UPDATE 2-Bulgaria regulator suggests CEZ has room for manoeuvre

Wed Feb 20, 2013 11:14am EST

* Regulator seeks to revoke CEZ license

* Dispute for CEZ comes after losing license in Albania

* CEZ convinced it can retain its licence

By Jan Korselt and Tsvetelia Tsolova

PRAGUE/SOFIA, Feb 20 (Reuters) - Bulgarian regulators on Wednesday pledged to press on with the cancellation of Czech power group CEZ's distribution licence announced by Prime Minister Boiko Borisov but also suggested there could be room for compromise.

CEZ, central Europe's largest listed company with market capitalisation of $17.4 billion, has been caught in the middle of nationwide protests against high electricity bills that on Wednesday prompted the resignation of Borisov's government.

Borisov, who now faces a tough task to prop up eroding support ahead of a probable early election, tried to stem the protests on Tuesday by promising to revoke CEZ's license and fine other foreign power firms.

CEZ denies breaking any Bulgarian laws and said at a news conference on Wednesday that none of the some 20 comments it had received from regulators proved serious wrongdoing.

"They do not confirm any significant malpractice on the part of CEZ," said Tomas Pleskac, CEZ board member responsible for distribution and foreign assets. "Therefore, they cannot constitute a ground for license revocation."

Earlier in the day, Bulgaria's State Energy and Water Regulatory Commission said that CEZ had evaded public procurement laws by subcontracting many operations without holding public tenders. But it left the door open to being persuaded not to revoke the license.

"The process has only started and if the commission is convinced the breaches are reparable and CEZ agrees to comply with regulations, they may also not be revoked," Andon Rokov, a member of the energy regulator, told reporters. "They, however, will be revoked if the breaches cannot be repaired."

CEZ said the situation has been politicized. It blamed higher electricity bills on a colder winter and higher consumption this year, and said prices were last changed in July under the order of regulators.

The row in Bulgaria comes at a difficult time for CEZ, which is 70 percent owned by the state, as it deals with the loss of its license in Albania, faces police investigations at home over past deals and is negotiating to end an EU probe in Brussels.

CEZ shares dropped 0.9 percent down to 605.70 crowns, just off a three-week low on Tuesday and close to four-year lows at the height of the global financial crisis.

SPACE TO DEAL

Pleskac said he was convinced CEZ would retain its license in Bulgaria, unlike in Albania, where it lost its license in January as part of a running dispute over power imports and prices. CEZ has started arbitration proceedings in the Balkan country, which if it loses could mean up to 200 million euros in losses.

CEZ has invested 72 billion crowns ($3.79 billion) in its international operations since 2005, including 15.6 billion crowns in two distributors and a coal-fired power plant in Bulgaria.

After posting a record profit of 51.9 billion crowns in 2009, CEZ's annual profits have dropped by about a fifth and the company has re-concentrated on its home market, where it is running the largest energy tender in the country's history: an expansion of its Temelin nuclear power plant worth around $10 billion.

CEZ is also running into questions over past deals. The company said on Monday Czech police were investigating four deals, including the sale of a German coal mine and its investment in Albania.

CEZ has also offered to sell a power plant to meet European Commission demands after an investigation into suspected anti-competitive behaviour.

CEZ has a week to comment on the process in Bulgaria before an open hearing is held on April 16.