When Czech competition came up short

Czech regulators do not have the greatest of reputations. Some are lacking altogether, such as the one for the water industry and associated charges; others have taken a lot of time to get up steam, such as the rail regulator, and then there is the competition office.

Office for the Protection of Competition, photo: Tomáš Adamec

The Czech competition office, more correctly known as the Office for the Protection of Competition, is no newcomer on the block. It’s been active since 1991. But many competition and anti-trust lawyers will say that it lacks real teeth and has rarely taken on big companies and established interests. To be fair, the big cases are quickly shunted off to be dealt with by European authorities in Brussels.

But a recent Czech government move has perhaps highlighted the reason for some of those misgivings. As the government now mulls the way forward for building new nuclear reactors at Temelín and Dukovany, it has had another look at the tender procedure set up and followed last time round by state-controlled power company ČEZ and found it wanting.

One problem was that it failed to give the state as much freedom as it wanted to set out targets for the amount of work that Czech companies could win on the final contract worth hundreds of billions of crowns.

Indeed, the Czech government applied in 2008 for an exemption from European public tender rules so that it could frame the new nuclear tender more to its taste. The exemption is allowed for certain types of utilities such as the electricity and gas sectors. But there is one catch for the exemption to be given, the government making the request has to convince the European Commission that the local market concerned is competitive.

Now the Czech competition office had been making that argument for years as it approved a series of ČEZ acquisitions to create a vertically integrated power company. ČEZ was allowed to buy up one of the biggest coal mining companies, SČD. At the other end of the chain it was allowed to snap up stakes in a series of power distribution companies. All the while the competition office recounted how the electricity market was regional and that ČEZ was not a dominant player perverting competition on its back yard.

But at the end of 2008, the European Commission looked closely at the Czech situation and it begged to disagree. The correct electricity market to focus on was not the regional one but the Czech one, it said. The Czech Republic was an electricity exporter and imports, even from neighbouring Slovakia, hardly had any impact on the market, it added. And on the local market ČEZ held most of the cards with around 70 percent of electricity production capacity. The proposed addition of two new reactors at Temelín would even strengthen that position. In short, the request for an exemption was bluntly turned down. The previous arguments put forward by the Czech competition office were dismissed as spurious.

The Czech government is now looking again at whether to make a request for an exemption for the looming nuclear tender. One of the factors in that assessment whether to go ahead is if the electricity market situation has really changed over the last eight years or whether ČEZ will still be regarded as a dominant player on an essentially closed national market.