Open letter to the government or energy poverty is coming


Prime Minister, honourable Government,

let me write my opinion in the form of an open letter.

Prime Minister, you know that we met last year when you visited our company. In January this year I wrote you a letter saying that I was glad you were saying and doing unpopular things. Unfortunately, with the passing of a few months, probably with the upcoming elections, I see it a little differently. It is necessary not to be political, but to solve things. It is necessary to address current problems acutely and openly with the people.

Last week we met again and I did not forgive myself for some criticism, but at the same time I tried to explain to you my personal point of view. I am very glad that I had the opportunity to tell you. In the meantime, several major developments have taken place, particularly in the energy market, and I am still responding in writing.

Energy prices – the current problem

I’ll start with the most recent Issues and that’s energy prices. I’m convinced that pif you can’t resolve the situation within a few weeks, you’re probably nor you don’t have to deal with. Any news that you’re going to negotiate and that it won’t be resolved until next year (or next winter) at the earliest is practically useless and you don’t need to waste your time on it. That’s not gonna be a reason to deal with it anymore. The situation cannot be delayed.

The people and companies did not get into the current situation through no fault of their own. I have to admit that even as the current government, you are not to blame. But you have to deal with it now. Even the most pessimistic pessimist did not foresee such a situation, and there has never been anything like it in history. The situation is extremely serious and no one can resolve it correctly, simply and quickly. The biggest options are now in your hands. Firstly, we are one of the most affected countries, and secondly, you hold the EU Presidency. At the same time, I consider you to be a decent person who does not regard his office as a “trough”, but you know very well that you are here for the people. I am convinced that you are the right Prime Minister and I believe that you will sort it out. In a way, you have a chance to make history.

Do not attempt any subsidies, bailouts, or long-term regulation in the form of cap-and-trade. How do you do the capping, for example? How do you determine the EU-wide price? Will everyone abide by it? It will be beneficial for one country and less so for another (either in terms of production or cost of living). All economists know that this will lead nowhere in the long term and these artificial interventions in the market are one of the causes of the current economic crisis, which will cause not only poverty but probably the break-up of the EU. If you don’t solve this quickly, it’s will end in a defenestration of politicians who will not address the situation – unless they address it now, quickly and correctly. It is pointless to deal with the elections next month. This is a current situation that cannot be postponed, and a month’s delay for an election campaign is critical for this republic.

Yes, you have come to govern in this situation and you are bearing the consequences of previous governments, not only the Czech ones, but the entire European representation. But if you wanted to govern, you had to be prepared to deal with such situations. You came to this innocently, but you need to sort it out. There will be plenty of other candidates for the PM’s job, but I doubt they will be more suitable. The question is whether the whole government will be able to withstand it, because even beer is getting more expensive (again), and as they say – the rise in the price of beer is a harbinger of the fall of the government. I certainly wouldn’t want that, because the last thing we need now is a change of government and political uncertainty. We need a strong and non-populist government that will address the situation clearly and decisively.

I don’t know if anyone in the government realizes what has happened in the energy market over the last year, the last few months and the last few days. If there was a Black Friday in the stock markets less than 100 years ago, this beats it perfectly. Please remember that. This is what the children will be taught, but in the meantime poverty, populism and extremism will reign. Maybe it will culminate in 3. World War II. I don’t know, but if you can’t address the situation with decisive (and quick) action, you will have hungry people with no place to work and hyperinflation. Forget you’re driving an ocean liner. Now you have to do it much more forcefully. The steamer has a hole and is sinking and you have one last chance to do something.

I have noticed that you have been dealing with the energy issue very intensively in recent days, but the situation is so extremely critical that everything else has to go. I see that you have made various appearances on the subject in recent hours and I am glad that you are drawing attention to an extreme situation. It seems to me that you are much more openly pointing out the extraordinary nature of the situation, but I still think that this is still insufficient, and it is necessary to work towards some kind of quick solution (even if temporary).

The impact of energy prices on households and firms and on society as a whole

Do you have any idea how many households are now tied to spot electricity prices, for example? There is talk of 5 to 10 percent. You send a bailiff right away. None of your welfare benefits will solve that. You can argue with the Opposition about giving 5 000 or 11 000, but at current prices that means assistance for those households for days. Then they become defaulters because they are unable to pay 20 times the electricity bills of, say, a year or two ago. Yes, 20 times – it’s not a mistake in the numbers. This is reality. How many households can pay 50-70 thousand a month for energy instead of the current average of 4 thousand.

