CEZ Cancels $15 Billion Atomic Tender on Low Power Prices

CEZ AS, the largest utility in the European Union’s former communist east, canceled a $15 billion tender for two new reactors at its Temelin nuclear power plant.

Shares and bonds rallied today after the utility notified the remaining bidders, a Russian-Czech consortium led by Rosatom Corp. and Westinghouse Electric LLC, of its decision. It also informed Areva SA, which was excluded in 2012.

With European power prices near record lows, CEZ board members voted today to cancel the tender after Prime Minister Bohuslav Sobotka’s government refused to provide guarantees on the purchase price of electricity from the units. It also rejected any other form of support that would render the project economically feasible.

“Since 2009 when the tender was announced, the European energy sector has undergone a turbulent development,” Benes said in the statement. “While the project was originally economically viable, any investments dependent solely on the market price of power today are jeopardized.”

CEZ shares rose as much as 3.7 percent, its biggest rally since March 24, and closed up 2.9 percent at 562 koruna in Prague. It was the best performance today in the Stoxx Europe 600 Utilities Index. The stock is up 8.7 percent this year. The yield on CEZ’s Eurobonds due June 2020 fell three basis points, or 0.03 percentage point, to 1.95 percent.

‘Positive News’

“This is positive news,” Erste Group Bank AG analyst Petr Bartek said by phone in Prague. “If the tender went on without state guarantees, it would have been highly unprofitable.”

Scrapping the tender doesn’t mean that the Czech Republic is giving up on building reactors in the future, Benes said at a news conference today. 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.

“I’m still optimistic that four new blocks will be built in the Czech Republic,” Benes said. “There’s still an acute danger that we won’t be able to cover our electricity needs in 20 years.”

Government Job

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 today. 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.”

Power for next-year delivery in Germany, where CEZ sells part of its output, has slid 7.6 percent this year to 34 euros per 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.

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