Caspian Energy (CE): Mr. Sikela, how does the energy market situation affect the main indicators of the Czech economy?
Jozef Síkela, Minister of Industry and Trade of the Czech Republic: First of all, we have to say that calling the current situation an energy market situation is a big euphemism. We are in energy war with Russia, which is doing its utmost to harm us by misusing energy as a weapon. The effects of this war are clearly visible. The rapid rise in the prices of oil, gas, electricity together with other commodities on world markets significantly drives prices of domestic producers up, which is reflected in consumer prices. So, there is a clear connection to the inflation rate, which reached 16 % in May in the Czech Republic.
CE: Is the European Commission doing enough to reduce the «energy burden» on industry, the private sector and the population?
Jozef Síkela: The European Commission is paying the situation on energy markets the utmost attention. So far it has introduced many recommendations on how to tackle high energy prices and reduce the burden put on industry and households. Recently presented communication “Short-Term Energy Market Interventions and Long Term Improvements to the Electricity Market Design” is one of the good examples. Of course, it has limited possibilities and it is up to Member States which recommendations they will apply.
CE: The countries of the Iberian Peninsula have advanced the initiative to temporarily regulate the energy market prices due to force majeure sanctions. Will this help the industrial sector?
Jozef Síkela: We do not believe this is a good example to follow. All the more so because the countries of the Iberian Peninsula traditionally have different suppliers of natural gas than we do and are therefore much better prepared for the today’s difficult situation. For example, Spain obtains natural gas by re-evaporating LNG, a large amount of which it draws from Algeria. Of course, at much better prices than we can realistically achieve today. For this reason, price regulation is not as costly for them as it would be in our case.
However, our situation is completely different. Mainly thanks to speculations and market manipulations and interventions by the market leader and price maker, i.e. Russia, natural gas prices are rising uncontrollably and the final bill will be paid by the end consumer, be it a company or a household.
If the Czech Republic introduced similar price regulation, in addition to a dramatic fiscal consequence, it would have seriously disrupted the market, and we cannot afford further volatility and disruption. That is why we focus on various short-term and more direct measures. For example, indirect cost compensation is considered. It is intended for industrial enterprises belonging to sectors threatened by carbon leakage and is provided in the form of public support. For small and medium-sized enterprises, there is also the possibility of state-guaranteed interest-free loans through the National Development Bank.
CE: How effective is the use of renewable sources in the industrial sector of the economy?
Jozef Síkela: The industrial companies in the Czech Republic, even with regard to high energy prices, are increasingly investing in renewable energy sources, reducing energy intensity, etc. The effectivity is increased when the industry combines it with some kind of storage or uses waste heat.
CE: How effective are Czech investors’ investments in international markets?
Jozef Síkela: Out of more than 51 billion USD of investments of Czech companies invested abroad, 43.5 billion USD are allocated in the other Member States of the European Union – obviously the Czech biggest export markets. Such increase of presence of Czech companies on the European internal market allows their deeper involvement in European supply chains. Additionally, it brings specific know-how, including knowledge how to operate on the labour markets that belong to the most expensive worldwide and are extremely competitive. Second largest destination of Czech investments is the United Kingdom with over 3 billion USD. In this comparison, investments of Czech companies to other geographical areas are much smaller and, in some cases, we witness a few countries with the decrease of Czech investments. However, at the same time, we´ve been witnessing rising interest among Czech investors towards major overseas markets, like the United States.
CE: How did Brexit affect the Czech Republic’s trade indicators?
Jozef Síkela: The United Kingdom of Great Britain and Northern Ireland is one of the Czech Republic’s main trading partners. In the recent years, it has been our fifth to seventh largest export market. In terms of imports, it ranks currently 16th place amongst the countries from which we import the most goods. Since 2001, the Czech Republic has been achieving a positive trade balance, the volume of which has grown significantly in recent years with respect to the decline in British exports to the Czech Republic. In a year-on-year comparison to the first quarter of 2022, there is actually an increase in exports to the United Kingdom by 1.5% and in terms of imports by 20% for the time being. In 2021, the share of exports to the UK accounted for 3.8% of the total Czech exports, whereas imports accounted for 1.55% and the whole turnover for 2.7%.
The indicators of trade exchange with the United Kingdom are unfortunately greatly affected by the restrictions resulting from the global Covid-19 pandemic, as well as by the current geopolitical situation in the world. It is therefore difficult to assess the actual impact of Brexit. However, it can be said that Brexit resulted in a decrease in imports from the UK to the Czech Republic and a stagnation of our exports in the opposite direction.
CE: Which type of transport is the most efficient and widespread in the trade sector of the EU and the Czech Republic?
Jozef Síkela: Last year, the total turnover of international transport to and from the Czech Republic valued about 14.5 billion USD, 70% of it is related to the transport to or from our EU partners. Preferred means of transport differ mainly based on the kind of transferred goods as well as by distances. As most of our major trading partners are neighbour countries, it comes as no surprise that the road transport still plays a crucial role in our trade. But in the line with the EU policies, the role of railway freight will continue to increase, especially considering dense network and huge investment projects targeting further improvement of rail infrastructure. As the Czech Republic is a land locked country, the share of water transport is below 4 %.
CE: What measures will be taken in the near and long term to increase the trade turnover of the Czech Republic and the EU as a whole?
Jozef Síkela: At the national level, we have already made steps to foster the trade promotion of companies and their production. We are strengthening the network of Czech trade representatives abroad and thus assisting Czech companies to diversify their export destinations. We decided to set up several new foreign offices in exchange for the withdrawn ones in the Russian Federation. For example, we set up a new representative office in Georgia, Tbilisi. In addition, we support our exporters with trade promotion services abroad, which includes assistance in finding suppliers of raw materials and inputs to their production. This can be considered as a short-term measure. On more general level, we consider the Czech Presidency of the Council of the EU to be an opportunity to mitigate negative effects of the current crisis. Ensuring the energy and raw material security for industrial production can be seen as a long-term measure but we need to act quickly. In the area of international trade during our Presidency, we want to move forward with the negotiations of new trade agreements and the finalization of those already negotiated. We believe that the agreements can help us to strengthen the European resilience and competitiveness of our economy, as well as alleviate the impact of lost markets and supplies from Ukraine and Russia, find new outlets for companies previously operating in these countries and reduce the EU’s dependence on strategic products and services. We will offensively focus on the positive aspects that trade brings and develop cooperation with strategic partners, mainly in the transatlantic area.
Thank you for the interview.
