The company Juta, the largest textile company in the country, has laid off 70 people and another part of the employees is at home with sixty percent of their wages. There is no work for them. Due to high energy prices, the Czech company is said to be unable to compete with its foreign rivals on price, and thus loses contracts.
“Our biggest competitors are in Poland. Almost everything we do is produced there, for example netting or twine. Other competitors are the Spanish, Portuguese and Finns, where geomembranes are made. Everyone pays significantly less for energy than we do,” explains the owner of Juta, Jiří Hlavatý.
The stock exchange does not want the Czech Republic
Jute uses so-called spot prices, i.e. current prices. And while in January of last year, spot electricity in the Czech Republic cost 56 euros per megawatt hour, on Monday, August 29, companies were already paying 668.79 euros. Just for comparison – the aforementioned competitor Poland had spot prices of 218.8 euros on the same day, Finland 307.7 euros and Spain and Portugal even only 188 euros per megawatt hour. Spot prices in France are significantly higher than in the Czech Republic, namely 733 euros. But the local government supports its companies in a different way.
Energy expert Michal Šnobr offers an explanation for such large differences in spot prices. “The energy mix, or the structure of the electricity production of individual countries, speaks to spot prices, far more than to long-term contracts. This shows the great advantage of alternative sources, which affects immediate prices,” adds Šnobr, adding that this is clearly visible in the Nordic countries. “Finland has great power in water, in pumping stations. Poland is specific. It is disconnected from the European market and has remained on the sidelines because it is absolutely dependent on energy from coal,” adds Šnobr.
In such a situation, Hlavatý Juto is logically lost. As well as other Czech manufacturers. “If the price of energy should remain at the current level, the impact on the competitiveness of the Czech Republic as one of the most industrialized countries in Europe will be fatal. There are already examples of companies that are or will be in operating losses only because of the price of energy, while they were profitable in previous years,” says Bohuslav Čížek, director of the economic policy section of the Union of Industry and Transport of the Czech Republic.
Read more about energy prices
Now Sklárny Moravia is counting its days of operation. “We were still able to function normally until August, but then there was such price turbulence that it is unbelievable. A bottle, which cost 15 crowns last year and 40 crowns in the first half of this year, currently costs us 60-80 crowns,” says Radim Bondy, sales director of Sklárna Moravia. According to him, such prices are already unacceptable for customers. So far, the company has managed to put together orders until October. Then he closes and the glass furnace goes out.
“We are competing with glassworks from France, Germany and Portugal, where the Temporary Crisis Framework or other measures have been used. We saw a specific intervention in energy prices in Spain,” adds Čížek from the Union of Industry and Transport. A price ceiling system has been in effect in Spain and neighboring Portugal since mid-July. According to the first results, it led to a slowdown in price growth for end consumers. In addition, Spain will tax energy companies and banks exceptionally in 2023 and 2024.
Even expensive France is cheaper
Petr Novák, director of the automotive division at JTEKT Evropa, also agrees with the significant deterioration of the competitiveness of the Czech Republic. Nine production plants fall under it. In addition to the Czech ones, for example in France, England, Belgium or Morocco. Czech plants also do not have fixed prices now and buy at spot prices on the stock exchange. “Compared to our other plants, we pay by far the highest prices for energy, and our plants lose their competitiveness not only compared to other plants in the corporation, but also to our competition,” says Novák. Czech prices are ten times higher than last year, which is unbearable in the long term. In the aforementioned France, energy for production is cheaper even at higher spot prices.
“In France, for example, there is a subsidy program from the government to cap electricity prices at 55 percent of the company’s capacity at 42 euros per MWh, until 2025. The company then purchases the rest of the capacity according to market conditions,” adds Novák, adding that then even in “expensive” France, the average price is 62 euros per MWh.
Changing supplier is more complicated
Companies and unions are now calling for government support. So far in vain. “At a time when the surrounding countries and European states in general somehow solve this extraordinary fluctuation in the price of energy, while our companies do not have this support, the current situation of Czech companies leads to a huge loss of competitiveness,” says the CEO of the Association of Small and Medium Enterprises and Entrepreneurs Eva Svoboda. According to her, companies are now mainly criticizing the fact that the only “help” offered by the Ministry of Industry is to take out a guarantee for this energy and solve it with a loan.
