Bankruptcies have changed the ownership landscape of the Czech energy industry at a time when the country is poised to enhance its nuclear capacity.
Insolvency laws in Czechia affect nearly one-tenth of the total population. Last year, the Guardian reported on the Czech debt crisis which affects close to a million people. Since then, there has been no measurable change to the situation.
Instead, the current system has helped to create a hitherto uncharted “business” field of the extortion of debts with additional fees and incurred late charges, often at a multiple of the value of the original debt.
Subsequently, private bailiffs have been able to amass fortunes and expand their activities into real estate, hotel or even ski business. This is explained in a video interview by Radek Hábl, founder of the Insolvency Prevention Institute.
Hábl points out that one of the key issues, which preserves the vicious cycle of pushing debtors into ever greater debts, is that bailiffs are essentially entrepreneurs: “they often break the law in order to remain in favour of creditors and then to be given more debt collecting work.”
What has been seldom discussed is the extent to which similar logic of exploiting debts and turning these into opportunities to extort more of the debtor’s property has, in fact, played a role not only in personal debts but also in large corporate debts and bankruptcies.
Change of ownership structure
In the background to ensuing discussions about the future of the Czech nuclear facilities, many of the Czech companies interested in working for the potential contractor Dukovany have gone bankrupt or went through a complete change of ownership while undergoing insolvency proceedings.
Recently, ČEZ Group, where the Czech state constitutes a 70 per cent majority stakeholder, initiated an enhancement process of the Dukovany Power Plant, the country’s first nuclear site. The Czech government already agreed on the mutual partnership contract with ČEZ in order to notify the European Commission. The means to finance the operation were approved last week.
It is fascinating to see these developments in light of some of the largest corporate bankruptcies of the Czech industry of recent years. They were characterised by lengthy periods during which a company in trouble faced attempts by its creditors to instigate insolvency proceedings, or had to argue in front of the court to rule in favour of a revitalisation of the company.
Highly valued was the expertise in nuclear power plants of bankrupt companies such as Královopolská Ria (KP Ria in the Czech media better known for its connection to the former prime minister, late Stanislav Gross) or the Vítkovice Machinery Group, whose references include contracts on nuclear sites in Slovakia, Hungary or Serbia.
On 29 June 2017 KP Ria, whose clients at the time included nuclear power plants Mochovce and Bohunice in Slovakia, found itself in insolvency proceedings instigated by a British registered company Formosana Limited.
Formosana claimed its creditor status at the regional court in Brno based on acquired liability worth 40 million korun (1.6 million euros) from the Plynostav Pardubice insolvency authority as Plynostav instigated insolvency proceedings and its assets went on sale in the fall of 2014.
The KP Ria case illustrates well the way various large corporate bankruptcy proceedings in Czechia are interconnected, and which corporation or financial groups benefit from them.
In the early 2010s, it was rather rare to see Czech businesses partnering up with Chinese investors, and access to the Russian market was reserved for companies with highly specified expertise such as Plynostav, which carried out extensive works in gas pipeline infrastructure in Russia as well as other markets.
At the decade’s end, we see the highest echelons of Czech industrialists forming joint ventures with the Chinese state, enjoying access to the Chinese market or making significant acquisitions in Russian real estate.
Chinese and Russian business partners
KP Ria’s greatest financial pressure actually came from Sev.en Energy Group operating the Power Plant Chvaletice, two blocks of which were being renovated by KP Ria.
Sev.en, owned by one of the richest Czechs Pavel Tykač, acquired Chvaletice from the state’s ČEZ Group. Besides being criticised for being one of the largest CO2 producers in the country, Pavel Tykač’s Sev.en owns British energy company InterGen together with the state-owned China Huaneng Group and the Guandong Yudeang Group.
In June 2017, Sev.en EC terminated the contract with KP Ria, withholding over one billion korun in payments (over 36.5 million euros), just a few days before the Formosana Limited instigated insolvency proceedings and subsequently joined the proceedings by registering 70 million korun (2.6 million euros) in alleged damages caused by KP Ria’s delay in works at Chvaletice.