Do you know how many companies or municipalities are in a similar situation? Do you know that any fixation can end up the same way? Can you imagine the impact this will have on businesses? This is a situation that cannot be planned for and solved except by closing or making it extremely expensive. Do you know what the implications of this will be? Even more inflation, debt and corporate bankruptcies and subsequent unemployment. I said last week that 10% of people will be unemployed and 20% of people will literally be hungry. Less than a week from now, if the situation is not resolved immediately, I dare say there will be many more unemployed and many more hungry. You don’t believe me? Do you think households or businesses will be able to pay for energy prices that are rising faster than you can click on a keyboard?

With all this, we are approaching the devastation of the current order, the devastation of human values and the disintegration of contemporary civilization. At least the European one, especially when it comes to the EU. We’ll go back 150 years and light kerosene lamps, shut down industry and turn off refrigerators. I do not know whether you will rely solely on the EU solution or whether you will still look only for an EU-wide solution, but since the beginning of this year, several countries have already been addressing this on their own. This makes any meaningful joint action very complicated and gradually meaningless. Some countries capped prices a long time ago and now have a huge competitive advantage and do not even feel pressure to address the situation. In the end, each state will fight for itself. You are the Prime Minister of the Czech Republic, and although I am a big supporter of the EU (especially as a free market and movement of people, but no more regulations), I believe that a Europe-wide agreement will be slow and dysfunctional.

Energy prices will destroy Czech industry. If some countries in the EU solve prices, the Czech Republic will be completely out of the picture with its industry. An uncompetitive country. You probably know that 2 years ago electricity cost 20 times less than it does today. Did you know that a year ago it cost 8-10 times less than it does today? Do you know that 2 months ago it was still 3 times less than today? Do you think the companies will stand for this? Will the industry be able to cope? Will households be able to cope when it’s all passed on to them? Increased prices, unemployment and energy costs.

Think of it in terms of the state budget. If you had a tenfold year-on-year increase in some government spending (and a threefold month-on-month increase, for example), you wouldn’t be able to do that either. If households are threatened by the fact that not only have their food, mortgages and rents and normal household operations become more expensive, but suddenly their energy costs (for example) jump from 7% of their total income to 140% of their entire household income, then surely you can see that households cannot survive. If households are now paying an average of less than 4,000 for energy and have an average net income of 55,000 (I’m basing this on official statistics, and most households don’t reach that, of course) and now (or in a year, for example) energy will rise to 60 or 70,000 a month, they have no money to pay for it. And you can see that they have no money left for food, rent (or mortgage) or even clothes. What are they going to do? Your welfare benefits won’t help. You can’t save that.

You have a similar situation with companies. If the average company used to have an annual energy cost of 3% of its total costs and now it has gradually risen to 30% during the year and suddenly to 60 or 70% month-on-month, you can see that the company cannot afford to buy raw materials. Do you think they have any money left for wages? I don’t think so. What can they do? They may become more expensive, but that means by tens of percent (30-40% per month only) and it is questionable who will buy such a product at all. Leaving aside the fact that it will make you many times more inflationary. The other option is to close the company and lay off people. And we’re not talking about some extremely energy-intensive operations, but any average company that will sooner or later get similar energy prices (unless you intervene). Clearly, this will have implications for any industry. Hyperinflation will be short-lived and then the whole thing will collapse and what the impact will be nobody knows… There has never been anything like it in history. Any more inflation and you’ll be cutting zeros? Stagflation? I don’t know, but in any case the moral decay and economic disintegration of society.

CEZ and (its) future

It is “fine” that CEZ rules the republic here. Not the government. You know they say that as a joke? It’s a nice idea that a monopoly (or oligopoly) company will have profits in the tens of billions of crowns (and gross profits half of its turnover) and you plan that the state budget will receive, for example, 30 to 50 billion crowns a year in taxes and dividends. Can you salvage the damage? Do you think there’s nothing that needs to be done about it? Just calculate how much it would cost to buy back the shares. Even with a big premium, it’s worth it. It will cost the state budget many times cheaper. Equally, other possible steps are preferable to what is threatened here and where it is going. If anyone thinks that the Czech industry can withstand the current energy prices, they are mistaken. Do you think households will be able to handle it when those prices move there? Even the people in the government couldn’t stand it. A 20-fold increase in price (in such a short period of time) is unaffordable for everyone.

