Bloomberg News

Czech Heating Plant’s Coal Contract Positive for CEZ, Wood Says

March 02, 2012

CEZ AS (CEZ), the Czech Republic’s largest utility, has “strong ammunition” in negotiating new contracts for the supply of lignite thanks to a 10-year contract between the Pilsen district heating plant and Sokolovska Uhelna miner, Wood & Co. said.

The recently signed contract fixes the price of the commodity at 40 koruna ($2.14) a gigajoule, which will be viewed by the industry as a benchmark for other suppliers, Wood analyst Bram Buring said in a note to clients.

CEZ is locked in a court dispute with supplier Czech Coal Group, a mining company controlled by billionaires Pavel Tykac and Jan Dienstl who plan to double the price of lignite after the contracts with CEZ run out at the end of this year. The state-controlled utility depends on Czech Coal for about 8.5 tons of coal a year, or about a quarter of the supply it buys from outside sources and a half of Czech Coal’s production.

“We believe that the PT contract is, on the margin, good news for CEZ,” Buring said in the note. “It is fairly strong ammunition for CEZ and other energy producers to argue that Czech Coal’s expectations are unrealistic.”

A new 70 koruna price would reduce CEZ’s earnings before interest, tax, depreciation and amortization 4 percent, analysts have estimated. CEZ, which gets 60 percent of the brown coal it burns from its own mines, is less exposed to price increases than smaller rival EP Holding and other Czech heating utilities.

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

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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