By Jan Cienski in Warsaw

Financial Times

CEZ , the Czech energy group, intends to scale back empire-building in central Europe to focus on investing closer to home, as the company and Martin Roman, its powerful chief executive, come under increasing political and economic pressure.

"We will invest much less in acquisitions than in past years," Mr Roman said in an interview with the Financial Times. "We want to focus on nuclear and other investments in the Czech Republic and Slovakia."

The retrenchment marks a change of strategy for CEZ, which since 2004 has been expanding aggressively throughout central Europe , buying power plants, coal mines and distribution networks from Turkey and Albania to Bulgaria and Poland.

The expansion was fuelled by enormous profits generated by its dominant position in the Czech Republic, where the 70 per cent state-owned company controls 45 per cent of the electricity market.

Low overheads associated with a vertically integrated structure, coal plants at which costs have already been incurred, and nuclear plants with low operating costs, as well as high electricity prices set by the neighbouring German market, have meant that CEZ, Europe's seventh-largest power utility, has one of the continent's highest profit margins.

"Every government wants companies to invest locally," says Mr Roman. "But we did not have the opportunity. We were generating too much cash [to invest domestically]."

That is about to change with CEZ's decision to add two units to its Temelin nuclear plant, with the possibility of building three more units in the Czech Republic and Slovakia - investments reportedly worth about €20bn (bn). CEZ is also to use its cash pile to take a commanding position in the Czech municipal heating market.

Alongside the need for local investment, there is also a fading of interest in investing abroad. Some investments, such as buying a distribution network in Romania, have worked out well - but acquisitions in Albania and Bulgaria have been altogether more problematic.

"Those investments were not such a success," says Petr Bartek, an analyst with Erste Group.

Lower electricity prices also mean CEZ will probably see its net income fall by about 10 per cent this year to kc47bn (.5bn), says Mr Roman.

Jan Ondrich, an analyst with Candole Partners, a Prague-based lobbying and research firm, says: "Electricity prices have plummeted and life is no longer so easy for CEZ."

The political climate has also become tougher. Czech politicians are preoccupied with the country's fast-growing debt, and are considering the idea of extracting an extra large dividend.

CEZ also seems to have lost its sure political touch, losing several recent legislative battles to pass favourable regulations.

More worryingly, the company is to be investigated by the European Commission about allegations it is abusing its market dominance. CEZ's argument is that the EU should not look at the Czech market alone, but at the wider interconnected European market, where CEZ has only a 3.5 per cent share.

The investigation is also thought to include last year's transaction. That saw CEZ and its allies in J&T, a Slovak investment company, acquire Mibrag, an eastern German brown coal miner, and the Czech assets of Britain's International Power.

Each transaction had the effect of undercutting the competitive aspirations of Czech Coal, a coal supplier hoping to become a power generator.

"This is a deal which could change the balance of the market," says Lubos Pavlas, Czech Coal's chief executive.

High electricity prices are an issue in the campaign for parliamentary elections in May. Jiri Paroubek, the leader of the Social Democrats, currently leading in the polls, shows a pronounced lack of enthusiasm for Mr Roman, who has become very wealthy as a result of bonuses and share options.

Mr Roman's own image has also been tarnished by a scandal in which CEZ was accused of using a paramilitary unit to disconnect people who steal electricity.

Mr Roman, 41, has been at CEZ's helm for almost six years, thanks in large part to his ability to ensure he stays on the right side of whichever party is in power.

"I'm on my fifth prime minister," he boasts.

However, it is looking increasingly like that balancing act may be difficult to maintain.

We need your support so Novinite.com can keep delivering news and information about Bulgaria! Thank you!