Whether I think one way or the other, I feel it is worth buying back CEZ stock. We are talking about about 200 billion. Just to give you an idea, let me show you the calculation: there are 537,989,759 CEZ shares. The state does not own 30.22% and the price is CZK 948.5 per share. So even with a premium (for some form of expropriation) of, say, 30%, it is 200.5 billion (537989759×0.3022×948.5×1.3 is 200,469,891,899 CZK). So that’s an extra 30% and that’s 200.5 billion.
Note: the calculation was updated on 4. October according to the current share price. A few days ago the article said 223 billion.

That way, the paid-up shareholders can sue whoever they want… The state will not throw away 200.5 billion, but you will buy property, you will have some dividend and you will be able to deal with the current situation relatively freely. Electricity generation is so strategic that most of it should be in the hands and under the control of the state. That’s exactly how you avoid situations like this. As one of the largest exporters of electricity in the world, you will control both production and distribution (currently CEPS). It makes sense. Yes, the state is not the most efficient asset manager, but you have no other choice now… Maybe you split the company up afterwards (time is of the essence now) and put the business part back on the stock exchange and you have largely recovered. Then you will own most of the electricity resources and the transmission system and there will only be trading companies in the market to handle the sales to customers. I admit I may be wrong, but I couldn’t think of anything better.

Feel free to take out bonds or borrow from banks to do it, but figure it out. All voters will approve and forgive you, but you have to tell them the truth. They’ll approve because otherwise they’ll end up under the bridge. But we don’t have that many bridges in the Czech Republic. You may come up with a different, better scenario in the EU, but I don’t believe it. The EU is a dysfunctional and slow structure for this, and the big states have a big stake in the current situation.

Just don’t come up with any scenarios that you won’t buy back the shares and that you will now use the dividends from CEZ to pay for the social system or somehow make up for the capping of energy. No company’s dividend is enough to do that. Don’t be under the illusion that you will use the immorally high profits to build more nuclear power plants. That’s misguided reasoning and nobody will even need that energy.

If you want to prevent the collapse of industry and households, this is probably the way to go. You can do some price capping (like other countries) immediately and temporarily until you resolve the situation with a similar move. Buying back 30.22% of CEZ shares from other shareholders actually comes out to “only” 200.5 billion, even if you give them a 30% premium to the current market price. These are small things compared to when you want to address the social impact of hungry people and unemployed people here. The cost of poverty, unemployment and dealing with the total disintegration of Czech society will not be 200.5 billion, but several zeros higher.

Advantages of such a solution

Do you know what you get with such a solution? An extraordinary competitive advantage for Czech assembly plants. Let’s face it. We are not a technological leader or a tiger, but let’s face it, we are just an ordinary manufacturing and assembly plant in Europe and we benefit from being close to Western Europe and being part of the EU. This will change with the price of such energy and the assembly plants in our country will end. People will be out of work, other areas will be affected (services, trade, investment). Yes, let’s make ourselves a technology leader and a tiger and let’s promote that direction, but to do that you have to have the current foundation working, and if it collapses now, we’re going back 150 years. Put a slogan on the ballot – back to the trees. Frankly, I think the suicide rate is going to go up because economically it doesn’t work out for people. Neither to households nor to businesses. People have been building something here for decades and suddenly it collapses. No amount of welfare will save this.

