March 19 (Bloomberg) -- CEZ AS, the largest Czech producer of electricity, signed a 50-year contract with Czech Coal AS to fuel its Pocerady power station, ending a dispute that had threatened to disrupt supplies to the plant.
CEZ will start paying 38.8 koruna ($2) a gigajoule, rising step-by-step through 2023 when the price should be 65 percent of the benchmark rate for black coal, the company said. Czech Coal will supply CEZ with 5 million metric tons of the fuel a year, down from 8.5 million tons now, the utility said in a statement. CEZ separately agreed to sell its Chvaletice power station.
Coal supplies to Pocerady were threatened by a dispute between the two sides over prices paid for the fuel after CEZ’s long-term supply contract ran out last year. Czech Coal had sought to double the price from 33 koruna a gigajoule.
“Terms we obtained are decidedly above our expectations,” CEZ’s Chief Executive Officer Daniel Benes said in Prague.
The deal, which may add as much as 2 billion koruna to CEZ operating profit this year, gives Czech Coal the option to buy Pocerady, next to its Vrsany mine, in 2016 or 2024, the utility said. CEZ will invest “tens of billions koruna” at the site.
“This opens up the opportunity for sizable investments into both the Pocerady plant and the Vrsany mine,” Benes said.
CEZ also agreed to sell its Chvaletice coal-fired station to Litvinovska Uhelna AS for 4.12 billion koruna and an annual payment amounting to 90 percent of the market value of carbon credits allocated to the station, currently about 450 million koruna. The payment compensates CEZ for modernizing the site.
The sale, spurred by a European Commission probe into the possibility CEZ’s control over the network threatened to deter rivals from entering the market, needs European Union approval.
CEZ fell 2.1 percent to 564 koruna by 4:40 p.m. in Prague.
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