22 February 2018 | Hospodářské noviny
Billionaire Tykač Planning a Massive Expansion; He wants to Buy Coal and Gas-Fired Power Stations in Europe
As late as mid-2017, Pavel Tykač, one of the wealthiest Czechs, was not yet planning any major expansion outside the country. However, the owner of brown coal mines in northern Bohemia and of the Chvaletice power station has changed his mind. He is setting up a new firm tasked with identifying attractive opportunities in the energy sector across Europe. He is building his new firm on expansion, in which he intends to invest tens of billions of Czech crowns. Alan Svoboda, formerly on the Board and Sales Director of ČEZ, will manage the new firm for Pavel Tykač.
HN: What has prompted you to change your mind and want to go shopping around Europe?
There is more than one reason. One of them is definitely the fact that we have not been successful in finalising several attractive investments, and so have sufficient amounts of cash now. However, when we were trying to buy Vattenfall power stations and coal mines in Germany, and in some other cases (the Prazdroj brewery in Plzeň or the Počerady power station; eds.), we realised that this had to be done professionally. The principle is that we want to venture into new investments for which suitable opportunities exist now. In simple terms, the right time has come and a few conditions have been satisfied, and we said that we would not just give it a try ad hoc as before when our successes were rather due to coincidence, to an extent.
HN: What assets will you target? Will they mainly include coal and gas-fired capacities, as in the case of EPH?
In principle, we are not avoiding anything – conventional or renewable assets, or new technologies. We want to go where we see our added value. I don’t think that we will buy a wind farms, for we no longer have anything to bring to them. But we are looking at, for example, some hydroelectric power stations. We are also interested in investments directed towards final customers. We want to stay in the energy sector; excursions beyond the sector should remain sporadic.
HN: Directed towards final customers—what do you mean? Trade, distribution?
Both; local electricity distribution, supply to final customers, including smart grids. We are already looking at some opportunities. We don’t want to say that we’ll only do generation and only coal or gas-fired power stations.
HN: Acquiring old capacities across Europe – this prompts a comparison with Daniel Křetínský’s Energetický a průmyslový holding (EPH). He has been buying coal, gas, biomass and other capacities for several years.
All of the above is part of it. The difference is that we want to operate and develop everything on a long-term basis as needed for the energy system. We regard EPH as more of a financial investor; evidence of this is, for instance, the fact that EPH has sold stakes in some of its assets to Australians and Chinese. This is not our plan.
HN: Why have you decided for acquisitions now?
A large number of sellers are disposing of their capacities under pressure due to, e.g., political reasons, when particularly coal is no longer popular and some national governments are against it. We understand these reasons. And although we are coal miners we believe that the end of conventional sources is inevitable. But it will be slower to happen than politicians have planned. Companies sometimes sell assets simply because their government have signed a treaty/agreement. But at the same time, the need for these capacities will continue. This is the opportunity.
HN: Is this the case of, e.g., the Swedish government and Vattenfall’s German assets, eventually bought by Křetínský rather than you?
Yes. Typical, but far from the only one. Similar issues are now also being addressed in France and other European countries.
HN: Have you set any geographical limits?
The whole of the European Union. We would probably not go any farther.
HN: Since this political pressure is felt mainly in the western part of Europe, can it be expected that you will go shopping mainly there?
Your expectation is correct.
HN: Do you already have any transactions in the pipeline? Can you name some?
We are discussing something, but we have confidentiality agreements in place. There is more than one such case. But I won’t really tell you more now.
HN: How much money have you allocated for this?
Together with some leverage from banks, it is quite in excess of a billion euro.
HN: What do you mean by ‘quite in excess’? A billion and a half (approximately CZK 40 billion)?
Our equity stands at around a billion dollars (CZK 21 billion). And a large amount can be borrowed on that.
HN: What will be the banks’ view of these acquisitions? Isn’t it still a very risky area?
In general, we are still in a situation where it can happen that everything changes in a snap. The saying that ‘Businessman proposes, Politician disposes’ is still true. Look at the post-Fukushima Germany: the country completely U-turned to oppose nuclear in just a few days. It can happen that they will close down some of our [plants]. In spite of that, short-term investments are not our plan. But goodness, let it also be clear that I believe that coal-fired power stations won’t be here for longer than, for example, my life. All of us probably know this.
HN: And what will you do when the situation in a given country changes?
There is no way to know in advance. When we buy a power station we can either operate it for some time or replace it with something else. Yes. It is a risky terrain. But we know a lot about energy. And I think that we are able to make some good estimates. This is not to say that we can’t make a mistake. But that’s the way it is. You err, you pay.
HN: You referred to a new team. Can you give us some names?
We have put together a remarkable team of people. Alan Svoboda, formerly on the Board and Sales Director of ČEZ, is the team leader. He joined recently. The other key people include Michal Skalka who, for all practical purposes, developed trading at ČEZ, and Jan Žižka who was responsible for the technical conditions of power stations at ČEZ for the past ten years. And he is a master of engineering. And, naturally, we also have our experts, Luboš Pavlas for power stations and Vladimír Rouček for mines. Michal joined us last year. His mission is to put together trading on a par with the European standard. This means that electricity is traded at the Central European market, but the market in emission allowances covers the whole of Europe, and you also have to hedge against coal prices, which is already a global market. In addition, his other half will be on the team created and managed by Alan Svoboda. There, he will help with market outlooks and business analysis. Knowledgeable in the technical condition of power stations, Jan Žižka is also a very important person. Keeping a generating plant in operation and being able to figure out what should actually be renovated, and at what pace, so that it makes sense—this is crucial.