Dragan Jovanović, the Director of company “TE-KO Kostolac: The contract for the new power unit by the end of the year, Chinese financing loan and works report

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The ongoing activities include harmonization of technical specifications and contracting of the final feasibility study. – They received awards for the job they were most dedicated to.

He will be the first to build a power plant in Serbia after more than two decades! Who is he? Well, he is Dragan Jovanović, Director of “TE Kostolac”. That all started with the rumors when the selection process of strategic partners for the construction of the third power unit in TENT B and resuming the construction of “Kolubara B” got stuck. Soon enough, when the first phase of the so-called Chinese arrangement was under way, this statement became almost synonymous with the name of “Kostolac” leading man among the circles of those good wishing and better informed. In an interview with our newspaper, Mr. Dragan Jovanović has dispelled any doubts in the certainty of this, and we didn’t even mention the synonym to him. On the contrary, we observed that the public looked with suspicion at the possibility of building a new power unit in “Kostolac”, and that the wait for recovery of European finances was advocated as a precondition for the kick-off. However, we intended to talk primarily about the media exposure of TPP “Kostolac” and Dragan Jovanović in the past two or three years, and about the awards and accolades that they have got and how much a good media image helped or harmed them in achieving big goals. We also talked about it, but the third power unit broke into the top priority, perhaps because the essence of all of the efforts put in the development of TPP “TE-KO Kostolac” was sublimated in this project.

At what stage are the preparations for the unit B3 now?  

This is the year in which the second phase of the Chinese loan will be affirmed in the fullest sense. By the end of the year, we plan to sign a commercial contract to build a new unit, and we are now putting our best efforts in this regard. Currently, we work on harmonizing technical specifications and we negotiate a final version of the feasibility study, so in autumn we should have in place all the documentation necessary for the conclusion of the loan agreement. To remind you, the first phase of Chinese arrangement covers the revitalization of the existing two units at TPP “Kostolac B”, the construction of railway, desulphurization system and port, while the construction of a new, third unit marks the second phase, for which it is necessary to prepare a complete documentation and all the contracts shall bear the stamp of the Government of Serbia, as well as EPS, as it was the case with the first phase. To obtain this new installment of the Chinese loan, the Republic of Serbia provided $609 million from the budget as a security for this investment. I believe that EPS will put it to good use, because this is a good chance for us to build a new significant energy capacity in EPS, i.e. Serbia, after 20 years of inactivity. If all goes as planned, the third unit could be completed in 2019 and put in operation in 2020. It will be of 350 MW power, with supercritical parameters and we are doing our best to build it according to the European standards for this type of power units including any new technological solutions.

The first phase of revitalization began in the time of severe financial crisis, and even in the TPP “Kostolac” there were still visible traces of a long lethargy. What level of courage and how good risk management did it take to deal with this situation?

Let me emphasize again that the Chinese loan arrangement has been implemented according to the treaty made between the government of the Republic of Serbia and the People’s Republic of China for using the funds China has earmarked for the investments in foreign markets. For the region of Southeast Europe, it has earmarked tens of billions of dollars, and we’ve got more than one billion. This is a favorable loan with three percent fixed interest rate, grace period of five years and a repayment period of 15 years. Built under these loan terms, B3 unit will, as soon as it starts operation, be able to start paying off its own investment, because of which the loan is not one of those highly criticized state loans, as it is investing in the creation of a new value. As for the previous state of “Kostolac”, the point is that we had here long lasting dead heat in proving that the power units did not work at full capacity, because there was no coal or the units themselves could not produce more. Generally, the production was very low compared to the available capacity. And finally, to answer your question directly: large projects shall be managed differently than regular jobs. They always carry some risks, and therefore necessitate risk management. Apart from that, we should not forget our proverbial inconsistency regarding liquidity and the schedule of payments, so, in addition to the courage, it is necessary to provide conditions for maximum manageability of the project.

Is that the reason you have been in the focus of the general public in Serbia ever since you became the director of the company “TE-KO Kostolac”, either as a recipient of various awards, or the head of an increasingly successful company?

I do not have such an impression that I am so present in the media. Nor have I made any analysis in that regard. The “Kostolac” has made momentum in manufacturing, as well as in the business and investment area, of which there is clear evidence. This could be a reason for it to be at some point more interesting to the public than others, but I have to say that media interest in “Kostolac” has not always been positive. There was also some criticism, but not when they talked and wrote about business results of “TE-KO Kostolac”. The year 2011 was the most successful for us. That year, we achieved the best ever production record and business results, as we produced 6.2 billion kilowatt-hours, more than 9.5 million tons of coal, and removed over 40 million cubic meters of overburden. Those were very respectable results for the former capacity of “Kostolac”, based on which the serious critical public could have made certain conclusions. As for the awards, there were a few, not so many as you say; one of my favorite awards is the one of the Club of Economic Journalists that we received this year in February for the best investment in the year 2012 – the revitalization of the unit B2. I will mention two more awards, one for the strategic management from the Serbian Chamber of Commerce and the other for socially responsible behavior towards the environment in which we work. These three awards I would single out because we’ve got them for something that we have been devoting full attention to in recent years.

Do these awards make you feel more binding?

Being a public figure is always binding. If you are successful and represented as such, you have an obligation to at least repeat the success, or if not to best it. However, there is also the approach “it’s best to keep low profile”. I am absolutely against this view, since it means to abstain from critical evaluation of the public opinion, which can be very stimulating. I do have the other kind of experience. When the good news appears in the media, there’s always someone who will write something bad about you the next day, in an attempt to make you “look to the sidelines”. However, when it comes to the business operation of  “TE-TO Kostolac” and my director role therein, I can be quite happy with the way we are covered by our media.

You have increased the production of electricity by 50 percent. Does this increase take into account the contribution of the revitalized B2 unit?

Certainly, it does. With the revitalization of this unit we have achieved remarkable results. Not only that we have maximized its service life by 150 thousand hours, but we also raised the nominal power to more than 350 megawatts. Since the commissioning, this power unit have worked with 245 MW of net power on average.

Will the future operation of new power unit require the opening of a new mine in the western part of the basin?

Geological surveys are currently under way in the western part called Dubravica and estimates show that there are about 400 million tons of coal reserves. In addition, there is the same amount of high quality gravel in the zone of overburden. These are very respectable resources that, in my opinion we should use without delay. However, these coal reserves are not required for “Kostolac B”, even after it builds another unit. The open pit mine “Drmno” has more than 300 million tons of coal reserves and with the projected annual coal production of 12 million tons, it is enough for the life of the mine and all power units of TPP “Kostolac B”.

This year, the company “TE-KO Kostolac” should produce 6.6 billion kilowatt-hours of electricity and 9.7 million tons of coal, which are high set goals. Do you expect to finish the year with a positive financial result?

Although increased production makes higher total income, it is difficult at this point to talk about the final results, because we do not know the price of our product yet. The price increase is not approved when planned, and it is still not known when it will happen or what the price will be. This is one aspect of uncertainty. The second one is that the production companies do not have full control over mechanisms that influence their financial results. If EPS at any time performs correction of equity value it may in a day change our result. What we can do is to reduce costs where possible, which certainly does not apply to the maintenance.

To correct the reduction

The Business Plan of EPS for this year shows that the cost of regular maintenance and overhauls in the production companies is cut by nearly 40 percent. It’s a big blow for the maintenance and the question is how we can ensure the quality of maintenance, which is a prerequisite for operational readiness in winter. Also the overhauls are reduced, which further affects the preparation for the winter season. Therefore, if you need to make a revision of the Plan, the first to correct should be the maintenance costs – said Jovanović.