At the end of August 2007, the Czech Energy Company CEZ and the Hungarian Oil and Gas Company MOL proved, that even two (in the world scale) middle-sized companies from Central Europe can raise some excitement in the world media and among analysts. According to the capital value two times bigger Czech company agreed on a strategic alliance with the smaller partner, with the possibility to buy 10 % of the Hungarian company.
The information was released at a time when MOL attempts by any means to resist a takeover by the Austrian oil company OMV. OMV increased its share in MOL to 18.6 % and made an unofficial offer for a takeover in the summer 2007. In the meantime, the share in the Hungarian company has increased to 20.2 % and the parliament in Budapest began to considerate to pass a law according to which acquisitions in the strategic sphere would have to be approved also by the government (1).
The Austrian OMV is looked at like at the Trojan horse of the Russian companies, which have been trying to get to assets in Central Europe for a long time. Some of the most active ones are Gazprom and LUKoil. The offer of the takeover appeared a few weeks after the Russian President Putin visited Vienna where, besides other things, were agreed the conditions of a direct distribution of gas to Austrian target consumers by the daughter company of Gazprom. Thus Austria became the first EU country where Gazprom has been successful with such an offer.
The takeover of MOL by OMV would have consequences, which were dealt with in a preceeding article published by Despite Borders in August 2007.
According to several Czech financial analysts, to gain 10 % of MOL stock would be a senseless transaction for CEZ. The Czech company would thus become to some extent dependent on stock development of a foreign company and the free funds, which CEZ has enough of, could be used in a more sensible way than to invest in a company with a diverse business. According to the shareholders, the transaction will not bring an increase of the stock value either (2).
As CEZ has officially stated, in the next two months negotiations concerning establishment of a joint venture will take place, which is a first step to the considered cooperation. According to CEZ`s official statement, from the point of view of geography MOL operates in territories considered to be the target territories for their own expansion abroad, and there it is an entrenched partner.
The joint venture should deal with steam-gas power plants construction, as a number of countries import, or in the nearest future will import electric power from their neighbors and its price will increase in the future. The first one should be constructed near the Slovnaft refinery and the second one near the Hungarian refinery in Százhalombatta (3).
According to the Czech newspaper Hospodarske noviny, the agreement between the two companies is a result of negotiations between top politicians of both countries, which began already in May 2007. The Czech Minister of Finance Miroslav Kalousek refused to confirm the dialogues on higher political level, nevertheless a source close to Hungarian government did(4).
CEZ has been declaring for several years that they would like to construct a power plant in Slovakia and to gain a similar position as in the Czech Republic. That does not mean only being a distributor, but mainly a producer of electric power.
CEZ invests tens of billions of Czech crowns in construction and purchase of power plants abroad. 100 billion CZK (121.8 billion SKK) are planned to be used within next six years for reconstruction of power plants and for construction of new blocks in the Czech republic. CEZ has already gained a strong position in Bulgaria and Romania, and in the beginning of August they announced their intention to construct a power plant near Moscow together with the Russian company RAO-UES (5).
The Czech and Hungarian companies have took an unexpected step, which they were forced to take mainly by the activities of Russian capital and Russian companies in Central Europe. For their activities they choose already entrenched companies, in this case the OMV.
Hungary already has similar experience with further transfer of parts of their companies` assets, privatized by foreign concerns, to the Russian companies. German E.ON announced sale of a part of their Hungarian assets shares to Gazprom – E.ON Foldgaz Storage, E.ON Foldgaz Trade and E.ON Hungaria. By the strategy of assets exchange, the western companies try to get share in mining fields in the Russian Federation, in case of E.ON-u it is the access to the Yuzhno-Russkoye field. OMV is also interested to take part directly in the mining in the country. If taking over MOL, they would get hold of the assets which they could offer to Russia. The one who would take the most risk would be the only Slovak refinery Slovnaft, which processes Russian oil and is situated on the route of the Druzba pipeline(6).
However, at present both companies, whose steps leading to a strategic alliance are pertracted as an attitude preventing the Russian capital to enter Central Europe, already cooperate with Russian companies. CEZ and RAO UES plan to construct a power plant near Moscow. So far, MOL has had good relations with Gazprom, as well as the top politicians of Hungary and Russia have, and both companies lead dialogues concerning construction of gas reservoirs in the Central European country. According to some analysts, Russian capital already has influence over MOL, and it is mainly Yukos being mentioned in relation to this. The companies searching in Central Europe most intensively are Gazprom and LUKoil, both with excellent contacts in Kremlin (7). According to the statements of the LUKoil representative, the company has 9 billion USD available for purchasing assets in Central Europe, and is interested mainly in refineries. In their view-finder popped up the companies MOL and PKN Orlen. As Lukoil stated, the problem is increasing favouritism in the countries manifested by unwillingness to sell shares in the companies to foreign ivestors (8). This spontaneous development was highlighted also by the activity of the EU, which according to ktorá podľa The Financial Times plans to restrict investments from the third countries in European energy sphere (9). The restrictions are supposed to relate especially to the countries which restrict access to their energy markets themselves. For instance, Russia and Saudi Arabia strictly restrict investments of European companies to the energy sphere in their own territories. According to a number of people, this clause is primarily aimed at Russian companies which have expressed their interest in capital input to European energy companies (10).
