Higher price in the interest of electricity traders

26. December 2019. / News Serbia Energy

Serbian government has no reason to fulfill the recommendations of the International Monetary Fund to increase the price of electricity in Serbia in the middle of next year, because the price of electricity is already high compared to the low standard of living of its citizens, and on our part there is no obligation towards this financial organization, experts believe.

According to the press, the IMF has asked Serbia to increase electricity prices by the end of June next year and to adopt a formula that would bind electricity prices to inflation, as well as to determine the exact date when the new price list comes into force.

The IMF explains its demands by its commitment to “successful financial consolidation of EPS”.

In other words, IMF officials believe that a recent electricity price increase is not enough to cover the cost of generating electricity, primarily because of feed-in tariffs for the purchase of electricity from renewable energy sources, paid by the Electric Power Industry of Serbia under preferential i.e. higher than market prices.

Experts, however, do not share the IMF’s views, believing that they are behind the interests of electricity traders who want to take “their slice of the cake” in our market.

Nikola Rajakovic, a professor at the Faculty of Electrical Engineering in Belgrade, tells Danas that the demand for electricity price increase in Serbia is being made by people who do not understand energy.

– EPS offsets its cost of buying electricity from RES at preferential prices by pouring them into the bills paid by customers. To be precise, customers are paying higher electricity bills because of feed-in tariffs, therefore, no one can say that EPS is bearing this burden. The company does not pay for electricity generated by RES from its own pockets, this cost is covered by customers. Therefore, this cannot justify a new price increase. Electricity in our country has recently become more expensive, and given the payment options of the largest number of customers, an additional price increase in such a short time interval would place a heavy burden on the citizens’ household budgets, as a result, the IMF’s advice should be disregarded – according to our interviewee.

He added that Serbia does not receive funding from the IMF and has no obligation to adopt its demands.

– By the way, the theory that electricity in Serbia is expensive because of RES is mostly spread by those who are against these sources. The fact is that at auctions the price of electricity from RES is cheaper than from thermal power plants and therefore it is necessary to switch to this system when it comes to purchasing electricity from wind farms and solar power plants – Rajakovic emphasizes.

Economic analyst Branko Pavlovic tells Danas that Serbia has no obligation to fulfil IMF’s recommendations, nonetheless, in the end it always does.

– Serbian government is following the advice of the International Monetary Fund, although this is wrong. The reason why the IMF is seeking to make electricity more expensive is that it reaches a higher price so that electricity traders from Western countries can engage in electricity sales in our market. The story that prices need to be increased due to renewables does not stand. There is no need for any increase in electricity until EPS prevents large network and in general company losses. In this way, EPS would raise far more money than by increasing the price of electricity that is being proposed – Pavlovic says.

Just as a reminder, in mid-November, the Fiscal Council also called for an additional 15 percent increase in electricity prices. The Fiscal Council is of the opinion that the price of electricity in Serbia is 35% lower than in the regional countries and that it should not be “part of social policy” and that subsidies should be introduced for people not being able to pay their bills.

Increasing electricity prices and optimizing the number of employees in the opinion of this institution would bring Electric Power Industry of Serbia an additional 170 million euros.

The Fiscal Council estimates that EPS should invest more than three billion euros in building new generation capacities and developing its distribution network in order to provide sufficient electricity and avoid its enormous imports.

To achieve this, EPS would have to invest around 600 million euros annually, which is 50 percent more than now. The prerequisite for this is to improve company management, rationalize the number of employees and reduce the share of salaries in total costs (in EPS, share of salaries in this segment is 30 percent, while in other companies 20 percent).

We should recall that as of January, household electricity bills will be 3.9 higher than now. Considering that the average electricity bill in Serbia is about 3,000 dinars a month, this means that as of 1 January, electricity bills will be increased by 117 dinars.

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