Blog I've been warning about the energy crisis for a year; no one was listening, says Miroslav Dvořák.

Electricity and natural gas prices have risen tenfold over the past year. The surge in energy costs initially threatened energy-intensive operations, such as foundries, but now nearly every manufacturing sector is affected. "The government is moving very slowly in addressing this issue. Supporting households with a few thousand doesn’t offer a strategic solution. If companies go bankrupt, the state will be burdened with unemployment benefits and other social allowances, costing many times more than direct support to businesses," says Miroslav Dvořák, Chairman of the Board of MOTOR JIKOV Group a.s., in an interview.

What company-wide measures or technological changes has MOTOR JIKOV implemented to at least partially mitigate the impact of rising prices?

We had to raise prices, which is the quickest tool but also a double-edged sword because it reduces our competitiveness. We are working on efficiency programs. We calculated that casting iron in our foundry is profitable when made on weekends, when electricity spot prices are significantly lower. This obviously requires employees to be willing to work on Saturdays and Sundays, which increases labor costs. In our pressure casting plant, we are changing furnace heating from natural gas—which is rising in cost along with electricity—to LPG. We are preparing to utilize rooftops for photovoltaic solar panels.

Manufacturing companies dependent on energy are undoubtedly among the hardest hit. However, the crisis is likely to also affect small entrepreneurs and Czech households…

The current energy crisis is the most severe test for the modern Czech economy. I fear the consequences will be so serious that we cannot even imagine them. Moreover, we all entered this difficult phase weakened by recent events of the past two years. I warned two years ago that we were on the brink of a crisis. Then COVID-19 came with its challenges, and I said we probably didn’t deserve this. COVID mainly affected health and, unfortunately, still does. Last fall, we began witnessing an unprecedented increase in energy prices. Initially, we thought it was another shock caused by COVID, such as chip shortages, logistical disruptions, or raw material shortages. Unfortunately, the prices of gas and electricity have been rising for a year now. Today, they are ten times higher than last year, and prices for electricity futures for winter are half again as high. MOTOR JIKOV has been living through this situation for over a year. When we warned a year ago that it would be a disaster, no one listened. Most companies had purchased electricity for the entire 2022 year. Now, we face a jump that we’ve been dealing with since January.

The rise in energy prices has been influenced by circumstances that were not easily predictable…

In Europe, we've partly brought this situation upon ourselves. The Green Deal's green policies, accelerated shutdown of nuclear plants in Germany, which leads to critical dependence on Russian natural gas, our inability to plan the Czech energy future, and dependence on the Leipzig energy exchange—all paint a bleak economic picture. Add to this the insane humanitarian catastrophe of the war in Ukraine, with all its impacts. All these factors, to varying degrees, have contributed to today’s alarming situation. The state and ministries are now focused on how the increasing prices will affect citizens, primarily aiding those in need—seniors, single parents. That is legitimate and correct. However, they are in a scandalous manner abandoning support for companies, many of which have already been burdened with higher energy costs since the beginning of this year.

As vice-president of AutoSAP, you’ve had some discussions with government representatives. However, your words suggest that better times are not yet in sight. Is there hope that industry companies will receive targeted assistance?

The European Union has temporarily activated the so-called Temporary Crisis Framework, which allows breaking the general rules of the single energy market to support the most affected companies with high energy demands. The government initially allocated 21 billion CZK but ultimately withdrew from the plan, considering it too much. Meanwhile, on the same day, nearly ten billion CZK was approved to support the construction of a single battery factory for electric vehicles… It seems, however, that electricity and gas prices have risen to such absurd levels that a coordinated intervention at the national and EU levels is necessary. Electricity is closely linked to gas, as the price is generally determined by the most expensive source in the energy mix. Today, combined cycle gas turbines, which consume two megawatts of gas to produce one megawatt of electricity, set the price. Add the emission allowance, and you get over 600 euros. The state must, and apparently will, utilize the Temporary Crisis Framework. This is also evident from recent Senate discussions in the subcommittee for energy and transportation. Unfortunately, the support criteria for companies are almost liquidation level. Only those with operations in loss qualify for large enterprises.

Having a diversified portfolio of products, services, and income streams is beneficial, especially in times of uncertainty. It helps prevent risks from disrupting the entire company. How does your company handle this? Is it advantageous to have multiple divisions focusing on different areas? Do you have any "recipes" for how entrepreneurs should behave during such uncertain times and what to watch out for?

We are fortunate that, aside from our foundries, we also have tool manufacturing, machining, and assembly divisions within our holding. Without these, the foundries would be at risk of closure. If the government or EU does not intervene, this may become reality already this winter. In the first half of the year, we purchased electricity at an average price of 240 euros per megawatt-hour. Despite increasing our sales prices, we experienced a six-month loss in the foundry. Currently, electricity prices for upcoming months are three times higher! This could mean a loss of tens of millions of crowns in just half a year. What is the government waiting for? We still do not know the exact conditions for support for large companies. If companies go bankrupt, it will be supported by unemployment benefits and social assistance, costing many times more than direct aid to businesses. As a tip—what should entrepreneurs watch out for? Even the best-run company cannot operate without healthy cash flow. Monitoring this aspect carefully is crucial, especially when the future is uncertain.

There is an occasional opinion that even a crisis can be an opportunity for entrepreneurs. Do you see that the challenging situation, such as the energy crisis or the war in Ukraine, could bring fresh winds for South Bohemian businesses?

With a bit of humor, one could say that those who survive will have access to a labor market full of people and, hopefully, an economy on the rebound, but under different conditions than during a typical crisis.

Beyond the energy crisis, the Czech Republic is also facing high inflation, affecting all of us as residents. How do you view this from an employer’s perspective?

Entrepreneurs and companies are not the state—they cannot simply say, "This year, we’ll cut the budget even more and give everyone a 10% raise. Maybe someone will pay for it someday." We must act as prudent managers. If we cannot earn enough to pay higher wages, we cannot afford them. We all notice rising prices in everyday shopping, and at MOTOR JIKOV, for instance, this year we prioritized increasing wages for the lowest-paid employees, sometimes doubling them. I understand that the situation is critical for those earning low wages. However, we fundamentally disagree with unions that want to raise wages for everyone indiscriminately. Unfortunately, we cannot do that.