There is no doubt that your company has been and is still very important for the development of the city, of Prague. Could you give us a brief historical background about Prazská energetika, a.s. ?
Company Prazska energetika, a.s., has a very long history - it was established in 1897, which means, that during this year we will celebrate 103th anniversary. At that time company provided all the electricity production for the capital city, construction, maintenance and operation of all electric tram routes, electric lighting in the streets and at home and of course power distribution to large industrial companies, small businesses and households. In this form company existed till the end of 1945 (end of WWII), and after that the production was detached from the company and Prazska energetika, a.s., from that time was a electricity distribution company only. Company purchases 96 % of electricity from EZ, a.s., (biggest Czech electricity producer) further on app. 3% from Prazska teplárenská, a.s., (local producer of heat and electricity) and the rest from small producers. Since 1 July 1990 Prazska energetika, a.s., was separated from EZ, a.s., and as a joint-stock company was established since 1 January 1994. Shareholder structure is as follows: app.48% owns the state (Fond of National Property), 34% owns the city of Prague, app. 16% belongs to the German company GESO AG and the rest to individual investors and investments funds.
Geso AG together with Municipality of Prague has more than 50 per cent votes at each general meeting, which practically means that these two companies are decision makers at the general meetings.
Could you give us a brief overview about the latest financial results of Prazska energetika. a.s. For example at this moment it seems that the winter is not very cold. Is it bad for you, that kind of winter, does it affect your results compared to last year ?
Yes of course, because the supply of electricity depends on the weather conditions and if the weather is like this winter it means that we will sell probably less electricity than during the same period of the last year.
Now (21 January) I can only estimate the financial results of the last year -1999 - but I am very proud to say, that according to preliminary results of the last year we had the best results in the company's history. We achieved the highest profit in the history of the company - 690 mil. CZK after taxation.
We also achieved good results in other areas (revenues), we had to allocate a lot of money for capital expenditures. Since 1995 company invested each year high amounts especially to the network, information technology and other company infrastructures. In the year 1995 the total company,s investment achieved about 1 billion CZK; in 1996 it was more than 1 billion CZK, in 1997 1,5 billion CZK and in the years 1998 and 1999 investment were about 1.9billion CZK each year. For the year 2000 we expect app. the same level. In addition we expect 1.8 billion CZK capital expenditures also. The main reasons for investment to the network were the following:
the necessity of the replacement and modernisation of the low (even 6 kV) and high tension networks with aim of increasing capacity and increasing operating in order to satisfy customer requirements
extending and strengthening the network in conjunction with new customer requests for connections and increased capacity (esp. new shopping and industrial areas around the city of Prague)
It is well known that Prazska energetika, a.s., is well known for its modern infrastructure so you mentioned some investments you did in order to improve the quality of the network. But could you be as well precise concerning other investments?
We are a distributor of electricity, our core business is to distribute and supply electricity and to offer our clients additional services. It means that our largest capital expenditures had to go to our network. Let me complete the reasons for investing to the network mentioned in my previous answer by the following three main next reasons:
the development of new capacity and the modernisation of extra high tension and high tension substations and switching station equipment - when reconstructing the network we have to use modern technology of course, for example encapsulated switching stations.
perfecting the information and management system in order to improve customer services and increase the reliability of the distribution network
improve the condition of and develop company administration and customer service premises
It is necessary to say that modern technology is very expensive. This fact is for our company very important from the following reason. Electricity prices in the Czech Republic are in general low in comparison with the prices in the western Europe. But prices of technology are on the same level as in western Europe, because we have to buy a lot of products abroad (mostly the western Europe) and we have to pay western prices of course. We are a company which is distributing electricity in the city of Prague and I am sure you noticed that there are practically no overhead lines; cables are laid in underground tunnels, and cables are several times more expensive than overhead lines.
As I mentioned before we had also to cultivate offices for our customers. We built 6 offices for our customers, one of them you can visit directly in this building.
Since 1 January this year we put into operation a call-centre which is quite a new system of contact with customers here in Prague. Each client can call there and our operators solve the majority of risen problems through telephone.
Like hotline. It means that you want to be closer to your customers.
Yes, exactly. We have installed new information systems for invoicing of our customers few years ago. Our company has more than 660 thousands customers, or "contact places" to be exact. We must invoice all of them, of course. We invoice our customers three times a year.
I have a question maybe more about your network and your strategy to enlarge your network. You are also providing energy to the town Roztoky ?
Yes, also.
So is it part of your strategy to extend your activities a little bit more out of Prague ?
We have obtained the authorisation from Ministry of Trade and Industry which was issued in 1995 for electricity distribution in the area of Prague and Roztoky. Roztoky is a very small town of about 10 thousand people. This state of things is not a result of our business ideas and goals, it is decision of the Ministry.
You maybe know, that our government is preparing a new legislation, which should be in accordance with all principles listed in the respective directives of the European Union for the electricity market.
In the future our company will have two core businesses only. One of them will be distribution and second one trade. Distribution will be connected with the current "allocated" areas only, but the second core business - trade will be opened for competition.
So when we see your strategies you say that you always want to become competitive and be closer to your customer. It means as well that you want to be prepared for the liberalisation of the sector, so could you may be tell us more about all the strategies and all your opinion of the liberalisation process?
We started preparation for the future liberalised market several years ago knowing o lot about tendencies bound with the process of the liberalisation of the electricity market in western Europe, Northern America, Australia and New Zealand. We have also to consider that the reform of the electricity market is one of the important obligations to be fulfilled before joining the European Union. Of course it is necessary to open the certain part of the market at the certain time.
