 Upcoming
business opportunities |
As in any transforming country, the first business
opportunities came with the privatization of state-owned
enterprises. "However, privatization is nearing
its end," says the Prime
Minister Mr. Špidla, pointing out that
the private sector in the Czech Republic is already
larger than for instance in France. On the other
hand, the remaining state companies are often those
investors are strongly interested in. The three
prime examples are CEZ, the energy producer and
distributor, owning also most of the regional energy
distribution companies, Cesky Telecom, the dominant
telecom operator and the co-owner of Eurotel, the
largest mobile operator in the country and Unipetrol,
a chemical and petrochemical conglomerate.
CEZ is undoubtedly the largest remaining privatization,
offering the new owner a very strong position on
the Czech energy market with abundant production
possibilities (from nuclear and coal power plants
to natural gas and water ones), modern distribution
grid and the distribution companies delivering energy
to the end customers. While the privatization is
not imminent (new energy policy must be formulated
first), the deal is already taking shape and Electricité
de France is still cons CEZ.
Investors will also closely monitor the developing
energy legislation both at the national level and
within the European Union since some disagree with
the CEZ's acquisition of most of the regional distributors.
"I don't think it is very good for the domestic
market. Some companies in other countries are vertically
integrated and there is still competition there,
but I don't think there will be competition in the
Czech Republic with only one Czech company. I believe
that we have to find a suitable compromise to succeed
on the international market but also to have a balanced
and competitive market at home," warns Mr.
Petr Zeman, CEO of Východoceská Energetika,
co-owned by German energy conglomerate E.ON.
The first try to privatize CEZ fell apart due to
the excessive demands of the government (both in
the terms of price and other conditions regarding
for example volume of lignite bought from Czech
coal mines) and similarly excessive demands plagued
the dragging privatization of al en Telecom, the
dominant phone operator. The botched deal with Deutsche
Bank and TeleDanmark has shown the weak points of
the governments previous policy that believed that
postponing the sale of the state operator (and in
the process slowing down the telecom liberalization
to make sure the sale will bring a higher price
if monopoly position is protected as long as possible)
was a mistake that will cost the country millions
of Euros. "Now, the next challenge is the privatization
of the dominant operator, because the government
decided to sell 51% of its shares." says Mrs.
Gürlichová, Deputy Minister for Transport
and Communications.
For companies interested in the chemical sector,
an interesting possibility may open up as soon as
this year when the state tries to sell again Unipetrol,
a chemical and petrochemical conglomerate. International
players such as Austrian OMV, Hungarian MOL or Conoco
have already shown interest in acquiring a major
position in the traditionally strong Czech chemical
industry and others are expected to join the bidding.
Besides these three major companies, the government
is also looking into ways of streamlining Czech
Railways and dealing with the mining and steel industries.
As for the railways losing billions of crowns every
year, the government split the company into two,
the first taking care about the railway infrastructure
and the other about people and cargo transport.
There are even plans to float stocks of the railway
on the stock exchange or find other ways of attracting
investors that could improve the efficiency of the
company effectively run by its unions instead of
appointed management.
Mining, the traditional flagship industry for almost
50 years after the war, has undergone major restructuring
in the last ten years with many coal mines being
closed down. "We mine about 50 million tones
of lignite and 15 million tones of hard coal a year,"
Mr. František
Kubelka, Deputy Minister Energy Policy, says.
Lignite is used mainly in power plants, so the future
of lignite companies is very closely tied to the
future of CEZ and the whole Czech energy sector
(indeed, guarantees on the amount of lignite bought
from Czech mining companies were among the conditions
the Czech government set as a part of the failed
CEZ privatization plan). |
There are three companies
which are mining lignite. Mostecká Uhelná,
a fully privatized while the other two - Severoceské
Doly and Sokolovská Uhelná - still
have majority state ownership. "With regards
to the privatization of these two, we are preparing
the update of our national energy policy and then
we will decide whether they will remain in the hands
of the state or be privatized," Mr. Kubelka
says defensively while many industry insiders believe
the cash-strapped state will have the only option
- sell.
The mining of hard coal with production of about
15 million tones is a much more serious issue that
must be dealt with on the European level. For example,
Germany produces 30 million tones and imports 30
million tones of hard coal, similar to many other
European countries. Only two European countries
export coal: Poland and the Czech Republic. Poland
mines about 100 million tones each year, consumes
70 million tones and is able to export 30 million
tones. "This is where we see the danger, especially
since Polish coal - unlike Czech - is subsidized,"
Mr. Kubelka points out.
Steel industry, centered in Northern Moravia, in
and around Ostrava, is another major challenge various
Czech governments have been groping with for many
years. "Just like in many other European countries,
steel industry is a "sensitive industry branch"
that has to be taken care of carefully and in line
with the EU rules," says Mr. Kubelka. "Twelve
years ago, the average production was about 10 million
tones of steel every year. Currently, the output
is about 6 million tones which I believe to be a
sustainable production," he adds. Most of the
steel production is exported but there is also large
volume of steel imports, especially in high value-added
areas such as metal plates for cars, suggesting
there is even room for new developments within the
steel industry.
Privatization is not the only source of opportunities.
There is still enough space and attractive incentives
to bring in new greenfield investments. Once these
large investors are in place, they also bring many
small and medium-size businesses, often those that
work with them in their home country. Foreign investors
and especially French companies are also well-poised
for cooperation in the energy sector as the Czech
Republic is one of the five Central European countries
that can plan, build and operate a nuclear power
plant. "New opportunities will also arise in
the airline industry, weapons and defense industry,"
says Mr.
Špidla .
The government is also trying to diversify the investments.
"We still focus on automotive, electronics
and engineering as these are the three major sectors,
but companies in biotechnology and pharmaceuticals
increasingly invest here as well," says Mr.
Jahn. He expects more in terms of pharmaceuticals
and biotechnology investment as well as services
and R&D projects, CzechInvest is trying to promote
both directly and through encouragement of cooperation
between investors and Czech universities. "Companies
such as Rockwell, Phillips, Honeywell or Volkswagen
have had an R&D center attached to a Czech university
for quite some time already," Mr. Jahn lists
a few examples. More support may also be on the
way. "We want to support industrial research
since there are many engineers and technicians who
would be able to cooperate on projects in the European
Union and worldwide," says Mr.
Václav Petrícek, Deputy Minister for
Investment Policy
While the general level of incentives is the same,
investors can achieve two additional bonuses. One,
as mentioned earlier, relates to high-tech investments,
the other is focused on companies planning to set
their operations in any of the two regions with
high unemployment: Northern Moravia and Northwestern
Bohemia. Another major advantage investors can use
is the established and prepared industrial zones.
"The benefit of an industrial zone is the possibility
to come and start construction rapidly with basic
infrastructure already existing and installed, which
is a big incentive because speed is always a big
concern. You have a fully prepared site for a symbolic
price," Mr. Jahn explains.
CzechInvest is also trying to make sure investors
are satisfied not only when they come but throughout
their business activities. "We are improving
our aftercare service to ensure that our current
investors are satisfied," explains the CEO
of CzechInvest. |
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