Conclusion on electricity prices

The other problems are minor and maybe in a few weeks no one will care because Czech society will be in complete decay. We won’t have a poor Christmas, but the most common Christmas present will be getting fired from your job, because the current energy prices will hit virtually all businesses, virtually everything will become more expensive (and at the same time we won’t have anyone to buy it), and we will laugh at the current inflation and remember it fondly…

Covid was a joke, where we blew hundreds of billions and learned not to work. The rise in fuel prices is a minor episode compared to the rise in electricity and gas prices. In order for fuel price increases to have the same impact as the current electricity and gas price increases, we would have to talk about diesel and petrol costing in the order of CZK 1,500 per litre. Electricity is needed for everyone, for all businesses and households. It accounts for a significant proportion of the costs of every household and every business. Until now, it was a few percent, but now we are talking about higher tens of percentages and more. Yes, it is realistic that energy costs will be higher than 100% of income for some households and businesses. Then there is no way to deal with it. The price of fuel is solvable through savings, a slight increase in the price of companies’ products. Households can cut back a bit on their spending while “working harder” and taking on a part-time job, for example. With energy prices, which have not yet been capped and have risen by a factor of ten (i.e. thousands of percent), you don’t get to a solution by saving or waiting for welfare. Yes, you can save energy, but you will never be able to pay the many times higher bills anyway. Households will be consigned to poverty, debt and hunger. You can’t help them. Some of the companies will go out of business and will not survive the situation. It will make everything more expensive and at the same time there will be huge unemployment.

In conclusion to this section, it should also be noted that the price of electricity has fallen slightly, also thanks to the fact that you and the German side have started to resolve the situation, which has discouraged some speculators. Admittedly, prices are still high and still liquidating. If electricity could be produced (and sold) 2 years ago for 35 to 40 EUR (with profit for the producer and distributor).

Uncertainty is the worst thing for the whole economy. Will prices go up or down? Nobody knows. Can you make plans at this time? You can’t. Companies ever. You don’t know whether the price of electricity tomorrow will be €2,000 or €20. You can’t plan with that. A year ago, no one thought that electricity prices would rise by thousands of percent. Six months ago, I asked my colleagues at work if they could imagine tenfold energy bills at home. No one could have imagined it. And today it is much more. Are we going to bail out companies that have fallen because of electricity prices? The state budget can’t handle that…

They can’t even plan households. It’s just that the government is and has been giving them hope (at least until last week) that they won’t let anyone down. Is that right? You’re giving people false hope because you can’t even do that…

Other, but less current pains – topics for reflection

I know that you have other things on your minds at the moment, but let me continue my thoughts and touch on other areas where I see other problems, but none of that compares to what is happening now in the energy market.

I wrote to you at the beginning of the year that the environment needed to be straightened out and that civil servants could not be better off than those working in the private sector. I read last week that you will increase public sector salaries by 10%. Will you add in private? Reduce your tax burden? I’m afraid it’s the other way around. But I don’t know if you know what that will lead to…

I wrote about the need to straighten out the welfare system. And what do I see now? Just more promises to help and save everyone. Where are you gonna get the money for this? You will raise taxes on the hard-working and responsible. Finally, it sounds like you will be helping with the mortgage costs as well. I regret never taking one. Maybe the state would pay for it for me in solidarity.

I have written about my disagreement with other things – for example, the abolition of the EET. I criticized the shvarcsystem and the support for tradesmen, or rather the discrimination against employees. What’s going on? Increasingly favourable flat rates. I wrote about how it is unfair if companies pay sick pay to their employees from the first day of illness. Do you know how much it cost us during the covid?

I won’t repeat what I wrote in January, but I’ll try to elaborate.

I understand you inherited a leaky treasury. Then came the war in Ukraine. Inflation. Literally hell. We all know that inflation is much higher for people than what the statistics say… I don’t envy you this. But the only way out of this is through hard truth and hard work. People need to be told that the time ahead will be terrible and may last for several years.

There will be poverty, there will be no middle class

Do you want to do a calculation of how much the average family will have left over from the average paycheck after paying the average expenses?

Take the average salary, which 60% of people can’t reach anyway, and take the current costs and what else will rise due to energy (food, housing, practically anything) over the next year… Let’s say they have two kids and an average mortgage, which is almost four million, and try to calculate what these people will have left over. They won’t have money for clothes, they won’t have money for clubs for children, sometimes they won’t have money for good food. It will be the same for pensioners, especially if they are alone. The category of single mothers with children is perhaps unnecessary to mention… I would be happy to provide a detailed cost calculation for an average family.

Tell the truth, people need to know what’s going on.

If the truth is not told, those people will not try to do anything about it, they will never go looking for better and more secure jobs, or they will try to do more to have a reserve, but they will stand with their hand out and expect the government tosave them somehow , because that is whattheypromised. But the government can’t save them all.

