“Nuclear grandpa” Miroslav Grégr: Why we cancelled ČEZ’s privatisation

It was clear that if ČEZ’s privatisation was “called off”, it would be necessary to build it into a company strong enough to withstand European competition. This is how former Industry Minister Miroslav Grégr recalls the decision to strengthen the largest Czech energy company at the turn of the millennium. ČEZ was then regaining stakes in distribution companies.

Today, Grégr fears proposals under which ČEZ could instead be split up again. “The splitting of ČEZ is a very dangerous matter,” says the former minister, who oversaw the completion of the first two units of the Temelín nuclear power plant and thereby earned the nickname “nuclear grandpa”.

“It would be truly shocking if shareholders’ insatiability were given priority over the further development of Czech energy,” Grégr stresses in an exclusive interview for the oEnergetice website.

You are known as the politician who pushed through the vision of a large ČEZ with a state majority stake at the turn of the millennium. It was also called “superČEZ”... But originally, you were preparing ČEZ’s privatisation. What was your thinking at the time?

Our reasoning was based on the assumption that only large, strong, powerful entities could withstand European competition. At first, I too accepted that ČEZ might fare better as part of some large European group. Companies interested in ČEZ at the time included France’s EDF, Italy’s Enel and Spain’s Iberdrola. I visited these companies, and we also launched a tender. At the same time, as someone taught by practical experience, I was very interested in what such a merger might look like. In talks with those foreign bidders, I sensed that they saw Czech energy as a kind of junior partner – less experienced, less capable, whom they would like to lead by the hand. And when I also became familiar with their problems, I found that they were certainly no smarter than we were. In some respects, they could even have learned from us.

At the time, did you consider that it might be possible to repeat the successful privatisation of carmaker Škoda, in which you were involved at the beginning of the 1990s as Czech Minister of Engineering and Electrical Industry in Petr Pithart’s government?

Yes, that did indeed play a role. Škoda’s privatisation was highly beneficial for the Czech Republic. But I was never an advocate of privatisation at any cost. In my view, privatisation is not an ideological matter; it is fundamentally a matter of national economics. It often turns out that the state is a better manager and owner than some private company. Privatisation must bring capital, know-how or markets. We set out five basic conditions for Škoda’s privatisation in advance, on which there could be no compromise – retaining the factory brand, retaining comprehensive car production, retaining independent research and development, retaining sales of the Škoda brand, and maintaining employment at its then level. In short, privatisation must deliver a tangible benefit, which happened in the case of the sale of Škoda to Volkswagen.

So in the case of ČEZ’s planned privatisation, you did not find such benefits in 2000...

We saw that virtually none of the bidders was willing to develop ČEZ in the way Volkswagen had developed Škoda. Rather, it appeared that the new owner might want to extract funds from ČEZ instead of investing in it. Moreover, we did not receive adequate price offers. At the time, we valued ČEZ’s assets at CZK 220 billion. The highest bid came from EDF and amounted to CZK 160 billion.

But EDF came quite close to buying ČEZ, did it not? ČEZ’s later CEO Daniel Beneš said at one press conference that it did not take much for French managers to be sitting here instead of us...

I would not put it that way. I proposed to Prime Minister Miloš Zeman that the privatisation project be cancelled, and he agreed. I prepared the relevant document for the government meeting. At that time, EDF’s CEO flew to Prague and was willing to improve the offer in some details. I remember that we first negotiated for about three hours together with Prime Minister Zeman, then I continued the talks with the EDF chief alone. Our conversation dragged on past midnight; shortly before midnight, EDF’s CEO called the French finance minister to ask whether he could raise the offer. The minister approved another CZK 10 billion. But I had already decided that we would not proceed with privatisation, even if they had offered the full CZK 220 billion at that moment. The French did not want to believe it; EDF’s CEO even turned around in the doorway and asked me whether I was serious.

Did you also discuss the possibility of selling both ČEZ and the stakes in distribution companies which were not part of ČEZ at the time?

It was part of the negotiations, but it was not firmly set. Had we selected a partner for more serious talks, the distribution companies would also have been discussed.

The superČEZ vision

During those final talks with EDF’s CEO, did you already have in mind a vision of superČEZ that would regain those stakes in distribution companies as well?

It was clear that if privatisation was called off, we would build a company strong enough to compete with precisely those foreign firms. So that we could hold our own not only in Czech but above all in European competition.

I will admit one thing: at the time, I thought it was an expression of megalomania. That a large, inefficient behemoth would emerge here.

Historically, the entire electricity sector had belonged under ČEZ. A return to the original structure was no longer entirely realistic after ČEZ was divided in the 1990s, but we pursued it to the extent possible. Some distribution companies had already acquired new owners in the meantime. South Bohemia, South Moravia and Prague had already been lost, but companies such as Západočeská energetika were still in play. I remember remotely managing by telephone the buyback of shares from the Plzeň city authority. There was bidding and counterbidding right up to the last moment in the contest between E.ON and ČEZ.

