The approach of ruling politicians to the energy crisis changed last week. Until recently, the Minister of Industry, Jozef Síkela, was mainly concerned with the search for weapons against the high cost of energy. He saw the solution in compensating high prices for households, abolishing fees for renewable resources and limited support for industry.
But it turned out not to be enough. A few days ago, therefore, Prime Minister Petr Fiala decided that the entire issue of the energy crisis would go directly under the Office of the Government. There has been a radical change in the approach of politicians. According to the now hastily prepared scenarios, prices for all consumers are to be capped.
Ceiling at six to ten crowns
The turning point was the creation of a special working team under the Office of the Government. He met for the first time at the end of last week. And at the very first meeting, things started to happen.
Team members started preparing models for capping electricity prices for Czech consumers. According to the current state of negotiations, both households and companies, as well as critical state infrastructure such as the Czech Railways, hospitals and social institutions, should get access to cheaper energy. Government agents are also considering models for capping gas prices.
The way to cheaper electricity is supposed to be an agreement between the state and three large producers – the ČEZ, Sev.en Energy and EPH groups – on the cheaper sale of part of their production on the Czech market. It is therefore a similar model to the one used by France for price regulation. Alternatively, what Slovakia is trying to introduce from the beginning of next year.
“Such an agreement is now being discussed with the manufacturers, negotiations are quite far along. It’s complicated, a lot of things can still change. But the essential point is to cap electricity prices so that the price for the end customer is six to ten crowns per kilowatt hour,” says the prime minister’s adviser, economist Štěpán Křeček.
In this way, a solution is being prepared, which until recently was considered unrealistic by Czech politicians. The exclusively Czech scenario is supposed to function as a backup plan in case the upcoming meeting of the economic ministers of the European Union member states does not find a common plan to reduce prices.
All players on the field
“Until recently, I was critical of the government’s approach to the energy crisis, in recent days I am satisfied. The team around the prime minister is preparing a rational solution,” said South Bohemian Governor Martin Kuba (ODS). The man who two weeks ago became the face of the “heytman’s rebellion” – i.e. a radical statement by the Association of Regions, in which governors regardless of political affiliation demanded the regulation of electricity prices and the establishment of a state trader to buy energy for the public sector.
“Finally, we managed to bring all the important players into the game,” comments Kuba on the ongoing negotiations.
The newly established team includes representatives of the prime minister’s office, several ministries, electricity producers, energy traders, regions, municipalities and employers’ associations.
The actors do not want to comment on the details of the meeting yet. “The negotiations have really intensified, we are waiting for a solution,” says ČEZ spokesman Ladislav Kříž. “Some work has recently started, but it is still too early to comment,” echoes the head of the Chamber of Commerce, Vladimír Dlouhý.
However, according to information from SZ Byznys, negotiations on an agreement with producers are at an advanced stage, all three key companies are provisionally approved for the direct sale of cheaper electricity on the Czech market. After all, it can also be advantageous for them. Although they would lose part of the profit they have from the sale of cheaper produced electricity at high market prices, they would get rid of worries about the unpredictable fluctuations of the stock market, making huge deposits to settle future deals (none of the domestic players is able to manage these without state subsidies loans) and, in addition, they would get out of the threat of extraordinary “war” taxes.
However, the agreement is legally complicated, especially in the case of the most important of the participants, the ČEZ group. Both smaller electricity producers have clearly defined private shareholders with whom it is possible to come to an agreement: the Sev.en group is controlled by Pavel Tykač, the EPH holding by Daniel Křetínský. ČEZ is 70 percent controlled by the state, but the rest of the shares are dispersed among thousands of small shareholders. And in the event of a voluntary reduction in the company’s profit, there is a threat of lawsuits against the management.
Similarly, the French government’s decision to increase the volume of electricity sold at a regulated price during the energy crisis by the semi-state-semi-private local company EdF also resulted in lawsuits.
