Czech power giant ČEZ appears to have won its battle with its main shareholder, the Czech Ministry of Finance, and buried government plans that would have forced it to pay tens of billions of crowns for emissions allowances.
Presenting ČEZ’s first quarter results earlier this week, CEO Martin Roman was adamant that the danger of having to pay for all emissions allowances from 2013–2020 had retreated. Instead, back on track and proceeding is a European Union agreed program under which up to 70 percent of emissions will be given free in 2013 (with that percentage falling afterwards) in return for investments in clean power production.
“We do not see any reason why this [derogation from emissions purchases] should not go ahead according to the law,” Roman told reporters. The Czech Republic, along with other big coal-burning power producers like Poland, won the derogation from the EU in 2009.
The Czech government announced the idea of charging energy companies for emissions allowances last fall as it scrambled to find cash to cushion Czechs from the prospect of rocketing electricity prices caused by a solar power boom. “Emissions allowances after 2013 will also contribute to this solution,” Prime Minister Petr Nečas (Civic Democrats, ODS) announced on October 12, as he outlined other taxes and measures to stem the solar price rises.
Scrapping the free allowance program already agreed with Brussels and charging for all emissions allowances would have cost ČEZ a massive Kč 38 billion over the period, according to Patria Finance analyst Tomáš Sýkora; having to pay for emissions allowances could easily have knocked Kč 70 off ČEZ’s share price, he added. ‘It would have been catastrophic for energy companies if they had been forced to pay for all allowances.’
Other Czech power companies, such as Energetický A Průmyslový Holding (EPH), would have been in line to pay around Kč 10 billion in total, Sýkora said. “It would have been catastrophic for energy companies if they had been forced to pay for all allowances,” EPH spokesman Martin Maňák told Czech Position.
EPH is proceeding with clean power projects which could mean it will get free allowances after 2013 and did not believe that the government properly thought out its idea to scrap free allowances when they were first raised, Sýkora added.
ČEZ’s optimism over free emissions allowances stems from the European Commission in Brussels, rather than from any clear signals at home. “There are now EU guidelines on how the free allocation program will work and a firm deadline at the end of September for the Czech Republic to send in its investment plans,” ČEZ top manager and head of trading, Alan Svoboda, told Czech Position. The government could still come back with a plan to tax emissions — although the threat appears to have evaporated, he said.
On the government side, there is an embarrased silence over a plan that seems to have been thought up in haste and regretted at leisure. It is also unclear how the possible hole in curbing electricity price rises due to solar power payments might be met after 2012 if the government really was serious about raising cash by auctioning all emissions allowances.
Ministry of Finance spokeswoman Veronika Lukášová denied any knowledge of the plan to charge for allowances when contacted by Czech Position — although the Finance Ministry authored other tax measures aimed at cushioning the solar boom and Finance Minister Miroslav Kalousek (TOP 09) was given the credit for this idea as well. The Ministry of Industry and Trade (MPO), also involved in the talks last year along with the Ministry of Environment (MŽP) on how to solve the solar surge in electricity price rises, bitterly opposed the plan.
Senators petition Constitutional Court
The ministries are, however, united in their support of the other tax measures pushed through to curb the solar power boom as they come under attack in the Czech Constitutional Court (ÚS). As well as the 26 percent tax on solar power company profits, the money-raising package also included a 32 percent tax on emissions allowances that will starts this year and continue throughout 2011 and 2012.
The Czech heat and power company Dalkia ČR says that a challenge to the state’s taxes on solar power companies by a group of Senators from the upper house of Parliament also targets this measure as well. “We believe that the very sophisticated appeal by Senators at the Constitutional Court affects both solar power companies and those paying this tax, and that the court will come to the same conclusion in both cases. We are convinced that you cannot change the rules of the game mid-way through a match,” Dalkia ČR board chairman Zdeněk Duba told Czech Position. ‘We are convinced that you cannot change the rules of the game mid-way through a match.’
The group of Senators, represented by lawyer and former Justice Minister Jan Kalvoda, lodged their challenge in March. Kalvoda argues that the emissions were given free and should not therefore have been subjected to tax. The Czech move also infringed the national emissions allocation plan because permission for the tax was not sought in the first place from the European Commission, he argues.
The Senators also have problems with how the tax is levied based on a formula involving average price of emissions put together by the Ministry of Environment. Lawyers further question the method for calculating the value of emissions and whether the ministry has any legal basis for carrying out such calculations. They also complain that the whole government stand involves a hotchpotch of public and private law with the EU allocation of emissions allowances belonging to the former and the so-called ‘gift tax’ on allowances based on the latter.
According to some legal experts sounded out by Czech Position, if the Senators’ case fails then there is still a chance that the tax on emissions allowances could be attacked by the European Commission itself in Brussels for breaking European law. Earnings from the emission allowance tax are expected to total around Kč 5.0 billion.