What did you expect from superČEZ at the time?

I have already spoken about our aim of building a strong company that could withstand European competition. I think that was achieved. We also needed a strong Czech company in order to complete the first two units of the Temelín nuclear power plant on schedule and within the financial limit. That would not have been certain at all if ČEZ had been privatised. We also expected foreign companies to want to supply electricity to the Czech market. Conversely, we sought not only to supply the domestic market sufficiently from our own resources, but also to become electricity exporters. Here I sometimes encountered very naïve ideas. One minister at the time declared that the greatest consumer comfort would be achieved if all energy were imported into the Czech Republic. I replied that energy is a commodity like any other, except that it cannot be stored using conventional methods. There is no reason to worsen the trade balance in this way.

If I remember correctly, you also argued on the grounds of energy security...

I set out the principle that a sovereign state is one that is energy-independent to the greatest possible extent. In Czechia, we do not have gas or oil in any large quantities. But we do have resources for generating electricity. So it is precisely in this area that we should be independent, self-sufficient and sovereign.

But we import nuclear fuel too...

I am convinced that nuclear fuel is multiplied in value many times over in our overall energy balance. Independence in electricity generation makes a major contribution to our country’s sovereignty and security.

Was it difficult to push through the vision of a large ČEZ? What was the balance of power in Zeman’s government?

We did not approve the creation of the so-called superČEZ in government. That fell within the remit of the Industry Ministry, as the body exercising shareholder rights in relation to ČEZ, and the National Property Fund.

“Small is beautiful”

But you must at least have had the prime minister’s blessing?

It was not any kind of official blessing, but I think I managed to convince Miloš Zeman. He listened to us. I must say that initially the National Property Fund was dragging its feet somewhat, but, to put it mildly, I also managed to convince its representatives. You know, after 1990, some politicians here began promoting the slogan “small is beautiful”. It was a theory that began to be advocated in the United States sometime in the early 1970s. A minister in the former federal government and later in the Czech government told me that he had seen factory operations in France divided by wire fencing, and he proposed similar division of companies in Czechia. Something similar can be seen today, for example, at the site of the downsized Škoda Plzeň. In Prague’s Vysočany district, a sports arena now stands on the site of the former ČKD complex, while in Kladno there are the ruins of Poldovka.

Incidentally, even when you were a minister in Zeman’s government, Václav Klaus described you at a seminar of the Centre for Economics and Politics as a supporter of the entirely opposite slogan: whereas economist Schumacher argued that small is beautiful, Klaus said that you had become a defender of the idea that big is beautiful...

I remember that CEP meeting at the Mining University in Ostrava very well. At the point when the then senator Mirek Topolánek was running out of arguments, he declared that I wanted to bring back the militias. Václav Klaus was kicking him under the table and telling him: please, be quiet. I think it says a great deal that the Americans abandoned the slogan “small is beautiful” relatively quickly. Large industrial entities provide work for suppliers, subcontractors and component manufacturers. They create various service activities, and purchasing power and employment grow as a result.

So you argue that large corporations also give rise to small businesses? Can it be said that you are not a priori opposed to small businesses?

Yes, small businesses emerge and small-scale enterprise develops. On the other hand, it is clear that only one company out of many will embark on developing an engine, and it will not be a small business. Just consider the costs for a company in the automotive or engineering industry if it wants to succeed with its product in foreign markets – it must pay for advertising abroad, a distribution network, a service network and spare-parts warehouses. I supported large entities capable of funding development, employing engineers, supporting higher education and creating jobs at supplier companies as well. Similar arguments apply to energy too. If I build a new nuclear unit, I will create job opportunities for 40 thousand people.

A new split of ČEZ?

At present, proposals are again being made that ČEZ could somehow be split up. According to some theories, generation at conventional power plants could once again be separated from distribution and sales. That would mean the exact opposite of what you did when, to the extent possible, you put ČEZ back together. How do you see it?

I do not really know whether such proposals stem from ignorance or whether they are intentional. Jan Werich once said in another context: partly out of stupidity, partly for someone else’s money. Sometimes I feel that Werich’s words are being borne out. Splitting ČEZ is a very dangerous matter. I certainly would not separate coal-fired power plants, nuclear power plants, distribution and so on. That would mean only one thing – that I would dilute and obscure the whole structure. This is clearly not about any long-term vision for Czech energy, but about immediate profits. If I am a sensible owner, a sensible manager, I must have a long-term concept. A short-term profit can mean a major loss in the long term. And energy needs a strategy extending as far as sixty years ahead.

Supporters of splitting ČEZ point to Germany, where large energy companies were divided. What they consider old energy was separated there from the rest...