In the first half of 2007, the Hungarian government and MOL were pertracted in a bad light, because according to current statements they preferred the Russian alternative of the Nabucco pipeline, even though they participated in both projects (11). Gazprom offered Hungary to build the largest gas reservoir in Europe, by means of which the country would have become a regional hub in gas distribution. After Putin`s visit to Austria, the proposal to construct already mentioned reservoir in Baumgarten near Vienna was getting to foreground. Also from historical point of view, Austria had good relations with the USSR; it was the first western country to sign a long-term contract concerning natural gas supplies with the USSR. This year, Austria was the first EU country to sign a long-term contract with the Russian Federation.
CEZ has entered the imaginary battle of the two countries by taking the Hungarian side. The Russian policy strives for particular negotiations with individual states of the EU, and thus it often puts them against each other. In this actual case it is Austria and Hungary. Yet there is a possibility that the Russian policy might be disdainful and that the entrance of CEZ could be also initiated or blessed by Kremlin. In OMV exorting pressure on MOL and in the investments in Croatia and Italy, the company has spent their financial resources for defence, where CEZ will help with an injection for the 10 % stock. However, CEZ have also their interests in Russia and the 10 % in question in their hands does not have to terminate there. At present the Czech government plans privatization of some companies, including the energy concern. However, these are only surmises, and it will be difficult to prove them in actual life.
Only next days and weeks will show what motives are behind the activities of CEZ as well as OMV and MOL. According to the CEZ spokesman Ladislav Kriz, the contract is supposed to be signed in the mid-October 2007, where the size of the share that CEZ gains will also be defined. (12). Despite the fact that the joint venture of the two companies will make it easier for the Czech company to enter other markets, it is questionable whether gaining the 10 % is an advantage. Speculations have also appeared concerning assets exchange, nevertheless the companies have refused this option. None of the mentioned companies can afford to harm their relations to Gazprom and Kremlin, because the planned power plants will burn natural gas sure to source from the Russian Federation. These Central European companies are still too small to take adverse actions against the Russian ones.
(2) Doležalová, P.: Tango ČEZ a MOL…analytici plni rozpaků, 04. 09. 2007, http://www.kurzy.cz/zpravy/137905-tango-cez-a-mol-analytici-plni-
(3) Tlačová správa ČEZ, 31. 08. 2007,http://www.cez.cz/presentation/cze/instance_view.jsp?instance_id=
(4) CEZ/MOL alliance to avert Russian influence, 31. 08. 2007, http://www.financninoviny.cz/kam/english/clanok_view.php?id=269124
(5) ČEZ rokuje s maďarskou ropnou spoločnosťou MOL o výstavbe elektrární, 30. 08. 2007, http://ekonomika.hnonline.sk/c1-21921780-cez-rokuje-s-madarskou-
(6) Ševce, P.: Ropná mapa strednej Európy, http://www.despiteborders.com/clanok.php?subaction=
(7) Carney, S.: CEZ-MOL Deal Deflates Suitors, 03. 09. 2007, http://online.wsj.com/article/SB118877184262915942.html?mod=
(8) Lukoil rumours around Hungary’s MOL – Financial Times, 13.09.2007, http://www.portfolio.hu/en/cikkek.tdp?cCheck=1&k=1&i=12953
(9) Proissl, W., Crooks, E.: Russian Energy faces EU barriers, The Financial Times, 30. 08. 2007, http://www.ft.com/cms/s/0/66df61f6-568c-11dc-ab9c-
(10) „Klauzula Gazprom”, 20. 09. 2007, http://www.euractiv.sk, http://www.euractiv.sk/energetika/clanok/klauzula-gazprom
(11) Ševce, P.: Nabucco, Maďarsko a spoločná európska energetická politika,
(12) MOL, CEZ jv contract could be ready by mid-October, 20. 09. 2007, http://www.forbes.com, http://www.forbes.com/markets/feeds/afx/2007/09/20/afx4139145.html