CEZ to move commodity trading to new subsidiary CEZ Trade

Prague, Nov 12 (CTK) - CEZ is preparing to spin off its commodity trading into a separate subsidiary by establishing CEZ Trade, a firm responsible for trading electricity, gas, and emission allowances on the exchange in anticipation of changes in European regulations, CEZ CFO Martin Novak said in an interview with CTK.

CEZ now has margins amounting to billions of crowns from commodity trading.

Under the envisaged changes, the exemption from European regulations according to which electricity producers who trade electricity and derivatives on the exchange do not have to be securities traders is likely to end. The new European rules are likely to include a condition that anyone trading financial derivatives, which in the case of CEZ corresponds to about half of its production, will have to have the status of a securities trader. Electricity producers will not, however, be able to obtain such a licence.

"We are preparing for this situation. We have to be ready ahead of time, otherwise it would be too late," Novak said. "Practically all big energy companies have pinned off trading into separate subsidiaries," he added.

CEZ has officially established CEZ Trade as a new company, but it currently remains inactive, Novak noted. CEZ intends to determine its precise operations in the coming months. It will then take additional time before actual operations begin, according to Novak.

Radim Dohnal, an analyst at Capitalinked.com, has also pointed out the need to separate trading from production. "Similarly to 20 years ago, the EU has separated production, distribution and sales of electricity and gas. Currently, CEZ's trading results are only published in its presentations and we have to trust that CEZ and its auditor correctly identify and then separate trades to hedge risk vs speculation," Dohnal said.

Dohnal has also mentioned the possibility of the state buying the new company, potentially making it a state-owned electricity trader for the purpose of supplying electricity from new nuclear units. However, according to Dohnal, this option is rather unlikely.

Similar considerations have now been ruled out by Novak, according to whom CEZ Trade will be a 100-percent subsidiary of the CEZ Group.

CEZ is the largest energy company in the Czech Republic. Its majority shareholder is the state, which holds roughly 70 percent of the shares through the Finance Ministry.

CEZ currently has dozens of subsidiaries in which it holds a full or at least partial stake. CEZ netted Kc23.4bn in the first three quarters of this year, Kc6.4bn fewer year on year.

tam/er