Such a division into old energy and the energy of the future is highly questionable. Every country has its own specifics in this respect. We do not have the option of building a wind farm at sea. And that is not to mention that, in favourable weather, these wind turbines feed surplus electricity into the grid – at one time it threatened our transmission system with a blackout – whereas in unfavourable weather, you need ready backup sources to make up for outages from renewable sources. We are addressing the long-term question of what will replace coal. Here, nuclear power will remain the most advantageous source of electricity for a long time. Nuclear power emits neither carbon dioxide nor nitrogen oxides. And spent nuclear fuel is not actually spent; it has rather been used once. Once new technologies have been developed, it will be possible to use it further.

There is, however, a certain rational element in the thinking of those who want to split ČEZ: the company does after all face conflicting objectives. On the one hand, ČEZ should fulfil the state’s energy strategy; on the other, it should pay the highest possible dividends, which is in the interest of minority shareholders, but in fact often also the majority shareholder. It depends on who represents it...

It is true that, under the law, the principal objective of a joint-stock company is to generate profit. But it does not specify over what period of time. If I want to achieve a higher profit margin, I must also invest. Logically, that means profit is sometimes small and at other times I may even incur a loss. But over the long term, such a loss can mean a major gain. This is why I see great danger in efforts to squeeze some dividends from ČEZ in a hurry, regardless of how the energy sector will develop further. If shareholders, including the state, have received high dividends over the long term, then in certain situations they should moderate their demands and look to the future as well, thinking of the next generations. After all, the law does not specify how profit should be distributed either. It can all be reinvested; it depends on the general meeting’s decision. It would be truly shocking if shareholders’ insatiability were given priority over the further development of Czech energy. We cannot liquidate one of the most important sectors of the Czech economy for the sake of momentary profits and short-term solutions. Developments in the world are so rapid today that if you fall asleep, you are simply out of the game.

But is there not quite a significant difference compared with the time when you were minister? There were many opponents of nuclear power then too, but no one could seriously question that investment in new nuclear power plants would pay off after a relatively reasonable period. Today, many see it as an investment that does not pay off at current electricity prices.

Representatives of today’s energy sector must evidently be clairvoyants if they know in advance what the price of electricity will be in five, ten or twenty years. I am convinced that prices will rise globally. I could also note that if nuclear power here were subsidised in the way photovoltaic plants were subsidised, such debates could not arise at all. Above all, however, the important thing is that if coal mining limits are not lifted and we do not build new nuclear reactors, we will begin to face an electricity shortage. We will turn from electricity exporters into importers. That certainly would not benefit our trade balance or our national economy.

In relation to what we discussed earlier, it occurs to me that if ČEZ were now part of EDF, paradoxically, a split might not even be considered. EDF is responding to the current problems in French energy by taking on additional activities.

That always depends on the enlightenment of those making the decisions. Theoretically, other owners might say that, given the fall in electricity prices, we will shut down ČEZ entirely. Or – if they were enlightened minds – they might decide to retain the assets because electricity consumption will rise. If ČEZ’s management is enlightened, it will recognise the wealth, the value we have in the energy sector, and will continue to develop it. I remember how, years ago, there were enormous peaks in electricity consumption schedules, and how great the differences were between winter and summer. Today, we have cold stores and air-conditioned buildings all over the world. The future cannot do without electricity; its consumption will rise.

When you attended a conference in Plzeň last year marking the 60th anniversary of the Czech nuclear industry, there were calls for a nuclear grandpa 2, who could once again bring the construction of new nuclear reactors to completion as you did. How did you take that?

Well, of course, such things flatter me.

And the nickname nuclear grandpa does not really bother you either...

I have always viewed it positively. When, as minister, I accompanied the then Prime Minister Zeman on a government mission to Russia, Miloš Zeman introduced me to Vladimir Putin with the words: éto naš atomnyj děduška. I do not know whether the nickname actually originated before that or only began spreading afterwards, but I never saw anything pejorative in it. And at last year’s conference, it was naturally meant positively as well.

Miroslav Grégr

He made his mark on the history of the Czech economy through the privatisation of the Škoda carmaker in Mladá Boleslav and the completion of the first units at the Temelín nuclear power plant. He was responsible for the sale of Škoda as Minister of Engineering and Electrical Industry in Petr Pithart’s Czech government, in which he served in 1990-91. He oversaw the completion of Temelín as Industry Minister and later also as deputy prime minister in Miloš Zeman’s government (1998-2002). He graduated from the Faculty of Mechanical Engineering at the Czech Technical University in Prague, was director of Desta Děčín from 1962-1969 and again from 1990-1996, except for the period when he served in Pithart’s government. He participated in the economic reforms of the 1960s and was later briefly imprisoned. Before joining Zeman’s government, he had been a Social Democratic Party (ČSSD) member of parliament since 1996.

The article’s author, who also asked the questions, works as an energy projects specialist at the HATcom agency.

Lead photo author: Deník/Martin Divíšek