First we started to increase the reliability of
the electricity supply, because for each customer
the supply of electricity with very high reliability
is the priority No.1. This was the reason for reconstruction
of our distribution network as I mentioned before. |
Further steps were connected with customer services and marketing. We built new and rebuilt older customer contact centres, established call-centre, we completely changed our information technology and invoicing system.
Now we are preparing changes within the company with the main objective to achieve lower costs. Last year we prepared guidelines of the whole process. We mapped practically all processes in the company from the financial point of view and on this basis we will start the project of rebuilding and reengineering of some processes. We will start this project probably in April this year.
When talking about strategy of our company I must mention problem of prices of the electricity in the Czech Republic. In our country are from some reasons regulated electricity prices (Ministry of Finance performs price regulation based on proposals of Ministry of Industry and Trade). These prices are valid for the whole country, even in spite of the fact, that distribution costs of each distributor are various.
Next problem regarding the electricity prices in the Czech Republic is fact, that prices in our country are generally too low. This is valid in different extend for different tariffs. Especially prices for domestic customers, household residents are low and in many cases do not cover the costs. This is one of the reasons for increasing electricity prices since 1 January 2000 at 15%in this tariff segment. Approximately the same price increase will be in the years 2001 and 2002. At that time the electricity prices in domestic customers category should reflect real costs and during this year the liberalisation of the electricity market in the Czech Republic can start.
The liberalisation means also that you will be able to buy electricity from any producer, Czech or foreign. So are you also looking for may be to buy more competitive electricity from foreign companies ?
We are located in Prague and Prague is in the centre of the Czech Republic. In the new legislative will be so-called principle of third party access (TPA). It means that our company can buy electricity from anybody within the Czech Republic, but from abroad it will be limited by some rules which are written in new directive - the rule of reciprocity. This is one limitation. The second one is capacity of the transmission system. Transmission in the Czech Republic is owned by CEZ, a.s., now. My opinion is, that the transmission system must be completely separated from CEZ, a.s., because the directive clearly determines separation of producers, transmitters and distributors.
In the proposed law is given that the opening of the market will start in the year 2002 and eligible customers will be customers with an annual consumption 40 GWh and more. It is a very small number of customers for the first year. Maybe two years later eligible customers will be all customers which will have yearly consumption more than 9 GWh. Since the year 2005 there will be all customers that are supplied from high voltage network and since 2007 all customers will be eligible. In the beginning of the opening of the market there will be big pressure.
In the first mentioned group we have two customers only, and I don't know exactly how many customers will be available in the Czech Republic in the first year of liberalization (2002) in this group, but they will be only several.
I suppose all big customers will be attacked directly by CEZ, a.s., because there will be third party access not only to transmission grids but also to the distribution network available. Further they will also be attacked by various electricity traders. These electricity traders are preparing for the time when the electricity market will be opened in the Czech Republic and they will also try to influence these customers by all means to get them as the customers. I am sure the competition in the electricity sector will be very strong and sharp and we have to be prepared for that.
One thing is for sure - you will be at full steam to be well prepared for this situation.
Yes. We must be very well prepared and we must do everything to be prepared in our both core businesses - distribution and trade.
In which areas of your activities are you interested to attract any partners or investors ?
We are in special situation in comparison with other distributors in our country. Of course, the majority of our company is in hands of Geso AG and the Municipality of Prague. But there exists a possibility for foreign investors to buy shares directly from the National Property Fund (app. 48% shares) because I think the Czech government will decide quickly to sell part of these shares because of the fact they already lost the control about our company.
This situation is quite different from that one in other seven electricity distributors - where the firm government decision will be taken within next 1-2 years. For potential investors is this situation big opportunity.
May we talk a bit more about investment, about know-how, about distribution, and upgrading your network.
We know that we must continue to improve our distribution network. We have prepared a new cable line 110 kV to connect some important substations. This will be a large investment of more than one hundred million CZK.
The reliability of supply in the city of Prague is on relatively a good level. But in comparison with capitals of western European countries the reliability is a shape worse.
As I already mentioned we invested a lot of money in the past in this sector - network.. The second important sector where we will invest is the area of information technology. The situation in the fully liberalised market will be in the future more complicated than now. For example - at the present time the owner of a electricity meter is the distribution company, but in the future it can be distributor or supplier of electricity or somebody third. We must be prepared for such a situation and we must be prepared even to offer services bound to electricity measurement to the third body also, not only to distributor or supplier.
As a remark to this point - all these three methods exist in the world. For example in the USA I had opportunity to see all possibilities.
There is no doubt that your company is very successful but you as the chairman of the board, how did you achieve at this position ? Could you give us a brief background about your own professional experience ?
I have been working in the electrical industry exactly thirty years. I started after finishing a technical education in 1969. I started my professional career in Severo eská energetika, a north Bohemian distributor. I worked there at that time in a factory for 9 years. After that I moved to Pilzen and the reason for that was not professional but private because my older son who is now thirty had troubles with air in northern Bohemia. Now is quite different situation but at that time in Teplice where I was living was very bad air and he got in his 7,8 years pneumonia. And this was the reason for my leaving northern Bohemia and I moved to Pilzen and I work there for the electrical distributor Zapado eská energetika in headquarters in Pilzen in the financial department. I also led the department from 1982 till 1994. And at the end of 1994 I was deputy director of Zapado eská energetika after creating, establishing a joint-stock company. Then I was asked by deputy minister in 1994 to come here because at that time Ministry of Trade and Industry was the only owner of the company. The joint-stock company was established in 1994 and this proposal I obtained in December 1994. Since 1 January 1995 I have been here as a chairman and managing director.
What has been your most satisfying personal achievement ?
I think that last year we had the best results in comparison with all distributors in the Czech Republic, first of all. I also think that we are doing everything to be prepared for the open market.
What would be your final message to our readers ?
Don't be afraid and don't hesitate to invest in the Czech Republic! |
