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ČEZ lauches arbitration proceedings for its investment

July 12, 2016 | Comments: 0Author:

Bulgaria’s failure to observe the investment protection provisions of the Energy Charter Treaty was cited by ČEZ Group for its decision to file a request for arbitration with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

A number of actions of domestic authorities damaged the Czech utility’s companies in Bulgaria, causing the long-term critical situation on the local energy market that is not improving, according to the statement by spokesperson Barbora Půlpánová. The claim amounts to “hundreds of millions of euros,” as previously announced. Electricity distribution firms EVN of Austria and Energo-Pro from the Czech Republic sought arbitration against the state with ICSID in 2013 and 2015, respectively.

ČEZ said it repeatedly asked the government for speedy rectification of the current state of affairs and for compensation for damage. It sent a notice of dispute to the Government of Bulgaria in November to request amicable settlement of the dispute, without prejudice to the company’s right to bring investment treaty arbitration proceedings, according to the press release. Since then, Bulgaria has not used the opportunity for amicable settlement of the dispute. “We are prepared to protect our investments by all possible means and arbitration is therefore the next logical step,” explained Ivo Hlaváč, chief external relations and regulation officer.

The ČEZ Group entered the Bulgarian market in 2004. It said its distribution and sales businesses serve three million customers, mainly in the western part of the country. The ČEZ Group also owns other assets, among which a black coal power plant in Varna that ceased operations in January 2015. “The situation in the Bulgarian energy sector is critical and especially the pricing decisions of the local regulator have not been, on a long-term basis, in line with the expectations at the time of the privatization process. Therefore, businesses operating in the energy sector have in recent years faced declining profitability or losses and low liquidity,” the group stated.

The company, 69% state owned, is dissatisfied because the regulator abolished the distribution licence of ČEZ Bulgaria and reduced regulated prices. It was fined several times for abuse of market position, and the latest such decision was brought in May. The Czech investor faced political and instability in the energy market in the region, including operations in Romania and Albania. It was squeezed out of Albania in 2013, but reached an agreement on compensation.