On April Fools’ Day 2004, Bohuslav Sobotka appointed Martin Roman as boss of a super-sized CEZ.



Martin Roman with a politician best forgotten.

Ten years later, Sobotka’s successor at the finance ministry is calling for CEZ to dividend 100% of its profits, thereby acknowledging the failure of the policy of grafting a private firm onto a dominant public utility. With tedious regularity, public debate on CEZ’s profitability returns to the idea of a ‘super’ dividend payment from the firm’s retained earnings. The fact that this time it is Andrej Babis rather than ‘some politician’ who has come up with the idea makes it no less flawed.

Retained earnings are an accounting measure and do not represent the amount of free cash companies hold in hand at a given time. CEZ is weighed down with current liabilities and would most likely have to borrow to finance such a dividend, burdening its free cash flow still further.

A ‘super’ dividend would deliver a one-off gain for the state budget, but it would reduce the likelihood that CEZ could meet other objectives set for it by its majority shareholder, such as the expansion of the firm’s nuclear fleet or even, dare one hope, an intelligent adjustment to the extraordinary upheavals in Europe's energy market caused by the German Energiewende. CEZ Mobil is hardly an answer.

The idea of a 100% dividend is flawed for another reason. Babis notwithstanding, a ‘super’ dividend would reinforce incestuous relations between politicians and the public authorities. There is only one effective way to deal with the failure of supervision that has blighted CEZ since Roman was appointed, and that is to list 100% of CEZ shares.

If CEZ were a private company, public authorities would learn to treat it as any other dominant private business. They would be less motivated to protect CEZ, and more willing to demand and to publish information, for instance on whether CEZ abuses its market dominance.

The public authorities, such as the energy and competition regulators, would become the independent arbiters they cannot be today as they struggle to regulate and to hold accountable a company in which their superiors are shareholders. And shareholders would be motivated to hold the management accountable for value-diluting decisions through the supervisory board, leaving the management to focus on maximising shareholder value.

If CEZ were an authentically private business, it could better resist political pressure to support the competing objectives of politicians as dominant shareholder, whether it be the pursuit of self-sufficiency in potatoes or the winning of the next election. In short, rent-seeking behaviour and wasteful spending would become the shareholders’ problem, not that of taxpayers.

CEZ is a hybrid. As with plants, it takes time to discover whether scion and stock have formed a healthy union. Ten years on, it is now abundantly clear that in this case they have not. CEZ is unable to achieve its full potential either as a public utility or as a private firm.

The state should sell CEZ. Andrej Babis seems more inclined to nationalise it. But either option would be better than the wilting hybrid of today.