposition as the EU

industry consolidates

Retain as muchembedded value as

possible forprivatisation

Initiallyproposedre-shuffle

Implicit concessionthat 66% of CEPS would

be transferred to theCzech government

Czech governmentwould sell its stakes in

STE, VCE, SCE, ZCEand SME

Initialconcessionsimposed by

UOHS

CEZ mustsell its minority stakesin JME, JCE and PRE

All of CEPS mustbe sold (not just the66% that was to besold to the Govt.)

CEZ muston-sell 100% of anyone of the other five

Additionalconcessionsimposed by

UOHS

CEZ must on-sellstakes in 4 of the 8companies within

1 year

Issuesarising

Issuesarising

Relativevaluations of assetsto be swapped mayhave represented a

hidden subsidy

Creationof market

dominance

Possiblebreach of securitieslaw due to timing of

media releases

Initially proposeddeal (with implicit

concessions)

Initial concessionsimposed by UOHS

Appeal againstinitial concessions

By CEZ

Additional concessionsimposed by UOHS

Appeal againstadditional concessions

by CEZ

Investigationof hidden subsidy

by UOHS

Refusal by Czechgovernment tore-value assets

UOHS acceptsgovernment’s

stance

Investigation bySEC of possible securities

law breach

CEZ announcesintention to defend

accusation

Appealrejected

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