The Prague Post
http://www.aaaradiotaxi.cz/index.php?xSET=lang&xLANG=2
September 7th, 2008
Endowment Fund     Business Listings ONLINE      Reservations      Classifieds    Subscriptions
Prague accommodation
Prague Art & Antiques Prague Art Prague Antiques

Home » Archives » Business

Cooling down

To push through reforms, government postpones decision on energy future

By Paul Voosen
Staff Writer, The Prague Post
January 3rd, 2008 issue

VLADIMÍR WEISS/THE PRAGUE POST
The proposed nuclear reactors at Temelín will help replace the country's energy loss when fossil fuel plants close.
enlarge
VLADIMÍR WEISS/THE PRAGUE POST
Rožna, Europe's last underground uranium mine, has extended production due to the spike in uranium prices.
enlarge
NEWS ANALYSIS

The Czech Republic is sitting in an enviable position, one occupied by few other countries in Europe: Thanks to an aging fleet of coal plants and two prominent and controversial nuclear power plants, it is a net exporter of electricity.

This can’t last. As the communist-era coal plants burn their way toward retirement — spitting out tons of carbon dioxide as they do — the government has forestalled any decision on where and how it will account for the electricity lost when these plants close.
Throughout the Cabinet’s fragile year in office, this question has surfaced and been pushed back to the political undercurrents, ignored so that the governing coalition — a strange political marriage joining the industry-favoring Civic Democrats (ODS), centrist Christian Democrats and the Greens — can get along to the business of financial reform.
At times, it appears the inclusion of the Green Party in the coalition, which signed on with the requirement that
no new nuclear plants be planned on its watch, is the only roadblock to the state approving the construction of two reactors at the Temelín nuclear power plant, run by the state-controlled power company ČEZ. The two largest political parties, the ODS and the Social Democrats (ČSSD), both support developing nuclear power.
But to pacify the Greens, who advocate reliance on renewable energy and energy efficiency — the Czech Republic is one of Europe’s worst performers in the latter — the government followed a time-honored conflict resolution and punted the decision to further study via committee, which will issue its findings in July 2008. Preliminary reports indicate it could favor nuclear power.
To many industry observers worldwide, nuclear power increasingly looks like the lesser of two evils when compared with the greenhouse gas emissions of fossil-fuel plants, whose carbon dioxide emissions are one of the principal causes of global warming. Reflecting this interest, uranium prices have spiked, prompting the country in May 2007 to indefinitely extend operations at Rožná, Europe’s last underground uranium mine.
Opponents of nuclear power such as the Greens argue that no satisfactory solution has been found for storing the radioactive waste produced by plants. Most of this waste worldwide, including in the Czech Republic, is temporarily stored at the plants where it is produced; and there is always the risk of another Chernobyl.
While the European Union has pledged to have 20 percent of its power produced from renewable sources — wind, solar, hydroelectric — by 2020, most agree these sources will not fill the gap left by fossil fuels. ČEZ argues the same, saying it will need approval to start building coal-fired or nuclear power plants in the near future.
Despite the government’s inability to propose nuclear construction, recent months have seen several ODS leaders — Prime Minister Mirek Topolánek, Industry and Trade Minister Martin Říman, Deputy Prime Minister Alexandr Vonda and President Vacláv Klaus — call for “open discussion” about the increased use of nuclear power.
“It has become apparent that we have to start discussing the use of nuclear power as energy for the future,” Topolánek said Nov. 26. Říman, who has close ties to ČEZ, added the same day: “It makes sense to invest in sources that are reliable, cheap, safe and burden the environment with minimal emissions. The only known source that meets all these criteria is nuclear power.”
The Green Party, while saying it remains open to discussion, has shown no softening in its anti-nuclear stance. The Cabinet is expected to continue emitting this low-level radiation of discord throughout 2008, with the open question remaining: How large a dose can the government take before radiation poisoning sets in?
Macro trends
While the governing coalition has prevented any decisions about the country’s energy future, it has used its slim control of the Chamber of Deputies to push through the first of what it promises will be a series of reforms.
The public-finance reform, which passed its third reading Aug. 21 and came into effect Jan. 1, revises the country’s tax laws, setting a flat tax on income for individuals and corporations, raising the lower value-added tax and trimming a variety of social benefits. The compromises needed to push the reform through, however, left many saying that the reform’s primary goal — reducing the deficit — will be largely unaddressed while shifting the tax burden onto the middle class.