According to available information, a special legal standard is being hurriedly prepared for ČEZ, which is intended to protect the company’s management from possible lawsuits by minorities.
Many other practical details need to be fine-tuned: it is necessary to map how traders, companies and the public sector have purchased electricity so far and how much regulated energy will need to be provided. It is necessary to resolve how to deal with traders and large consumers from the ranks of industrialists, regions or municipalities, who have bought energy at extreme prices in recent weeks, and would now be at a disadvantage compared to consumers with supply at a regulated price.
The Czech solution must also be in line with decision-making at the EU level, which the Czech Presidency itself proposed.
This Friday, the ministers of the member states will discuss European weapons for the energy crisis in Brussels. As recently as last week, both Prime Minister Petr Fiala and Industry Minister Jozef Síkela stated that they mainly rely on an EU-wide approach.
However, energy experts contacted by SZ Byznys agree that no quick and realistic recipes can be expected from Friday’s meeting. The positions of individual governments are different. According to leaked information, the Czech proposal to cap gas prices for electricity production is not very popular with the European Commission’s leaders or the governments of neighboring countries. Mainly because it would not motivate to reduce gas consumption and could thus be an engine for even greater demand.
On the other hand, the Czech Presidency considers the Brussels proposal to cap the prices of Russian gas imported through the pipeline to be unrealistic. Disputes can also be expected regarding the future of emission allowances.
It is therefore very likely that the Czech national scenario will be necessary.
The establishment of a special team under the Office of the Government shows that the prime minister – undoubtedly also under pressure from a part of his own party – has stopped trusting the current manager of the energy agenda, Minister of Industry Síkel. Although he has assured several times in his speeches in recent days that his department has been working on energy price regulation scenarios for a long time, it is hard to believe that.
Until recently, all government politicians ruled out capping or regulating prices. Only after the establishment of an energy team under the Office of the Government did the state begin to collect the data necessary for modeling regulatory scenarios. Only last Thursday, the Government Office commissioned the consulting firm E&Y to process an analysis of the legal options for capping prices. And controlled coordination between individual ministries, among which the issue is spread, also began.
The members of the new energy team addressed by SZ Byznys agree in confidential interviews that the prime minister’s advisor for e-government and digital transformation Zdeněk Zajíček, who during his career served as deputy of the Ministry of Finance, Interior and Justice, became the informal main coordinator and engine of the ongoing negotiations. It was he who effectively took over Síkel’s role in solving the crisis.
The radical change in the government’s approach to the crisis was mainly caused by price records on the electricity and gas markets from the turn of the week before last and the turn of last week. A number of politicians in the Czech Republic and other EU countries then started talking about the failure or collapse of the market, which raised the appetite for regulatory interventions and price ceilings in the Czech Republic as well. In addition, representatives of employers – the Chamber of Commerce and the Union of Industry, among whose members there are more and more companies unable to withstand the high prices – also began to put pressure on the government. The mentioned statement of the Association of Regions from August 26 also played its role.
Dissatisfaction with the government’s approach and the Minister of Industry’s lack of action has begun to grow even among the politicians of the coalition parties: in the last week, the Minister of Justice Pavel Blažek (ODS) openly requested a more decisive intervention against the rise in prices, the Minister of Health Vlastimil Válek (TOP 09) threatened to resign if he could not stand to secure energy for hospitals, pirate senator Lukáš Wagenknecht called for “quick measures within weeks” in a letter to the prime minister last Friday.
The last warning about the unsustainability of the current approach was the Saturday demonstration of dissatisfied citizens on Wenceslas Square in Prague.
The first result of the meeting of the special energy team should be known as early as next week. Politicians want to wait for the results of Friday’s EU ministerial meeting in Brussels.
“If they don’t bring an EU-wide solution – which I honestly don’t expect – the Czech scenario should be announced after the weekend,” one of the direct participants in the meeting told SZ Byznys.