The European Commission and the Czech competition office have both found that ČEZ's relevant market is the Czech Republic and not, as ČEZ insists, Europe.



History was made in Czech competition policy over the summer. No one noticed. This is not surprising given the subject matter which is very much an acquired taste.

For the first time ever, the Office for the Protection of Economic Competition (ÚOHS) took the trouble explicitly to define ČEZ’s relevant geographic market for electricity generation and wholesale. And what is even more noteworthy, it has defined this market as Czech. In simple terms, a big fish in a small bowl.

In its decision on ČEZ’s acquisition of Energotrans from EPH, the details of which were made public two weeks ago, ÚOHS ruled that: “ČEZ’s relevant geographic market for electricity generation and wholesale should be defined by the territory of the Czech Republic.” See paragraph 54 of the decision here

We must thank the former Chief Economist at ÚOHS Milan Brouček and his team for this radical departure. Together they have created an enormous headache for ČEZ and set a most dangerous precedent for Chairman Rafaj and his Controller, competition legal supremo, Radek Pokorný.

The ÚOHS definition contradicts outright the longstanding and false claim by ČEZ that its market power is negligible because its relevant market is defined by the territory of Europe. In simple terms, a small fish in a big bowl.

The ÚOHS finding is satisfying and not only because it matches our own conclusions, vindicating two years of hard work by my colleagues at Candole, who have been publicly mocked by ČEZ’s various talking heads for their “intentionally misleading, tendentious, ill-constructed, so-called ‘research’ based upon incorrect data and sophisticated-sounding arguments.”

It is satisfying because the regulatory ‘benefit of the doubt’ behind which ČEZ has been sheltering for so long has now been removed. An incorrect definition (or better said, no definition) of ČEZ’s relevant market has allowed the firm to escape adequate, indeed any meaningful regulatory attention from the competition authorities for years.

ÚOHS’s radical new assumption, that ČEZ’s relevant market is Czech, dramatically raises both the probability that the firm is abusing its dominant market power (it is in our opinion), and the risk that it will be caught doing so as a result of much tougher oversight by the regulator.

This in turn will oblige ČEZ to take pre-emptive measures to avoid investigation and conviction for market abuse in the future –indeed it has already begun to do so in its offer to the European Commission to divest generation assets.

Needless to say, these assets would have to be sold to several individual buyers to maximise the chances of a real market emerging. And of course, to minimise the risk that those assets are sold to a firm, which though formally separate, might be tempted to act as a proxy for ČEZ –EPH in other words.

If the ÚOHS definition is not enough to wipe the self-satisfied grin off the Mandarin-like features of Alan Svoboda, who is ČEZ's lead lobbyist in Brussels these days, then the ruling of the European Commission on the firm's alleged abuse of dominant market power, expected soon, will be.

ČEZ's offer to divest some clapped out old power stations was never what the firm and the servile local analysts who trade the firm's shares claimed it to be. This apparent 'agreement' with the Commission was only ever a gambit aimed at delaying confirmation by the Commission of what all consumers of ČEZ electricity know to be the case but cannot prove: that the firm is abusive.