“It’s not a reform,” said Raiffeisenbank analyst Aleš Michl in August. “It’s just a package of remedies. Its main flaw is the lack of vision.”
Lack of vision or no, the government is moving ahead with its next round of reforms this year, promising revisions of the health care and pension systems. As of December, the ODS and ČSSD had yet to reach a compromise on pension reforms.
The reforms’ touted purpose of curbing the deficit has been promoted as essential for adoption of the euro, which remains mandatory under the Czech Republic’s EU accession agreement. Originally scheduled for 2010, the deadline has slipped to no sooner than 2013 — adoption before that would be “irresponsible,” Topolánek said Nov. 18. This is in stark contrast to Slovakia, which will adopt the euro on Jan. 1, 2009.
Part of the government’s brazen stance against euro adoption has been buoyed by the strength of the crown, which has shattered records against the U.S. dollar and euro throughout the year. Last January, one dollar equaled 20.7 Kč; by December, the dollar had fallen as low as 17.8 Kč, a 14 percent drop. Over the same time, the crown strengthened by up to 5.5 percent against the euro.
For now, the crown’s strength — which not all analysts project to last — and the country’s relative immunity to the global credit crunch have kept interest rates low, with the Czech National Bank (ČNB) raising rates three times in the summer and once in November, settling at 3.5 percent.
Along with the rising crown has come inflation, driven by worldwide spikes in grain prices prompted by increased Asian demand and droughts in Australia. The inflation rate hit a six-year high of five percent in November and is expected to climb higher. The need to curb inflation could prompt the ČNB to raise interest rates further this year, analysts say.
Thankfully for many workers, wages have also risen, in some cases sharply. This was particularly evident April 17, when workers at Škoda Auto launched a one-day strike seeking wages closer to their Germany counterparts. The next day Škoda agreed to a 12.7 percent wage rise.
Škoda’s unions had leverage because of the country’s plummeting unemployment, which hit a nine-year low of 5.6 percent in November, according to the Labor and Social Affairs Ministry. Skilled workers are in short supply, which has prompted some politicians to call for increased immigration from non-EU countries, though the country has made few moves to address the problem.
While the country has long shifted its vision westward, to trade within the EU, in 2007 an old antagonist — Russia — continued its transition into a fertile investment opportunity for local companies. Some of the country’s mainstays — ČEZ, Škoda, KKCG and PPF — all announced deals to expand their toeholds in the region.
ČEZ, as part of expanding its activities throughout Central and Eastern Europe, won a contract in August to build a large gas-fired power station in northern Moscow, six kilometers (3.73 miles) from the Kremlin. Also, the oil and gas company MND, part of KKCG, announced that it had purchased two Russian oil companies, Nikolayevkaneft and VostokInvestNeft, for their exploration rights.
Russia also has much potential for insurance companies — at least that’s the conclusion of Česká pojišťovna, the largest Czech insurer (owned by PPF), and Italy’s Generali, which merged this year to focus on increasing their offerings in the east. Some of that insurance will surely be sold to buyers Škoda Auto, which opened the first phase of its car plant in Russia in November; once completed, it will be Skoda’s largest plant outside of the Czech Republic.
Not all investments went so smoothly. PPF Investments (PPFI) saw its 38.5 percent share in Ingosstrakh, Russia’s second-largest insurer, reduced to under 10 percent when Ingosstrakh’s owner, a Russian steel oligarch, and the company’s other stakeholders voted for a capital hike without notifying PPFI. The case remains in court, where PPFI has scored some limited successes.

Paul Voosen can be reached at pvoosen@praguepost.com


Other articles in Business (3/01/2008):

Browse the Current Issue

If you enjoyed this article, why don't you subscribe to the print version!
We accept secure online transactions provided by PayPal and Moneybookers

Be the first to add a comment!


Full Name: *
City: *
E-mail: **
This comment can be published in the print version of The Prague Post
Enter the text on the right:
 visual captcha
Comment: *
* Required field. In order to be approved for display, comments must have a first and last name and a city.
** E-mails are required and will only be used for internal purposes.

Most visited in Business Listings

Hotel booking
The Prague Post Online contains a selection of articles that have been printed in
The Prague Post, a weekly newspaper published in the Czech Republic.
To subscribe to the print paper, click here.
Unauthorized reproduction is strictly prohibited.