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CEZ expands into southeastern Europe

Czech utility CEZ aims to enhance its position as a tier one energy company by focusing on the Balkan states in southeastern Europe.

CEZ has begun focusing its attention on the growing power demands of the Balkans. The company hopes that this strategy will complement its existing activities on the Continent and boost its relatively uncompetitive scale. CEZ’s strategy is especially astute, given that the growth in the Balkans’ demand for energy is unmatched elsewhere in Europe.

Content Research has shown that CEZ is well positioned to pursue a growth strategy. Indeed, in a recent Datamonitor report, which looked at 31 European energy utilities and assessed them on the basis of financial performance, scale, growth and risk exposure, CEZ came out seventh overall. In fact, the utility ranks highly in every category except scale. However, with a healthy operational cash flow in excess of €1.5 billion, and a low net trading requirement, CEZ could make acquisitions and trade power without compromising its risk exposure.

This position is especially beneficial to the company as it allows CEZ to compete with other utilities that are also seeking growth through mergers and acquisitions. In the EU15, and the new member states in central and eastern Europe, net electricity consumption grew by 26% and 18%, respectively, between 1995 and 2005. In comparison, consumption in the Balkan states of Albania, Bosnia-Herzegovina, Macedonia and Serbia Montenegro grew by a staggering 57% over the same period.

Compounded with the region’s higher per capita growth rates, power consumption growth in these markets should continue to surpass that of the other European regions. The Balkan states’ transition to market economies, coupled with the fact they have less regulatory oversight than established European markets, would offer huge opportunities for CEZ to gain a competitive advantage as the first mover in the region. Furthermore, there is a critical need for energy in the fast developing Balkan states. In a post-conflict environment, the onus is now on growth.

Although Bulgaria was one of the major power suppliers to the region, the country has closed down two major nuclear plants as part of its EU accession pact. The critical lack of electricity in the region is reflected in high Balkan power prices, which are €20 to €30 per MWh above the German-based European Energy Exchange base price. As the second largest electricity exporter in Europe, an expansion strategy that focuses on southeastern Europe is a potentially lucrative commercial move for CEZ. (energy-business-review)