CEZ Ending $15 Billion Atomic Plan Boosts Dividend Outlook

CEZ AS’s decision to cancel a $15 billion nuclear project opens the way for higher dividends as the company won’t need to set aside cash for the new reactors.

The largest utility in the European Union’s former communist east said yesterday it was scrapping the tender for two new reactors at its Temelin nuclear power plant after the government refused to provide any sort of guarantee that would render the project economically feasible.

“The exit from new nuclear should allow CEZ to outline a smaller, less concentrated investment program focused on the Czech Republic, and a more attractive dividend policy,” Deutsche Bank analyst James Brand said in a note, adding CEZ may raise its payout ratio to between 70 percent and 80 percent of profit from the current 50 percent to 60 percent.

Finance Minister Andrej Babis said last month the state, which controls almost 70 percent of the company’s shares, may seek a dividend payout of as much as 100 percent of CEZ’s profit. He has since backtracked, telling Hospodarske Noviny the proposal was his personal opinion.

Still, the Finance Ministry is reviewing CEZ’s long-standing dividend policy, according to Robert Pelikan, the head of its legislation department. The annual shareholder meeting is scheduled for June.

Power Prices

CEZ shares fell 1.9 percent to 551.5 koruna at 3:14 p.m. in Prague after climbing 2.9 percent yesterday. Bonds gained yesterday after the utility notified the bidders, a Russian-Czech consortium led by Rosatom Corp. and Westinghouse Electric LLC, of its decision to cancel the tender. It also informed Areva SA (AREVA), which was excluded from the process in 2012.

With European power prices near record lows, CEZ board members voted to cancel the tender after Prime Minister Bohuslav Sobotka’s government refused to guarantee the purchase price of electricity from the units.

“Since 2009 when the tender was announced, the European energy (ANRJ) sector has undergone a turbulent development,” CEZ Chief Executive Officer Daniel Benes said yesterday. “While the project was originally economically viable, any investments dependent solely on the market price of power today are jeopardized.”

Power for next-year delivery in Germany, where CEZ sells part of its output, has slid 6.9 percent this year to 34.25 euros a megawatt-hour, adding to declines of 16 percent in 2013 and 14 percent in 2012. The contract reached a record intraday low of 33.65 euros on April 3, data compiled by Bloomberg shows.

Economic Sense

Scrapping the tender doesn’t mean the Czech Republic is giving up on building reactors, according to Benes. CEZ will continue working on preparations for the two Temelin reactors, as well as one at the Dukovany nuclear plant and another unit at the Slovak Jaslovske Bohunice plant, he said yesterday.

The future task of financing the construction of the new reactors could fall to the government, with CEZ acting only as an operator, according to Bohumil Trampota, an analyst at J&T Banka AS in Prague. While the construction of nuclear projects doesn’t make economic sense in the current market, the state may have different priorities when it comes to energy strategy, he said by phone.

While the government isn’t ready to provide guarantees at this point, it’s still interested in developing nuclear energy, Industry and Trade Minister Jan Mladek said in a televised interview. The 70 percent state-owned utility must take into account the interests of private shareholders, he said.

“The building of a nuclear power station is an investment for the next 60 years, which publicly traded companies and capital markets in general can’t quite handle,” Mladek said. “Should new blocks be built, it would be desirable to have them built by a 100 percent state-owned company, without even a minority participation of private capital.”

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

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Pawel Kozlowski, James M. Gomez

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