Croatia: Public and experts claim power utility HEP without strategic investment plan

Published on 16. September 2014., SEE Energy News

The Government brings receivership (sequestration/judicial management) to HEP, with a mission to push forward singing of large and costly investments, under Minister’s supervision. Politics, according to its needs, manipulates with same production projects, for which numerous studies were made, but without transparent criteria for their all-inclusive evaluation.

The Government plans to dismiss HEP’s President of Management board, second in a row, and a big portion of Management board members. This is all taking place in the wake of investment decisions that are decisive for the future of the company that operates in increasingly complex market circumstances. Watching through the eyes of politics, whose success is measured only by number of ribbons cut, seems that the problem lies in investments that are not materialized at desired speed. But you need to say hoop before you jump, and project management is something what bothers most of public companies. In complex projects there are no shortcuts, and using shortcuts is usually very costly. As a proof we can use HEP’s project HPP Ombla, the one that had furthest progress in its realization. Ministry of Economy started the project of competition for hydrocarbon exploration in Adriatic sea, by making rules and regulations, which is why everything runs so smoothly now. This is not the case with HEP’s projects, because most of them are burdened with solutions that have been decided (and already issued permissions) in previous years. TPP Plomin C, HPP Senj-Kosinj, HPP Ombla.. are projects that have been showing up in HEP’s plans for decades, rambling around offices in higher or lower preparation stage. For example, building of new HPP-HP (heating plant) Osjek that runs on gas has been announced 14 years ago, HPP Ombla is talked about for a half of a century, and the same is with HPP Senj-Kosinj. Millions of HRK were spent on their preparation, and after HPP Lešće no other facility for electricity generation has joined the network. That is no wander, because none of previous management had made mid-term plan of investments, nor they have developed transparent criteria for technical, economic and financial evaluation of investments.

Bearing in mind that politics, not expertise, plays the key role in public enterprises, none of previous management bothered with such counterproductive practice that made HEP a worldwide record-holder in electricity imports. No private enterprise would survive this kind of practice, but HEP is still resisting, owing it to its dominant market position. But the question is until when? During previous (lost) years all this served people in power, so they could play with projects, announcing construction of this or that power plant, according to their own needs. Given the circumstances, seems that HEP is getting some kind of receivership that should put the whole story in the fifth gear, all under Minister Vrdoljak’s baton. This is even more important because of the finalization of HPP Plomin C project, which raised so much “carbon” dust, so this dismissal is no wander. The preferred bidder is experienced Japanese company Marubeny, with no reference from any thermal power plant in EU. This business in Croatia would mean a lot to that technically experienced company, shadowed by two financial scandals for what they’ve paid indemnification. They stated themselves that they don’t expect large-scale return on investment (ROI) margins, and that they would gladly expand their business on Liquid Oil Gas (LNG) Krka. Sounds optimistic, but construction of TPP Plomin C won’t be easy to materialize nor can the project be “broken over the knee”. That was already indirectly confessed by the Government, announcing precisely 25 necessary steps for materialization of this project. One issue is particularly sensitive, and concerns the problem of provisional chimney, that could lead to termination of power plant operation during construction of third block. In order to change that decision of Ministry of Environmental and Nature Protection, in accordance with law, HEP needs to request modification of Consolidated terms of environmental protection, already obtained by HEP.  That could last for a while, and could bring to opening of procedure for environmental impact check, which is by the way precondition for obtaining location and building permissions for power plant construction.
That’s why we shouldn’t be surprised with unofficial information about Japanese partner’s numerous critical remarks concerning the project. Marubeny also expects the State to buy large amount of electricity, at very high price too. Changing project in such advanced stage isn’t easy at all, and untypical power of the block 500 MW significantly raises the value of investment. No matter how it ends, signing this contract makes obligations for HEP to buy minimum half of generated electricity, at a price not lower than 75-80 EUR/MW, as was unofficially stated by the source from HEP’s Management board. In a situation when all private electricity companies carefully weight all investments, especially those investments in conventional energy sources, politics should think carefully what kind of burden they will impose on all HEP’s buyers and voters – gas or carbon…