There is no doubt that Transgas is at the crossroad of Gaz transportation in Europe, could you give us a brief historical background of Transgas ?
Transgas' history dates back to some 30 years ago. It was at the beginning of the 1970's when the then Czechoslovak and Soviet governments entered into an agreement saying that Czechoslovakia would become a transit country to promote export gas to Southern and Western Europe. Natural gas consumption all over the Europe has been increasing massively over the past 30 years, and as this consumption was rising, so was the need to develop a system of transit gas system in this country. This was probably the only way for Czechoslovakia to gain access to huge sources of natural gas to help to supply the country itself.
Based on the transit capacity of this country, a technical infrastructure was developed for the various gas users. In retrospect, when I look at the gas system I see that the whole system was developed in a very good way, and it actually covers the whole Czech territory, in fact up to 20 % of the country's energy consumption is met by natural gas.
The fact that the Czech system had been linked to the European gas system even in the past helped to create, develop and promote gas trade in this country very fast and also helped the Czech gas industry to become involved in the European gas industry very fast. I believe that the Czech gas industry and system stands ready to open up to the European market and it is on a good way to meet the criteria which will ensue from the harmonization process between the Czech Republic and the European Union.
Concerning the integration into the European Union, this means that you will have to meet strict environmental protection standards. What are you doing in order to respect the environment?
Looking at the environment from the natural gas perspective, we can see the steep rise of the natural gas consumption over the past 10 years. I will use the figures to illustrate it. In 1990 natural gas represented about 11% of total energy consumption in this country, and today it represents about 20%. At the same time the energy intensity of this country has been declining over the past 10 years, so all these figures bear out one fact: that natural gas and its use has contributed significantly to environmental improvement, not only in this country but in surrounding countries as well, especially the regarding air quality. I'd like to compare us to newly united Germany; the energy structure in Eastern Germany was rather similar to one in the Czech Republic. It was largely dependent on lignite, and we can see now how the natural gas is pushing out the lignit and taking its place in heat generation.
Transgas posted an important increase in profits for 1999. What were the reasons in such a profit increase compared to 1998?
I will try to explain this for you, and I would appreciate if you cautiously consider the figures I will give you. I wouldn't overestimate the impressive figures. Transgas' profit and loss account is very sensitive to the environment in which Transgas operates.
There are three main factors for that. The first factor is how the prices of the natural gas develop in the European and the world scale, because gas prices in a way copy the development of oil and oil product prices. The second factor is the exchange rate between the Czech currency and USD or EURO and the third important factor are the gas selling prices. We can't really influence the first two factors (only by the quality of contracts that we sign). The third factor, selling prices of the natural gas in Czech Republic, are under strict governmental regulation, and these prices fail to reflect whatever is happening around us. The profit figures of 1998 and 1999 reflect profit from gas-transit and gas transmission services (gas going through the country), it does not reflect any profit from gas sale inside the country. In 1998 and particularly in 1999 we saw very favorable external circumstances around us. During those years gas buying prices decreased, the exchange rate between the Czech currency and USD or EURO kept its level, and in those two years again the Czech market made yet another step towards what we call here the price re-balancing. The result was that in 1999 Transgas did not subsidize prices of gas in the Czech Republic, so the figure for 1999 is all attributable to profits from transit sources. The Czech Republic wants to meet the criteria for EU, so for the reasons that I mentioned to you earlier, I believe that the cross-subsidies will never ever come back again. I would like to see this year's profit to be similar to last year.
Transgas presently imports approximately 85% of gas from Russia, but I have noticed that the share of the Norwegian gas import has actually increased in 1999. Do you expect this trend to continue, and are there also other countries from which you are looking to buy gas ?
In 1995 the Czech government approved the concept of securing sources of natural gas for the Czech Republic, and it also approved a program to diversify the sources of natural gas for the Czech Republic. I believe that this is one of the reasons why Transgas has remained in the government's hands as a state-owned company. It has been entrusted with the task to take care of all the supplies. Transgas became the only importer of natural gas to the Czech Republic. The result of this decision was a number of the long-term contracts for gas supplies to the Czech Republic, not only to supply the country with natural gas, but also to cover the whole market with gas supplies.
