Macedonia-Special contents: The privatization of electricity distribution company by EVN Austria

26. July 2014. / SEE Energy News

The expected changes after the privatization were the injection of the fresh money, setting up of the new management and establishment of the methods for reduction of the commercial and technical losses, along with the investments to ensure the future growth

One of the most important events in the process of privatization in Macedonia was the sale of the national electricity company ESM to the Austrian company EVN, which offered the price of 224 million euros and pledged to invest 96 million euros. This price is one of the highest achieved for a distribution company, taking into account the number of consumers. The post-privatization period was marked by significant investments of EVN and the reduction of the commercial and technical losses. However, in that period, the interference associated with different interpretations of the legal and other regulations were noticeable, such as the Book of tariff rules, lack of distribution code (which was introduced in 2008) and the continued lack of the market rules.

Prior to the establishment of the regulatory framework, the Government appointed a financial advisor. Meinl Capital Advisors and Crimson Capital Group were engaged in a consortium which would lead the privatization of the selected part of the ESM Company. Analysis of the business was completed in May 2002, but the privatization was at the standstill due to the elections. The process did not start before May 2003, waiting for the Government formation. That same year, the Strategy of restructuring was adopted, which implied the separation of the transmission system within the EMS. The new company, MEPSO, became an independent entity owned by the state. In 2005, the Government of Macedonia decided to separate the production and distribution of the electricity and to form two state-owned companies. It was decided to privatize the distribution first and to start the process in the second half of 2005. The tender was announced in December, and the winning offer was announced in May 2006 – 224.5 million euros of the Austrian EVN Company.

As in other countries, one of the main reasons for the privatization is the reduction of the network losses. Another reason is the creation of the independent distribution company which would raise the level of claim collection from the economy and population.

During privatization process, the losses were some 30%. When the business analysis was completed, the financial advisors said that with such tremendous losses the company could not survive for more than two years. At that moment, they had a problem with the lack of investment repairs, collection rate was low and it could not provide for financing of the future investments. The technical losses were equal to those of Macedonian hydro power plants outputs which provide some 25% of total electricity produced.At that point, EBRD secured some pre-privatization funds the amount of which was 45 million EUR. The money was meant to make a turning point in privatization process, which meant: engagement of consultants, adopting the legal regulation, procedures related to the mere privatization process such as criteria for nominations and process transparency.

The privatization of distributioncompany follows the logic of the same processes in Bulgaria and Romania – if you have a strong distributer who makes sufficient claims collection and has an efficient distribution network, then the property price of the facility for electricity production, when privatized, can be enhanced.
The bids of four companies satisfied the set criteria and won the public tender: CEZ, Enel, EVN and RWE. The final decision was made based on the price offered and the planned level of investment.

The expected changes after the privatization were the injection of the fresh money, setting up of the new management and establishment of the methods for reduction of the commercial and technical losses, along with the investments to ensure the future growth.A part of privatization tender included a certain level of investments, in this case 96 million EUR, while the bid which was ranked second came from CEZ and amounted to 60 million. After two years, EVN invested 75 million EUR and significantly raised the collection rate.

All things considered, the privatization of distribution company ESM is an example of successful and transparent tender sale, but with several legal and market issues which were not made clear nor implemented during the process, with significant post-privatization implications. Despite the extensive business analysis, it is obvious that, from numerous case studies, some disagreements can occur regarding the certain issues which could not be solved successfully until the privatization process is finished.

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