Speech of the Prime Minister Mirek Topolánek at the 75th Žofín Forum, held on 4th March 2008

Dear Prime Minister, dear Minister, dear guests, ladies and gentlemen, allow me to welcome you to the jubilee 75th Energy Forum. I welcome not only you and representatives of the media, but I also welcome viewers of the Czech TV in live broadcasting. Today's topic is energy and the fact that the hall is crowded indicates that it was a good choice. Our agenda is tight; you have it at your disposal on your invitation cards, and therefore we will be able to discuss. I would like to draw your attention to the fact that you have applications to the discussion in front of you, and so you have possibility to ask to speak. We will not to hesitate much, as there are many topics to be discussed, and therefore I ask the Prime Minister of the Czech Republic, Mr. Mirek Topolánek for his introductory speech.
Mirek Topolánek, Prime Minister of the Czech Republic: Welcome everybody, good morning ladies and gentlemen. I must say that I forswore some time ago, that I would not attend conferences of this type. But today, it is already my second conference. I do not know who organize them, but to organize two significant conferences in the same town and on the same day I regard as bad from the marketing point of view. These were few words as an introduction. I do not want to participate in these conferences, as I am of the opinion that unless politicians, in cooperation with the Parliament, do not succeed in shortening legal norms on energy by half a meter at least, this topic is not worth a discussion. The second reason why I do not like speaking on occasions like is that I get into conflicts of interests; as the Prime Minister I should promote the programme of the government, as an power engineer I should tell the truth. So, it is rather complicated. I am delighted to be invited to this jubilee 75th Žofín Forum and I am glad that it is focused on energy. In the first part of my speech, I would like to aim my speech at issues of energy security. I want just to open that discussion; I do not want to comment contributions of those who are accredited to this conference. In the second part, I would like to speak about the future of the Czech Republic. As an introduction, I would like to say that issues of security sustainability and influence of climatic changes are regarded as important in the EU; we should pay more attention to the first part., as it concerns us much more. It concerns us because our republic is situated in the centre of Europe. In spite of this fact we are threatened by "bypassing" of natural gas and oil supplies. Our country is not significantly dependant on imports, but we may face situation of increased demand for energy resources because of developing economies, like China or India. They dramatically increase world consumption, both primary resources and electric energy. The increase is so dramatic that they double or even triple original figures and become the greatest polluters. From this point of view, efforts of the EU have rather educational than essential character. I am of the opinion that the issue of the energy security is fundamentally important for our economy. Also the fact that not only the government but also the National Security Council deal with it is evidence that we place emphasis on it and feel responsibility for the future development. We have a special ambassador for issues of energy security at the Ministry of Foreign Affair, Mr. Bartůšek. Materials which are submitted to the National Security Council become basis for meetings of the government; the last session of the Council was held on 18th December of the last year, and one of issues debated was report on further progress in energy security of the state.

For an illustration, I would like to project a slide with title Domestic Consumption of Primary Resources. It is apparent that domestic consumption will not be decreasing despite all those measures aimed at economies and decrease of energy intensity. I could project here other graphs, but even in case of maximal use of all the mechanisms, in case the most optimistic variant, energy consumption will be increasing by 1,1% annually. All those ideas of setting consumption limits I regard as much worse than those of the communist regime. It cannot be done like this. It is not only a matter of quality of life of citizens resulting in increased consumption of energy, but it is also a matter of our competitiveness. We must reach a state when we will supply our businesses in a secure way, in sufficient volume and for optimal price.