Now there are two fundamental contracts: in 1997 was signed the contract with Norwegian producers to cover roughly 25% of the natural gas demand, and in 1998 was signed a long-term contract with Russian Gazprom, to meet 75% of total natural gas demand of the CR.
| So there are not going to be any changes? Is the situation settled?
We will see whether this will be settled for next 15 or 20 years. Contractual provisions are as I indicated to you, there may be changes, also in general throughout Europe and the Czech Republic, would of course be affected just like any other country, but I believe that the long term contracts for gas supplies the CR made are important for the stability of the gas industry within the energy sector.
Transgas transports a good deal of the gas to the Western Europe. In which countries are you active and are you presently looking to expand your present gas transit system to other countries?
After the split of the Czechoslovak federation, the position of Czech R.in gas transit has changed. 2/3 rds of the transit volume remained in Slovakia, 1/3 in CR. Important factor which is at play today, is the new route by Belarus and Poland. A new transit contract was signed between the Transgas and Gazprom in November last year and the new system is now being connected into Czech R., through Poland and Germany.This interconnection contributes to the better security of gas supplies to the Germany and France and also enhances the flexibility of the services.
In the near future I don't expect transit through the CR to increase in volume, so I do not expect any significant investments into transit development, but very promising is Transgas's position within the integrated old and new transit, the old being by Ukraine and Slovakia (the traditional one) and the new by Belarus and Poland with Transgas being at the heart of it. Because the system has become open, I think that Transgas will be able one day to offer the services to other partners, even in the oposit direction ,from West to East.
The issue of privatization is still unclear and we are told that the minister of the industry and trade is pushing for the single ..state owned national gas transporter.
What is your opinion about this and how do you see the future of Transgas in this respect?
I'll try to explain what is behind what you have said. In 1994 was a single gas company on the territory of the Czech Rep. split up into what today is Transgas plus 8 what we call regional distribution companies (RDCs).There was a certain imbalance inherent into the split.Transgas remained state owned whereas the RDCs were being gradually privatized and. It resulted in governement loosing its majority equity state (its majority in the RDCs). The result has happened without the government ever making a decision how to finalize privatization of these companies.
I think it was quite a logical that Transgas as big governmental agency, state owned company was assigned a task: "Please go and recover as many shares in those companies to complete the 51% majority." So to exagerate a little bit, Transgas in the end entered the wild privatisation as well, in a way, and has been successful in recovering majority of shares.
The idea to put Transgas and the RDCs together is followed by a second step envisaged by the ministry: after the gas industry is consolidated , it will be privatized. So it does not mean any nationalisation, it means consolidation and later on privatization of the whole industry including Transgas of course.
Our readers are always interested in new business opportunities in which areas of your activities are you interested to have some partners, who would do some investments?
Looking at Transgas's exceptional position in the Czech Republic, and all the Czech gas market, I am thinking of how to take Transgas into the future competitive environment, what I wish for Transgas is to remain a dominant player in the Czech gas market, and that it remains a major transiter of gas and these two objectives are so challenging in themselves that I am not even trying to think about any expansion. I am convinced that Transgas has the necessary prerequisites and preconditions to achieve the objectives .On the other hand there will be many factors in this process at play and I am not afraid to say that some of them will be political, so the way will not be easy.
As a more personal issue, Mr.Tichy, as the Chief Executive Officer of the company, what has been your most satisfying personal achievement ?
I've spend all my professional life in the gas industry, I am CEO for about one year now, a year may be the short time, may be the long time. I believe that the last year was very successful. Signing the contract with Gazprom was the highlight of 1999.This contract will remain in force until 2020,so it's rather open ended towards the volume as we discussed before, but it is very fundamental for ensuring stability for Transgas as such and of course the stability of income.
As a final question Mr.Tichy, what would be your final message to our readers?
Do not be afraid of the Czech Republic, do not be afraid to start thinking about investments into the energy sector and gas industry, there is a potential and opportunities for various gas uses here, I believe that investments in Czech Republic will start to pay back, as they do in other countries. |
