Photographer: Martin Divisek/Bloomberg

East Europe's Powerhouse Flees Balkan Woes for Western Calm

Updated on
  • CEZ in talks to sell Bulgarian asset, Turkish stake may follow
  • Renewables are a key focus of CEZ’s new expansion strategy

The largest power producer in the post-Communist European Union is scaling back its troubled Balkan operations to expand in the west.

After spending hundreds of millions of dollars in southeastern Europe last decade, CEZ AS is changing tack following too many fights with local lawmakers and regulators. The Prague-based utility is in talks to sell coal plants and a distribution business in Bulgaria. In western Europe, the company is snapping up wind farms, heating facilities and other assets to compete with giants from EON SE to Engie SA.

“We are shifting our focus,” Chief Financial Officer Martin Novak said this month in an interview. “In terms of new assets, the company is now aiming at renewables, and definitely in central and western Europe, rather than in southeastern Europe.”

The impending sale of assets in Bulgaria, which the company hopes to complete in the next few months, marks the end of rapid expansion under the previous management in emerging markets from Albania to Romania and Turkey. The Czech utility, which still generates most of its power from coal and nuclear, plans to double profit from new sources by 2020 to catch up with western peers.

CEZ’s Balkan strategy began to crumble at the turn of the decade as wholesale prices slid and nationalist governments turned on foreign utilities. The company soon ran afoul of local regulators as Albania nationalized its assets, Romania temporarily withheld state compensation for wind power and Bulgaria repeatedly threatened to revoke the utility’s license after accusing CEZ of charging consumers too much. 

The producer probably won’t get much more than 9 billion koruna ($418 million) for the Bulgarian assets, according to Komercni Banka AS. That’s far less than the 17.5 billion koruna it paid back in 2004, though CEZ has collected about 7 billion koruna in dividends over the past 12 years, said Miroslav Frayer, an analyst at the Prague-based bank.

The utility is still negotiating with potential buyers, including Czech company Energo-Pro AS, which sweetened its bid in September.

CEZ has gained 13 percent this year, beating a 9.4 percent gain in the Stoxx Europe 600 Utilities Index. The stock was unchanged at 485 koruna at 9:56 a.m. in Prague.

Turkish Stake

CEZ may also sell its 50 percent stake in Akcez Enerji Yatirimlari AS, a power supplier to 3.4 million people in northwest Turkey. Though the management isn’t officially negotiating, it’s open to offers, Novak said.

At the same time, the utility has added 35 megawatts of onshore wind capacity in Germany this year. It bought nine wind farms in France, where it plans to develop as much as 100 megawatts in the next five years. CEZ also won contracts for bespoke heating and power solutions for towns in Poland, Slovakia and the Czech Republic.

“It looks like CEZ will be focusing more and more on renewable and energy and won’t be buying any dirty assets anymore,” Frayer said. “They really did a 180-degree turn and will be focusing on central and western Europe.”

CEZ’s strategy shift coincides with a push by the European Union to increase the region’s renewable energy target to 30 percent of total consumption in the bloc by 2030 from the current goal of at least 27 percent by 2030, European Commission Vice President Maros Sefcovic said last week.

CEZ is contemplating separating renewable assets from conventional energy in a similar vein to when RWE AG spun off its green power, grid and retail units into Innogy SE, Novak said.

Still, CEZ would need to significantly boost its renewable energy capacity in the west for it to make a tangible impact on earnings, according to Jan Raska, an analyst at Fio Banka AS in Prague.

“It’s clear that they’re eager to flee the Balkans for the west, whose regulatory environment is much more predictable,” Raska said by phone. “But it won’t be easy. The competition is already fierce.”

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