So, that was the first slide, I do not want to comment it as it is quite illustrative. Let us try to describe the environment in which we are living. In 1999 the Czech Republic paid about 41 billion crowns for oil and natural gas supplies. In 2006 for approximately the same volume it was 141 billion crowns. In addition, growing rate of exchange of crown to dollar must be taken into consideration. I suppose that it is not necessary to add more figures. Moreover, this development of constantly growing energy prices, and not only energy prices but also prices of raw materials, is not the only one danger. I do not think that the existing Russian administration might restrict supplies of these materials to the Czech Republic. I regard it as improbable. Nevertheless, the fact that there does not exist price substitution in this sphere, means certain threat, and all those plans concerning construction of the Northstream under the Baltic Sea or the construction of the Southstream lead me to the conclusion, and I am not alone, that it must be one of basic priorities of the Czech Republic. Apart from the fight against terrorism and finished reform, just the energy security is one of principal issues I am dealing with.
For preservation of energy security on an acceptable level it is necessary for our domestic energy mix to be various, so that it would be able to face these threats in the future. I am of the opinion that according to the existing energy strategy it is necessary to use, apart from nuclear resources, also other domestic energy resources. I regret that after ten years of discussion on liberalization of the electro-energy and natural gas market in Europe we forgot self-sufficiency. I have always a feeling that electro-energy and natural gas market would mean existence of certain competition; even though not so perfect competition. I thought that there would be such sufficiency of the electric energy that the word "self-sufficiency" would not have to be used.
I think that the fact that we did not resign to domestic resources means that we were aware of it. I mean brown coal, hard coal and I do not want to speak now about territorial environmental limits, as it is apparent that in both cases decrease of electric energy production from these resources will take place. As we can see on the graph, even cut of supplies after 2025 will take place. I am trying to find further slide about primary resources. On this slide, number of new investments is expected, and as you can see, construction of two new blocks of the nuclear power station in Temelín is expected, as well. Without this we can imagine neither sustainable nor secure energy industry in the Czech Republic. We often speak about renewable resources we are setting ambitious targets – binding targets. I must say that for a long time renewable resources will play only supportive role within our energy mix. Current target of the EU is 20% share of renewable resources regarding primary energy resources. In case of the Czech Republic it means of course a great discussion on the renewable resource potential in relation to the total primary energy resources. The Czech Republic estimated its potential on the level of 8,6% of the total volume of primary energy resources. We succeeded in negotiating a figure slightly below 13% of renewable resources in relation to the total final energy consumption. It is necessary to realize that it means planting 1,5 million hectares with biomass, which is not small area in Czech conditions. I want to say that it will be a great problem to ensure this. It does not mean any essential share in the energy mix; nevertheless, these resources may play local role, and very important role in case of various crises. In this slide here, it is apparent what the potential of the individual renewable resources is in our country. There is not big potential in the Czech Republic concerning hydro-resources. Nearly zero potential is in case of wind power stations. The fact that new and new wind power stations are constructing, I regard as a great mistake. There are certain possibilities in case of biomass, of course. On the slide showing share of the potential of electric energy production you can see the existence of the gyroscopic effect. Therefore we insisted on defining it not as a percentage, but in some absolute figure as in case of increasing consumption the increasing absolute value of renewable resources share may not reach set targets. A positive effect of this is that it will result in a pressure to consumption decrease, or decrease of energy intensity; but I think it would be very expensive.

If we have a look at the balance in case of natural gas, nowadays we import about 9,5 billion m3 of natural gas; three quarters of this volume we import from Russia, one quarter from Norway. The fact that the natural gas is not Norwegian natural gas is not important now; diversification is ensured. About one third is consumed for technological purposes, two thirds for heat production, and only about 0,2 billion m3 are used for electric energy production. Of course, there is certain scenario and great players on our market want to respond to it; it means they want to transfer it to environmental friendly production of electric energy and to use natural gas as the principal resource. This attitude is supported by the EU, the European Commission, which want to reduce emissions of CO2. I know that certain projects are preparing, we can increase share of electric energy produced of natural gas; there is space for construction of new sources. Nevertheless, we must know that it is quid pro quo. We must be aware of the fact that if we want to import electric energy, then we would have to resign to self-sufficiency; if we want to produce electric energy of natural gas, we would have to resign to strategic security, and if we want to produce electric energy of coal we would have to resign to our care for environment. It is always a mix of views, but in case of gas there are some possibilities. It is necessary to ensure diversification of supplies and we are trying to do that of course. That is why we want to participate in the Nabucco Project, and that is why we want to use such a potential. I would like to emphasize that for substitution of brown coal for use only in power station, it would be necessary to increase natural gas imports by about 3,6 billion m3; other 2 billion m3 are burnt in households where substitution would be possible under the condition of imports of 0,6 m3 of natural gas.

In case of full substitution of hard coal for central and local heat production according to planned environmental reform of the Ministry of Environment, it would be necessary to increase annual imports of natural gas by 4,2 m3, which is nearly half of present imports to the Czech Republic. With regard to certain threats connecting with bypass of supplies we can imagine what danger these supplies would be incurred of in the future. I case of preservation of the existing volumes of supplies from Norway, and with regard to increasing demand for the Norwegian gas from the side of neighbouring countries, the substitution of hard coal would be possible only through gradual increase of imports from Russian Federation by 50%. Price is derived from the oil price; it is growing rapidly recently and it is apparent that the growth will not be stopped soon. In this situation, the idea of gas power station construction in the Czech Republic is rather controversial from the point of view of the energy and economic security of the state. Nevertheless, the word I used, and which is key one for our discussion, is diversification. Even the state control over the transit gas line and tanks cannot solve anything unless we have alternatives prepared how to supply the Czech Republic with natural gas. It means that despite increasing prices, Russian gas will be cheaper for Czech consumers that Norwegian or Algerian natural gas. Nevertheless, in spite of that fact, and it is a task of the government, we will have to ensure long-term stability of supplies from more countries. Today, I must praise that decision of the government of 1997 to import gas from Norway; I think it was the decision of Vladimír Dlouhý, if I am not mistaken. It was very far-sighted. The contract will unfortunately expire in 2017 and we must be prepared for the situation. Our activities must be aimed at rational use of domestic resources and supplies from other countries, which will form price and perhaps also security substitution. Now allow me to say a few words about the future. All those graphs were designed up to year 2050. I think that statistical data presented recently by the Energy Regulatory Office show clearly that we can have no fears in the near future; however, after 2012 or 2025, which has connection with the construction of the nuclear power station in Temelín, and with possible environmental limits regarding coal, the future is not so secure. We have a record-breaking electric energy production; we have a positive balance between exports and imports. But we must realize that as well as in other countries, most of production plants are based on brown coal. It means that the most crucial producers of the electric energy are those sources of 1960´ and either retrofit must take place of a new construction. The life cycle of these sources is expired in fact, and will be necessary to replace them. The most important player on our market is doing that.

