CZECH REPUBLIC
In the Heart of Europe


V.I.P. INTERVIEWS
MR. FRANTIŠEK KUBELKA Interview with
MR. FRANTIŠEK KUBELKA


Ex-Deputy Minister for Industry and Trade, Responsible for Energy Policy
Prague, the 29th of November 2002
Tel: +420 224 811 477
Fax: +420 224 853 307
www.mpo.cz


Could you tell us in a nutshell what are your main priorities and functions as Deputy Minister?
At the Ministry of Industry and Trade I am responsible for issues of raw materials, energy and of metallurgy. I consider as my main priorities the update of our national energy strategy, gradual opening of energy markets, gradual phase-out of mining activities, consolidation of our steel industry and maintaining the social peace in our energy and steel industries.

CEZ, the national energy producer produces up to 60% of the total of the country. In the European Union, companies owning more than 30% of the market often spark debates from competition agencies. How will you deal with that situation once you are in the European Union?

First let me tell you about the position of CEZ. It is correct that it has the major share of the market in the Czech Republic. But if we compare it with other European producers, it is not as big as they say. I also have the actual numbers of the specific European producers and, for example, the position of the French producers is definitely much stronger. We believe in unified European market. In this space CEZ will belong to the minor market players.
As far as opening of our power market is concerned, I would like to remind our Energy Act No. 458/2000 Coll., which was adopted in 2000 a was entered in force in 2001. It indicates the time table for liberalizing our energy markets. We have started opening the market gradually this year and we should have it completely open by January 2006.
The market of gas is a little bit different. There we have to catch up a lot just like any other European country and we will have to amend some laws to be able to open it by the planned year of 2007.

There is an increased foreign interest to enter the Czech Republic´s electricity distribution market. How will you encourage them?

It depends primarily on the companies interested and on the conditions of their offer. The new Energy Act is based on the same principles as the European energy legislation, the main principle being that it is the customer who should profit of the competition among the market players. Our market has little barriers for importers. It is mainly because the imports license can be obtained automatically.

There are already a lot of foreign companies in the market investing into several distribution companies. Could you tell your point of view, on how the market benefits from it?

As I have already told you, the liberalization process in EU countries has already proved that open market was able to set the lowest competitive price for customers. If foreign companies come and offer cheap electricity of high quality, they will be able to assert themselves on our market.

In recent years the production of such traditionally strong industries, like the steel industry has been decreasing. What are the plans of the Czech government to keep this very strong part of the economy going?

The situation is more complicated with the steel industry because it follows a sinusoid curve. It is also within the European context a "sensitive industry branch". However, the steel industry is being submitted to a complicated restructuring which keeps on being discussed with the European Commission. Twelve years ago, the average production was about 10 million tones every year. Currently, it is about 6 million tones. It is true that the major part is exported abroad and due to the lack of assortment we also import quite a lot, but we think that the figure of 6 million will be preserved for a long time.

What are the specifics of the heavy industry? How are you promoting it abroad, for example?

The Czech steel industry was developed in the former Czechoslovakia. Within the former planned economies and strategies, it was decided that metal plates for cars would be produced in Slovakia in Košice. These components have the highest value added and we do not produce them here, we have to import them. We have a very strong motorcar industry, especially Škoda company in Mladá Boleslav, which is also one of the main importers from Slovakia. We also had a very important company Poldi Kladno, but unfortunately due to the privatisation and some mistakes in the management, this company does not exist anymore on the market. It could therefore be interesting for the foreign companies to know what we are missing on our market.
Mining is also a strong aspect of the economy. What do you think will happen there?
The mining industry is very important industrial sector in the Czech Republic, especially the mining of hard coal and of lignite. We are still mining uranium, but this activity is going to be finished in about two years, so I am not going to talk about it. I will only talk about coal. We mine about 50 million tones of lignite every year and 15 million tones of hard coal. Lignite is used mainly in the power plants and if the production of electricity in the Czech Republic will be able to compete, the mining industry will also flourish. We think that after the opening of the second block of the nuclear power plant in Temelin, the mining of lignite will decrease to about 45 million. There are three companies that are mining lignite. One of them is fully privatised and the other two companies have majority state ownership. We do not expect any changes with the adoption of new legislation because, as in the rest of Europe, it is a local issue. With regards to the privatisation of the other two companies, we are preparing the update of our national strategy in energy, and then we will decide whether they will remain in the hands of the State or be privatised. The mining of hard coal is a much more serious issue. We do not think that the mining of hard coal is a regional issue, this is a truly global issue. With regard to hard coal mining, it is worth mentioning the Czech Republic, and especially Poland, and to some extent also several EU countries. To take the example of Germany, it produces 30 million tones and imports 30 million tones. It is similar in the other European countries I mentioned before. Only two countries export coal, and these are Poland and the Czech Republic. The Czech and Polish legislation will have to accept rules stated by the European Council. We do not have problems with this because we do not subsidize coal mining as they do, for example, in Germany. We do have problems with Polish hard coal. They mine 100 million tones each year, consume 70 million tones, and are able to export 30 million tones. This is where we see the danger - in the competition with Polish coal, especially since it subsidized. The conditions of coal mining and also other economic conditions in Poland are different of those in our country. In the Czech Republic, hard coal is not much used in the power plants, but is rather used for the production of coke for metallurgy.

Once you enter into the EU there are going to be lots of companies coming directly into the Czech market. Where do you see the most interesting possibilities for the French companies in the energy market?

I think, the Czech Republic is a good place for energy business. For example, we have had a very close co-operation with France in nuclear research. There are also possibilities in machinery industries, because we plan to establish energy parks, etc.

Once the Czech Republic enters the EU, how competitive, do you think, the Czech Republic's energy sector will be?

I think the energy sector is able to compete already now and the same applies to the year 2004. The Czech gas works have been purchased by a German company, and so we believe there will not be any problems in the future. The current owner is a guarantee that we can be compared to similar gas companies in Europe. In addition to that, the fact that there are about 30 billions of cubic meters of gas running to Western European markets through the Czech pipelines, can only in the future improve the position of the Czech Republic, in my opinion. Also, the Czech market has the advantage of having diversified sources. We are able to import gas from Russia as well as from Norway. The situation is similar with crude oil; we also have diversified sources, we take part of our imports from Russia, and the other part runs through the Ingolstadt-Kralupy pipeline. In short, as far as gas is concerned, there is no problem, and I think the same can be said about the electric energy. I have two reasons for that. The prices for electric energy are comparable with the average EU prices. The other reason is that we already export quite big amounts (12 to 14 TW/h this year) of power to Western Europe, among others to Germany. It is important to say here that the power industry is one of the best branches in the Czech Republic. The Czech energy sector is comparable with EU countries both in technical and in qualitative parameters of supplied electricity. We are part of the UCTE system, and the nuclear power plant Dukovany belongs in many parameters to the top ten power stations in the world (as evaluated by the WANO).

How would you address our readers regarding the possibilities they can find here in the Czech Republic?

The Czech Republic is a standard country with a long cultural tradition. Many visitors of Prague and of the Czech Republic have already convinced themselves about it. Also the representatives of French companies resident in our country can produce a lot of information supporting this statement.
In general, the Czech Republic is a good place to live in and to do business in. We shall be happy to greet all French entrepreneurs who wish to invest their money and their skills in our economy.

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