I’m convinced that 20% of the people will be hungry. 10% of people will lose their apartment, their home that they have a mortgage on. What are they going to do? They will take to the streets because they have nothing left to lose. Not only will there be war in the East, but we will have unrest here and there will be revolution. No kidding.

People need to be told the truth. No, promise to save the day, because that will ultimately hurt everyone. No one is prepared for this and the whole thing is heading for a major disaster. I predicted the war two years ago. Nobody believed me. I understand the need to make promises before elections. But voters did not choose this government because they want more promises, they chose it because they want the truth. It is clear to me that there is pressure from coalition partners whose preferences are dissipating faster than the autumn mist on the moors.

Nobody wants more populists here. For the 30% who want them, one is enough. It’s just one blinded group that doesn’t want to understand what’s going on. The others don’t want him. We need to tell people the truth and prepare them for problems. This will help them because they will finally have some security. That it will take time, that this situation is not for months, but for years. The key to solving any problem is to admit and understand the truth. No, living in the illusion of a bright tomorrow where someone will take care of you.

You can’t beat populism with bigger promises, populists always promise more

None of us wanted that kind of government. Don’t be a populist.

I understand you have an election coming up this fall. You need to keep the Senate, you want to succeed in the cities. The question is: do you think you will win this with populist promises? There will be a presidential election in the spring, and you want success there too. Do you have a chance? If you make promises, I say you have no chance…

People chose you because they trusted you. They don’t want fairy tales, promises and they don’t want populismus. There’s been enough of that in past years and the voters have shown they don’t like it. If you do populist politics, you won’t beat the professional populists anyway. They can do better and they have their loyal fan club that has you as the bad guys.

Don’t give people false hopes that you will save them all. Don’t promise to compensate them for the (current insane) electricity and gas prices. Don’t make promises and address the cause and not the effect. Don’t promise to help people with their mortgage payments or interest rate increases. This is perhaps more than populism. That’s a crazy idea. People should behave responsibly, and it was not necessary for everyone to have their own home the year after school. Having what I want should be the result of earned work, not an entitlement because others have it or because interest is cheap. People with no experience could not imagine that interest rates could ever rise and that property prices could fall and that they could also lose their jobs. All this has occurred or will occur. Interest rates have risen. Property prices will fall and banks will want to re-secure (or top up) the principal. None of those who took out mortgages on 90% overvalued properties will be able to afford it. People will lose their jobs because the costs of companies are rising extremely. It is not only about energy and raw materials, but also about human labour, where companies have to literally fight and compete with the state (for employees)…

Why don’t you tell people the truth? Go to work. Save money and don’t rely on the state. The government, the state must sort out the absurd energy prices and everyone must sort out the rest

The last few weeks have been about vacations. It’s all sold out. And the same people will go for benefits. A year ago, the same people took out a mortgage for 90% of the value of an extremely overpriced property and were still competing to see who would give more. The same people will now have no money for food and no money for running costs because their heating energy will become even more expensive.

Do you think the general population will be able to afford (at current wages) rolls for 7 or 10 crowns? Does anyone think that’s unrealistic? So take the rising cost of electricity and other items… Totally real.

Shall I continue? I realize you don’t have time for this, but I’ll try to point out a few more things.

Let, the government as a whole, populist moves.

I understand that some political parties may be in crisis before the elections and some are on the verge of being electable. Don’t lower yourself as a government to promising the impossible.

Are we going to bail companies out of their debts when interest rates jump from 2% to 9% or more…?

Are we going to pay mortgages and loans too? I wonder what people will do if they don’t get anything and those in front of them do? Where is the state going to get 10% (or more) of the unemployed to support them? How could anyone even think of doing that…

A fair environment for all

End discrimination against employees or legalise the scab system. Do you know what the cost of “labor” in this country is per employee? Do you know that? Do you know how much an employee gets in net pay and how much a sole trader gets (given the same costs)? Is that fair? I don’t think any of you have any idea. What you lack in the government are people from practice, people who have achieved and built something.

Do you also suspect that companies are paying employees 4 weeks of salary during the holiday and yet this employee is not working and contributing nothing to the company? Can you guess that, thanks to a completely distorted job market, 5 or 6 weeks of vacation are now commonly offered? All of this is paid for by companies. Did you know that a company pays a sick employee from the first day of illness, for the first 2 weeks (which is the most common situation)? Yes, it’s only 60% of the salary, but if the employee doesn’t do anything, it costs the company money… And all this is not the case for sole traders and people working on a trade certificate.