Last year the reconstruction of the second block of the power station in Tušimice was started. Existing four blocks of 200 megawatt would be substituted by retrofits with the same power output but wit higher efficiency and with better environmental parameters, which was the basic objective. Especially in case of Tušimice power station a lot of unprofessional questions were asked regarding construction new blocks instead of those old ones. I think it is apparent if this power station transports coal directly from the open-cast mines Libouš, whose life cycle finishes in 2030, then based on simple logical thinking everybody, included laics, must understand that construction of new block would not be returnable. Different situation is in case of power stations Prunéřov, Počerady and Ledvice, where coal can be delivered and we are considering construction of new modern blocks, with much higher efficiency, which would decrease coal consumption significantly and would preserve the same power output. Also environmental parameters would be much more favourable. New environmental limits of the EU which will come into force in 2015 will result in gradual decrease of coal-based electric energy production. The power station in Chvaletice will be closed, the first block in Prunéřov and perhaps some other blocks. If we take minimal increase of consumption into consideration, in 2017 the balance between production and consumption of electric energy might be evened out. But there are also different scenarios with different curves. To wait for this date would be fatal, as after this date we will be in deficit and the situation could not be solved. When you take situation in neighbouring countries into consideration – Germany is solving its problem and it will be glad if it is successful, and from country would be imported when Slovakia is in deficit this year and imports from Austria are not very realistic. All those countries have 10, 20 or higher deficits and they themselves import. The situation on the Balkan, where prices of electric energy are by 10-15 euros higher shows what situation takes place in case of lack of production capacities and in case the electric energy is shortage goods. They either import it or produce it expensively.
In case those coal limits are not cancelled, the decrease will be faster; the date is drawing near. Moreover, we will have to solve the central heat production in which just brown coal has 50% share. I have already spoken about that substitution for natural gas and those risks. In case those coal mining limits are cancelled, the decrease would be permanent as well and we can ensure the electric energy production only through development of nuclear energy; it is the principal message of my speech. It is apparent that every oil crisis causes pressure to innovation that I believe in innovation abilities of humankind that I do not believe that resources might be depleted, including those irrenewable as humankind always found a substitution. of energy production.

Nevertheless, to implement it we must invest in science, research and we must deal with these issues on the international level in accordance with our needs. I am of the opinion that the discussion on the development of nuclear energy is starting, the new debate within the EU is an evidence of it, and we are actively engaged in it. I could speak about my discussions with all European statesmen who are considering of their own nuclear mix in the future, the renaissance of the nuclear energy; I could name them – it is the attitude of the Great Britain, which is clear nowadays, let alone France, I could mention Finland – this country might be a model country for us – which is constructing a new nuclear block, they are Slovakia, Romania, Bulgaria, Switzerland. The discussion is starting and I hope that it will be promoted in Germany as well, because it would have the most significant influence on the Czech Republic and prices here. As to the nuclear energy, I do not regard it as a problem of security but a problem of capacity. I have already said at a forum abroad that the biggest security risk is not constituted by Temelín and countries which have relevant know-how. The biggest risk is constituted by countries which abandoned nuclear energy, which operate power stations until finish of their life cycle and which have no scientific, research and production capacity. We consider it as a great threat. In the Czech Republic I consider as the greatest threat the fact that we are losing ability of a country which was able to invent, design and implement high-tech equipment, as we ceased to invest in science and research in this sphere. And this is exactly what must be done, so as we keep abreast of the times, so as we would not find out that capacities that exist nowadays are not available and that there is nobody here who would design and construct nuclear power stations.

In conclusion, I would like to say that I tried my speech to be more professional than political. If it were political, I would have spoken about existence of the coalition agreement, that we would not construct further nuclear blocks that we would not exceed limits. But I draw your attention to risks, which may emerge in the second decade of this century. I do not think there is an immediate risk here. That is why we can lead this professional debate, which is not influenced by politics, so that we would decide in time on implementation of new resources and on setting new parameters of the Czech economy and energy industry, so that it would not have deplorable consequences in some 10-15 years. I would like to thank once more for the invitation to this forum, I would like to say that also I am waiting for results of the Pačes Commission, which is to verify those figures, which is to verify the individual procedures, which is to show risks and alternatives of further solution, so that we would be able to revert to the national energy strategy, to set the development through legislative and executive measures and thus eliminate various threats about which I was talking. Thank you for your attention.