Nationalized NET4GAS reported a record loss last year

In the days when NET4GAS belonged to private shareholders, it earned billions of crowns. Last year, the state took over ownership of the domestic backbone gas pipeline network. It happened exactly at the moment when the successful business story of NET4GAS ended. At least for a while.

For the year 2023, the NET4GAS group reported a loss of 993 million crowns. It stated this in its annual report. The fact that the company lost the transit of gas from Russia to Western Europe as a result of the war in Ukraine is responsible for the fall in losses.

NET4GAS, which was taken over by the state through ČEPS at the end of last year, saw a significant drop in revenues in 2023. Compared to the almost 13 billion it received in 2022, it earned just over three billion last year. Overall, last year the company suffered a loss of 1.7 billion crowns after taxation, which contrasts significantly with the net profit the year before, which was roughly 6.2 billion crowns.

“2023 has been the most difficult year in the history of NET4GAS so far. The reason is the unprecedented and dramatic change in gas flows in Europe, which was mainly caused by the war in Ukraine and the complete collapse of payments by our main trading partner,” comments the company’s CEO Andreas Rau on the results in a press release.

Compared to 2022, NET4GAS transported roughly a third of the volume of gas, and its long-time customer Gazprom stopped paying it.

NET4GAS

“Total transportation of natural gas reached approximately 10 billion cubic meters in 2023, of which approximately 6.8 billion are for domestic use in the Czech Republic, one billion for transit abroad and the remaining part for transportation to gas storage facilities. Compared to 2022, total transport has decreased by 20.8 billion cubic meters,” Rau writes in the report.

According to him, the decrease was mainly caused by the absence of physical transportation of Russian gas through Czech territory and other changes in gas flows in Europe.

“In 2023, domestic gas transportation decreased by approximately 0.7 billion cubic meters compared to 2022, mainly as a result of higher average ambient temperatures and continued savings in consumption by Czech customers,” he adds. Because of the energy prices, the Czechs also started saving on gas, and the warm weather helped them to do that.

The NET4GAS group is now heavily in debt, the total of its liabilities from loans and issued bonds amounted to almost 34 billion crowns at the end of last year, its total assets in contrast amounted to less than 62 billion. The first wave of bonds is due in July 2025, the next in 2026, 2028 and 2031.

Despite the big drop, it had enough cash at the end of last year to be able to pay off its obligations, thanks, among other things, to the fact that ČEPS returned the advance for dividends in the amount of 2.9 billion crowns.

The money for the dividend was paid by the former shareholders – a consortium of companies Allianz Infrastructure Luxembourg and Borealis Novus Parent – ​​at a time when they relied on the continuation of the lucrative transit of gas through the Czech Republic to the west. Even before the sale of the company, it became clear that an advance of almost three billion would have to be returned to the company due to the deteriorating management of NET4GAS.

The state thus paid a total of almost eight billion crowns for taking over loss-making gas pipelines. According to the MPO announcement, the purchase price was five billion, but the returned dividend must be added to that.

NET4GAS operates 4,000 kilometers of gas pipelines, five compression stations and a hundred transfer stations, including three at the border.

Czech citizens will also partially feel the difficulties of NET4GAS. The management of gas pipelines is regulated by ERO, according to its decision, the company transfers part of its costs to fees paid by consumers.

Already this year, ERO has changed the so-called allocation key, according to which the costs of operating gas pipelines are divided between domestic customers and companies that rent pipes for the transit of gas through the Czech territory abroad. Previously, most of the costs of NET4GAS – almost three quarters – were covered by foreign gas carriers, mainly Russia’s Gazprom. The latter still has its capacity of Czech pipes reserved on the basis of a long-term contract, but does not use it and does not pay for it. That is why ERO has already adjusted the rules for this year: Czech consumers now pay a full 75.9 percent of the costs of gas pipelines.

Another change in the rules is planned for next year, for which ERO is currently preparing a new price decision. That is, a new model that will determine how the gas pipeline operator can charge customers prices for its services.

In this context, Net4Gas proposes that from 2025 the current system of cost sharing between foreign gas carriers and Czech consumers be abolished. Instead, it would be switched to a so-called uniform revenue ceiling regime, where the ERO monitors the maximum possible revenue for all gas transport – regardless of whether it just passes through the Czech Republic or is consumed here.

This does not please large consumers, who warn that the vast majority of the costs of operating gas pipelines will then be covered by domestic customers. “If NET4GAS implements this method with the fact that all the assets they have today will be included in the calculation, then domestic customers will pay 100 percent of the system, the capacity of which they will not realistically use even 10 percent,” declared Martin Hájek, executive head of the Heating Association , whose members include a number of large gas customers.

In this spirit, the Heating Association sends its comments on the proposal: “Although we understand that the operator of the transmission system has found himself in a problematic economic situation in connection with Russian aggression in Ukraine, it is not possible to solve these problems by socializing costs into the prices of end customers in the Czech Republic. In addition, the behavior of the operator of the transmission system in the years preceding the war in Ukraine can be reasonably considered not very responsible, especially from the point of view of the share of debt in its assets or by overlooking the risk resulting from the use of the system by one large customer and at the same time investing heavily in favor of this customer,” writes Teplárenské association of the Czech Republic in its comments.

“Historically, the transmission system operator did not share its high profits from international gas transportation with customers in the Czech Republic, so we see no reason why it should now transfer its economic problems caused by the decline in international gas transportation to them,” adds the association.

The final decision regarding the ERO’s price decision should be made by the end of May.

This year, the result of NET4GAS’s management should be significantly better than last year, also thanks to the friendliness of the ERO, even though gas transportation for domestic and foreign customers will probably continue to decrease. “The skeleton in the form of a giant debt remains in the closet, but it will probably fall out only after the next government. Of course, there can be no question of any return on the state’s investment through ČEPS,” declared Martin Hájek. He warns that the problems of NET4GAS are transferred to its customers, including large producers of electricity or heat from gas. All this in a situation where the Czech Republic needs to motivate investors to speed up the construction of new gas sources that would replace expiring coal.

“The overall situation of gas power plant operators, both existing and potential ones, in the Czech Republic is not good at all. Expensive gas transportation in the Czech Republic and, on top of that, transportation through Germany with a special surcharge, which contradicts European rules, significantly worsen the competitiveness of Czech energy companies against the same production companies in Germany. The state bought the overpriced NET4GAS, did not solve the problem with its huge debt, and sooner or later the whole thing will fall on the heads of domestic customers. After all, it has already partially fallen,” says Martin Hájek.