How many sole traders do you know who pay any higher taxes? They are units of percentages. Employees and the companies that employ them have to pay them in 100% of cases. Your lump sum for sole traders is evil for the economy. The disparity between the cost of employees and the cost of people working (illegally) on a trade certificate is very significant. Did you know that all sole traders together pay about20times (14times to 34times in recent years) less in taxes than employees, yet there are only 3.7 times fewer sole traders? If I’m not mistaken, it works out that it’s about 5.5 times more profitable to be a sole trader than an employee…

I’ll make a nice comparison here. Let’s take a model situation where a company has employee costs of 100,000 per month and a situation where a sole trader (very often working on a shvarc system) has a turnover of 100,000 per month.

The company therefore has a cost of 100,000 per month in both cases.

The employee will receive CZK 57,700 net. The rest is up to the state. Over 42,000. If I take into account the fact that the company pays 4 weeks of vacation and once a year the worker is sick for 10 days (for example due to covid), it is even worse by more than 11% and the worker gets 51.7 thousand crowns net.

Do you know how much some “tradesmen” make at the same cost?77 to 94 thousand crowns a month, depending on the amount of the lump sum. For the same work, they get tens of thousands more per month (20 to 37 thousand per month). How much does he pay to the state? 7 to 20 thousand per month. So the state will get 1.8 times to 6.5 times less!!!

Either legalize the scab system or stop discriminating against employees.

This is nothing against “tradesmen” who have a real trade. I also understand the implications for pension levels, but here I am “talking” about young people working on trade certificates and doing work that is in the nature of employment.

Reduce the number of civil servants and don’t let them surf for increased salaries

You want an example of populist moves? We can write about the officials… Some days they make up the absolute highest traffic on tabloid sites. It just goes to show that they have nothing to do. If it were legal to show the attendance statistics of people from certain offices, the world would be amazed. E-shops and tabloids – all beautifully during working hours. I’ll give you a little anonymous sample of the charts. Do you think such a group of people need a 10% raise? On some days, well over 150,000 state employees access the “tabloid” websites during their working hours and spend tens of minutes to hours there. Our figures show all this. Is that okay? They get an extra 10% for that. How do we explain this in a private company? How are we supposed to respond to demands for wage increases of 10 percent or more when in the meantime our energy costs have increased by thousands of percent…

Rewarding the responsible and hardworking with higher taxes to make more promises

It will no longer be enough that we have paid tens of millions a year in taxes, but they need to be increased now because we’re gonna have to help the irresponsible and the dysfunctional. So we will punish those who are responsible and hardworking. Sad story. I robbed the kids of time with their father and devoted myself to the business. People don’t want to work. I still haven’t heard of anyone wanting a part-time job or anyone wanting to work more hours or anyone looking for a second job… On the contrary, I hear that the state will help.

People are going on holiday, spending money and waiting with their hand outstretched. Instead of going to work. The government is figuring out how it’s going to make new taxes, how it’s going to favor the tradesmen and how it’s going to contribute to mortgages and all that nonsense. So actually, the responsible person who didn’t take out loans and nonsensical mortgages on nonsensically expensive properties will now pay for it all. For all the irresponsible people who approached all this with absolute recklessness and now that the Titanic is sinking are still dancing on deck. Crazy.

People will be hungry. They won’t have a foothold in the government. Promises won’t feed them. People will take to the streets. There’s nothing else they can do.

Thank you for your attention.

PS: You may say that there is no point in listening to some Joseph from Hluboká. You are right, but if our small business contributes about one twenty-thousandth to the state budget, I think our voice should be heard. I find it unbelievable because we’re a small company, but it’s true. The statistics are clear. This already makes us consider moving some of our activities abroad. We are already operating part of our infrastructure there and we are planning more. By the end of the year we will be running thousands of servers abroad and unfortunately we will be paying taxes elsewhere (thanks to this)…

In Hluboká nad Vltavou on 30. August 2022, written within the last 10 days.

Josef Grill, Chairman of the Board of WEDOS Internet, a.s.