We fight for every day
Small and medium-sized companies are now most at risk. After years of covid, they often have no reserves and if, for example, instead of last year’s 60,000 crowns they have to pay 600,000 for energy, they have no chance of surviving. If only because they cannot reflect costs in prices due to competition from abroad.
“We are now in a serious situation where energy prices have deviated beyond the real possibilities of industrial customers. The government should quickly take advantage of the position of the Czech presidency and ideally negotiate a joint solution, prepare specific proposals,” urges the Union of Industry and Transport. The companies themselves are said to be grateful for anything. “We fight for every day. The solution is up to the government. Kurzarbeit, price fixing, loans, whatever. Unfortunately, they don’t do anything,” adds Radim Bondy, Sales Director of Sklárna Moravia.
Food manufacturers are also calling for comparable support as is available abroad. For example, in Italy, the government gave farmers 400 million euros, i.e. almost 11 billion crowns. According to the Food Chamber, Czech companies have up to 30 percent higher costs compared to foreign competitors. “The share of foreign products in Czech stores is already increasing. The Czech ones are becoming very expensive,” adds Madeta owner Milan Teplý.
They laugh at us in America
Companies that supply outside of Europe have major problems with competitiveness. “In the USA they tell us: ‘You must have gone crazy in the Czech Republic. What are you calculating for the price of energy?’ The Americans immediately told me that I can’t get any deal like this, because they have gas for $11 per megawatt hour,” Brano Group owner Pavel Juříček told Seznam Zprávám, adding that the company is now operationally in the red and track orders are running out. “But we can’t cut the partnerships we built 25 or 30 years ago,” he adds.
Will you get added?
According to Juříček, car companies are willing to talk about material “zuschlag” (surcharge), but they are not interested in energy “zuschlag”. “It’s a really serious situation, that’s why we started looking for our own way,” adds Juříček, who wants to find cheaper gas supplies for the Czech industry himself.
It is the loss of established markets that domestic companies fear the most. It would be extremely difficult to return to them. “Councils of earldom like ‘increase productivity, introduce automation or put solar panels on your roof’ currently do not solve anything in practice. These are solutions of a long-term nature, while many companies may not live to see it at all,” adds the head of AMSP Svobodová.
Move part of the production abroad
Even foreign companies are already noticing how expensive it is in the Czech Republic. And they offer services that were not even considered in the past.
“Suppliers themselves are contacting us, offering to do part of the production process for us, thus saving us costs. Specifically, it involves the creation of cocoa paste from beans. Yes, we would save a lot of money and not have to have two to three people in production, but we would lose control over one of the most important parts of production, and we don’t want that,” says Václav Durďák, owner of Čokoládovna Janek.
However, production abroad, or at least a part of it, is being declined more and more often. “We are considering whether it would be more profitable to have a part of our products produced abroad on automatic lines, thanks to which we would achieve a better price than if we produce the products ourselves. Our goal is to keep production domestic, but if business owners have to decide between bankruptcy and keeping employees and surviving their own business by moving part of the production, it is logical that they will take advantage of it. The best farmer will not have a chance to survive,” adds Lukáš Bartoš from the management of the company Adria Gold, which produces ice creams and confectionery products. The company is already unable to export due to high prices.
According to the Association of Industry and Transport, especially companies that already produce in several countries are thinking about moving production outside the Czechia. “Several companies have approached us with the idea of strengthening production at foreign branches at the expense of the Czech Republic in order to strengthen their competitiveness,” adds Čížek. However, such a move is difficult for small and medium-sized companies, because the company builds everything from scratch.
At the same time, it is not just about energy. High prices of electricity and gas go hand in hand with high prices of materials, rising interest rates, but also sanctions. They were the reason why the production of the well-known office eraser with a blue elephant from the Koh-i-noor company was closed. The majority of the production was directed to the Russian market, which the company lost.