By Dow Jones Business News, March 19, 2013, 10:55:00 AM EDT
By Sean Carney
PRAGUE--Czech power company CEZ AS (BAACEZ.PR) Tuesday said it has signed a long-term coal-supply contract for one of
its largest power plants, a deal which it expects should boost earnings this year by as much as 2 billion koruna ($101
The company, which is 70% state owned, also said it signed a contract late Monday to sell its ageing Chvaletice power
plant in a step that resolves power-market competition issues raised by the European Commission.
Under the terms of the supply contract, privately owned Czech Coal AS will supply brown coal to CEZ's Pocerady power
plant, which has an installed capacity of 1,000 megawatts, for the next 30 to 50 years. The deal is valued at CZK200
billion if supplies continue for the lifetime of the contract, CEZ chairman Daniel Benes said.
The supply contract allows the company to boost electricity production this year, without specifying, and will
increase earnings by between CZK1.5 billion and CZK2 billion, it said. Company officials said they would provide details
on the upward revision to this year's guidance at a later date.
Last month CEZ announced 2013 guidance for earnings before interest, tax, depreciation and amortization, or Ebitda, of
CZK80 billion and net profit at CZK37 billion.
The utility said the price in the coal-supply agreement is set at CZK38.8 per kilojoule, compared with CZK33 per
kilojoule paid last year. Furthermore, the price will rise in coming years, set at 65% of the market price for black
coal in Europe.
As part of the contract, CEZ and Czech Coal agreed to end all mutual legal disputes and CEZ retains an option to sell
the Pocerady power plant to Czech Coal. CEZ has two opportunities to do so -- the first in 2016, when a renovation of
the generator is due, and later in 2024, when the plant is slated to be decommissioned.
At that point, in 2024, CEZ will decide whether to sell the property or to build a new power plant on the same site
with the same coal-supply deal intact.
CEZ said the supply deal provides its with predictable cash flow. As a result, despite the large overall value of the
contract, the deal shouldn't have any impact on financing possibilities for the company's planned $10 billion nuclear
power plant expansion.
Later this year, CEZ is to choose a winner of a tender to build two new nuclear reactors at its Temelin power plant --
with Westinghouse Electric Co., a unit of Japan's Toshiba Corp. (6502.TO), and Russia's state-owned energy corporation
Rosatom the bidders.
CEZ aims to put the new reactors online by 2025, but the fate of the project hinges on securing government guarantees
for the sale price of power to be produced by the new plant.
Write to Sean Carney at firstname.lastname@example.org
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