KP Ria initially secured restructuring but was eventually dragged into the sell-out of company assets following the persistent objections of Sev.en EC in 2019.
The insolvency proceedings continue to this day, and the majority stake in its daughter company, KP Ria Hungary partnering with Rosatom for the works on Hungarian nuclear power plant Paks II. (for which Russian state is providing a 10 billion euros loan), had been purchased by companies of Orban-allied oligarch Lőrinc Mészáros.
As Deutsche Welle commented at the time, Mészáros became the major beneficiary of the largest investment project in Hungary. Yet larger insolvency proceedings of the recent years include Vítkovice Machinery Group, once the largest machinery corporation in the country, which has been rebranded under the new name and brand Witkowitz in December 2019.
Prior to that Vítkovice Group had been one of the symbols of Ostrava city and the Ostrava mining region, a Czech part of the Upper Silesian Coal Basin whose larger part is located in the Polish side of the border. It comprised several companies with extensive references in research, development and supplying of heavy machinery components, and its clients included ČEZ power plants and nuclear power plants in Temelín and Dukovany.
Changing the supply chain
As of 2016 several companies of the Vítkovice Group began experiencing financial difficulties, and it later transpired that Vítkovice owner, a charismatic Ostrava local Jan Světlík, had issued his personal ‘bill of quantity’ in order to secure loans from the Czech branch of Raiffeisenbank for the troubled companies of his empire.
However, this did not prevent a series of insolvency proceedings from erupting, which affected most of the Vítkovice companies. Světlík’s bill of quantity was purchased by Martin Ulčák, who had been Světlík’s business partner and who became his creditor.
Martin Ulčák, who passed away at the end of April, has also been an owner of E-Invest (which once clashed with PPF over the takeover of Sazka during its insolvency) as well as the last acting Chairman of the Union of Socialist Youth, from which some of the ablest leaders of the Communist Party of Czechoslovakia arose in the pre-1989 era
Prior to launching the brand Witkowitz, Ulčák was able to purchase much of the Vítkovice companies during the insolvency proceedings. His initial purchases of the Vítkovice Gearworks began together with Alexej Beljajev.
The figure of Alexej Beljajev would require an extensive coverage of its own as some of the highlights include him partnering with Andrej Babiš in the early years of setting up of Agrofert, overtaking Slovak Tatravagonka with his Optifin Invest during the Tatravagonka insolvency proceedings, only to transform it into a stable partner of the Russian state railroad company. Optifin also controlled Hungarian MMV and had a stake in the Polish Fabryka Wagonów Gniewczyna.
Moreover, Beljajev and Ulčák have in common a business partner named Jaroslav Strnad, owner of the Czechoslovak Group which in the recent years have been making significant gains in the field of weaponry and military industry, and which is now in control of Vítkovice Heavy Machinery as well as Vítkovice’s transportation company.
The Czech government may send signals about taking seriously the risks associated with potential contractors for the Dukovany Power Plant coming from countries where state policies are hostile towards the NATO countries, such as Rosatom from the Russian Federation, or from the countries against whose malign activities Czech security services have issued several warnings, namely People’s Republic of China
It is questionable, however, whether excluding Russian and Chinese bidders from the future tender on grounds of security will in fact safeguard the construction works from Russian and Chinese influence.
Any future Dukovany contractor will have to make deals with local companies supplying machinery components or providing cargo, logistic and other services.
Consequently, even if bidders from Russia and China would indeed be prevented from the future Dukovany tender there will hardly be any contractor, whether American, French or South Korean, capable of putting together a list of subcontractors without getting involved with local corporations which conduct extensive business activities on the Russian and Chinese markets or have the Chinese state involved in their ownership structure.
Insolvencies and financial pressure as an acquisition opportunity
If we take a glimpse at the cargo and transportation sector in Czechia, as just one other example, it too has undergone significant changes in ownership.
