Croatia: Before the privatization Power utility HEP decreases the value of thermal power plants warns from workers union

Published on 22. April 2015., SEE Energy News

With the decision of HEP Supervisory Board, before the announced privatization, the value of 315 MEUR has been written off by the initial public shares offering, how much are worth the seven power plants in Sisak, Rijeka, Plomin, Jertovac, Zagreb and Osijek, according to statements from the HEP workers union.

On the other hand, as previously known, IPO Company is trying to reach 400 MEUR of fresh capital. The public and daily “Slobodna” learned about debt write-off from the dissenting opinion of Jadranko Berlengi, a SB member from the workers who released a dissenting opinion on the website of the HEP Independent Workers Union. “Slobodna” also owns the analysis of BDO Consulting, engaged by the HEP production for so-called- stress test. This analysis showed that the thermal power plants are not profitable, but that their write-off could lead to capital company inadequacy, therefore it is recommended recapitalization in cash or claims replacement for capital.

If HEP write off power plants and fails to ensure the capital adequacy, it will have a bad effect on credit rating, or IPO, advisers say. In the HEP officially say that the Board takes into account the fulfillment of capital adequacy and unofficial sources claim that the business plan of HEP Production (which will guarantee HEP Group), will be adopted in the period of 90 days, which will include capital increase by converting profits into equity and “Slobodna” speculated that it will be at the level of the minimum132 MEUR. “Slobodna” writes that it is possible to implement it because HEP production is profitable, but that the HEP value will be decreased for the amount of “recapitalization” or “consumed profit” compared that there has not been such a drastic reduction of Production share capital. “Slobodna” reports that experts and some members of HEP SB believe that such a one-time debt write-off is not a problem, but that HEP IPO can in no case be implemented by the end of this year. HEP had not corrected the carrying value of its assets, and Berlengi notes in its opinion that the Audit Committee assessed the proposal of BDO consulting as unacceptable and that they took the view that the assets write-off should be carried out in several years. Such a move, he believes, should be previously analyzed in detail with regard to the company’s operations, supply security, development plans, personnel and others.

In his dissenting opinion Berlengi states that such a decision is potentially harmful and that it is not taken regularly, because on the agenda was the opinion of BDO counseling, but that the chairman Nikola Bruketa in the session, without the prior written proposal of decision and analysis, consultation with the Audit Committee, the Works Council et al., put the point to the vote. Chairman of the Board Perica Jukic asked whether such a decision could be postponed, for which he was told it could not. Berlengi opposed to such a move, saying that “such brutal efficiency without scruples, lack of concern and fear for society and for themselves, he did not see in 40 years”.

Berlengi states that apparently this is not the only debt write- off in which HEP will engage, but he mentions planned value reduction of the unprofitable distribution areas, such as Elektra Vinkovci, Elektra Sisak, Elektra Sibenik, Elektrolika Gospic and Elektra Pozega and Central heating systems in Zagreb, Dubrava , Osijek, Sisak, Samobor and Velika Gorica. “This busily cleaning up of HEP portfolio irresistibly reminds me at the privatization of the Croatian banks rehabilitated by the money of the Croatian citizens and then sold cheaply to foreigners who have been robbed by them and still rob the same Croatian citizens”, writes Berlengi wondering what the meaning of IPO.

The DUUDI chairman, Mladen Pejnovic said yesterday for Bloomberg that Croatia would offer this year for sale 25% shares of HEP in London and Zagreb, which could raise 264 to 395 MEUR, which would be used then for reinvestment in the company. HEP, he says, plans to buy property in Slovenia, Bosnia and Montenegro.