Britain bids for Czech reactors

International talks aimed at Republic's power giant reckon on £1bn deal

British Energy, International Power and Germany's E.ON are planning a joint £1bn bid for the state-owned power company of the Czech Republic. The European energy companies are understood to be in talks to form a joint company to secure a 67 per cent stake in CEZ, the largest utility in the Czech Republic.

The state-controlled company owns nuclear and coal-fired power stations as well as the transmission and distribution network across the country.

Sources say British Energy is interested in the nuclear reactors at Temelin and Dukovany. E.ON and Britain's International Power are interested in the rest of the generation plant and distribution network.

CEZ's other shareholders include American institutions Franklin Resources and Templeton Investment Management. The Czech government wants to sell its stake by the middle of next year to narrow its budget deficit as part of its plan to gain entry to the European Union by 2004. The government has yet to publicly reveal how much it hopes to raise, but industry insiders said the price could be more than £1bn. The sale may also include other state-owned assets not controlled by CEZ.

Earlier this month, the Czech government, advised by Deloitte & Touche, invited expressions of interest. As well as the three joint bidders, well-placed sources said that Electricité de France (EDF) also submitted a bid. But the appearance of the French state-owned electricity giant is likely to raise eyebrows in Europe. France has yet to open its electricity market to competition, unlike like other member sates such as Britain which operates a fully deregulated market.

The European Commission and the British Government believe that because EDF is controlled by the state it has access to cheaper capital, giving it an unfair advantage in bids. Already EDF has snapped up London Electricity and has approval to buy Italian industrial conglomerate Montedision with car maker Fiat. One CEZ source suggested the Czech government may tactically avoid selling to EDF because the French company is out of favour with the EC. The Czech government will be keen to keep on side with Brussels. But other information has it that the Czech government will be driven by price to reduce its deficit.

The Republic's bid to enter the EC has already run into controversy. Last year Austria threatened to block its entry after Prague approved the operation of the nuclear plant at Temelin, near the Austrian border. The Czech nuclear safety office said the power station met all safety standards. Austria was not convinced.