In many cases, new owners do not perceive Russian and Chinese state control as a security risk and are partnering with Chinese and Russian companies. Occasionally they are even active in promoting China as an attractive business partner, for instance, in the case of the PPF Group owned by the richest Czech, Petr Kellner.
The portfolio of the above mentioned Czechoslovak Group includes Excalibur Army, Tatra Defense Vehicle or Vítkovice Transportation. Their rise has been marred by aggressive and controversial takeovers. One just needs to consider some parts of the business empire of František Savov, who moved to London in order to avoid criminal prosecution – which he suggests is biased and aimed at intimidating him.
Following Savov’s difficulties, Strnad was able to get hold of his car delivery business, and Mladá fronta publishing – often associated with Savov – has recently become an object of interest to Empresa Media, owned jointly by Jaromír Soukup and Chinese financial group CITIC.
Outside of the Czechoslovak Group acquisitions, the largest changes in the field of transportation included the iconic Škoda Transportation, a traditional producer of trains or trams, whose purchase by the PPF Group was completed in 2018.
Moreover, besides Škoda PPF had been linked with the acquisition of CS Cargo in 2011 through the Maltese company Tuffieh Funds founded by PPF’s former manager Jan Blaško. Once a client and debtor of PPF, CS Cargo is one of the largest cargo and logistic companies in Central Europe with daughter companies in Poland and Slovakia as well as a separate company focusing solely on the movement of goods to and from the Russian Federation.
As mentioned earlier, PPF Group itself has been at the centre of a scandal of influence exertion by the People’s Republic of China in Czechia through financing a network of analysts and reports posing as independent, which has been first reported by Aktuálně.cz and has since been much discussed worldwide.
It is also worth noting that PPF’s former business partner EPH, owned by another Czech billionaire Daniel Křetínský, amassed in the past ten years an impressive collection of companies in energy, waste, cargo or renewables with presence not only in Visegrad countries but also in Germany, Italy or UK.
Obviously, for some of these companies, the expertise of nuclear power plants is far from their core business interests. However, while Škoda Transportation exports trams, coaches or trains worldwide its expertise, traditions and references can offer a truly global network through which other companies with interests on the Russian or Chinese markets, such as Witkowitz, can reach western markets.
Similarly, it is striking how much have the insolvency proceedings played into the hands of those who now represent much of what Czech energy and industry stands for, among others Pavel Tykač, Jaroslav Strnad, Petr Kellner, Daniel Křetínský, the late Martin Ulčák, Andrej Babiš and Alexej Beljajev.
How much have large insolvencies changed Czechia’s position on the world map?
Looking at these large insolvency proceedings and troubled companies, which is a far cry from a complete list, we usually find new owners as either partnering with Russian and Chinese businesses or as having significant interests on those markets such as in the most poignant case of PPF whose daughter company Home Credit is one of the largest consumer loan providers in China.
Moreover, this decade of bankruptcies coincides with changes in the Czech politics – most notably represented by the consecutive terms of Miloš Zeman as the Czech President and his shift towards favourable views of Russia and China as Czechia’s strategic business partners.
It ought to be also noted that energy and industry are not the only fields of the Czech economy undergoing significant changes in ownership. Czech media market ownership has since 2013 been changed beyond recognition.
One of its final chapters – PPF’s acquisition of Central European Media Enterprises – makes this not only a domestic affair but rather one with wider implications on Visegrad and Balkan regions.
Ultimately, the result of these changes is that while Russia and China have the opportunity to flex their muscles on the Czech industry through an extensive network of domestic companies partnering with Russian and Chinese state or state-linked companies, NATO countries have the alliance and the Czech membership in the EU.
It is very difficult to say whether this will be enough to make any future nuclear works in Czechia risk-free for its NATO and EU partners.
A Czech version of this article appeared on Britské listy with the support of Jan Čulík.