UPDATE 1-Czech ministers propose flotation of 7 pct CEZ stake

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PRAGUE, March 14 (Reuters) - Economic ministers in the Czech government agreed to propose a floating a 7 percent stake in state-owned power utility CEZ , worth $1.7 billion at current market prices, the Finance Ministry said on Wednesday.

The state holds 68 percent of what is the country's most profitable company and central Europe's biggest electricity producer and distributor.

The cash-strapped government has for months considered the sale of CEZ shares to find an extra 31 billion crowns ($1.45 billion) to pay for road construction without boosting an already bloated budget deficit.

Finance Ministry spokesman Ondrej Jakob confirmed an earlier newspaper report that the ministers, who do not publish the outcome of their meetings, decided to propose the stake flotation to the Cabinet in the coming weeks.

The shares, which closed at 866.50 crowns on Tuesday, are expected to be floated on the Prague Stock Exchange.

Finance Minister Miroslav Kalousek was quoted by the daily Hospodarske Noviny as saying: "Either we could acknowledge the true budget deficit ... or gain a one-off revenue from the sale of a state asset -- the CEZ stake. We opted for the latter."

The plan has yet to receive final approval from the Cabinet.

This year's state budget was approved with a deficit of 91.3 billion crowns or 2.6 percent of gross domestic product on condition the government will raise revenue from privatisation to avoid raising expenditure to pay for road construction.

Transport Minister Ales Rebicek was quoted by the Hospodarske Noviny as saying the government needed to receive the proceeds from the CEZ stake sale in the third quarter at the latest to avoid disrupting road construction.

The company has a market capitalisation of $24 billion and is the most valuable Czech asset still awaiting privatisation.

In response to the government sale plan, the cash-rich company has previously said it was considering a share buyback of up to 10 percent of its stock on the open market to invest excess cash and revamp its capital structure.