Montenegro, EPCG showed that its priority is supplying consumers, not profit, SEE Energy News
The current energy crisis has exposed the vulnerability of the electricity production and supply system, and a clear example is France, a country known for its strong power generation capacities from nuclear power plants, according to economic analyst Alekandar Vučinić.
– It is less known that this system was even more imposing until France decided to follow the example of Great Britain and privatize the electricity industry. Guided by reasons of profit, private companies have decided that it is not profitable for them to produce electricity in numerous nuclear power plants that represent a ballast for them due to maintenance costs. Then some were thrown out of the machine, which is a cardinal mistake that came to pay with the energy crisis of 2022, when the existential need for much more extensive energy production suddenly appeared – Vučinić told Dan.
Vučinić points out that these experiences are extremely instructive for Montenegro and must be taken into account when managing the healthcare, electricity and water supply systems, especially when considering their potential privatization.
– The Montenegrin public was recently stirred by the “noise” between the Ministry of Capital Investments (MKI) and the Electric Industry (EPCG). MKI apostrophized the primary role of “accounting for capital and achieving higher revenues”. EPCG was asked to increase the price of electricity, which would be a legitimate choice, although making a profit is not EPCG’s primary goal. A simple look at the company’s declaration reveals that the primary goal is defined as “safe and reliable supply of electricity to consumers”, “reliable and efficient production” as the second, while “increasing business efficiency” is in third place. The broader social context and circumstances of uncontrolled inflation are also very important. Companies whose ownership structure includes the state should not ignore that factor and decide to dramatically increase the price of electricity, which would give an additional impetus to inflation. An approach that takes this factor into account is an elementary socially responsible relationship – says Vučinić.
Vučinić believes that the bottom line is that EPCG must strive, but not necessarily operate with large profits in all situations.
– Security of supply is of crucial importance. In this key, further capacities should be developed for the sake of energy sovereignty of Montenegro and strengthening of the financial position. The distribution of electricity as well as water is an essential service of vital importance to the population and economy of the country, and must be treated as a public good. It cannot be viewed exclusively through the prism of profit – says Vučinić.
When it comes to the frequent allegations for changing the ownership structure of EPCG, Vučinić believes that the example of Britain and France shows that in crisis situations it is preferable to keep the stakes in one’s own hands.
– Based on EPCG’s financial statements for 2021, it can be concluded that EPCG is a fairly solid company. Debt to EBITDA, interest coverage ratio, debt to equity and total capital parameters are most often used for the analysis of energy companies. EPCG records quite decent values, especially with regard to the massiveness of capital which ensures that the ratio of debt to capital instills confidence. Additionally, the interest coverage ratio stands extremely well, which shows that the company’s earnings for 2021 can very well cover interest expenses. The total debt-to-earnings ratio of the company is slightly worse, but still within the recommended range for energy companies. For the sake of comparison (which is not entirely adequate, since these are larger companies), EPCG is in the same range as the French EDF and slightly better than the giant E.ON. Nevertheless, it is quite certain that the challenging year 2022 in terms of energy has caused turbulence and that the final profitability is also under question. In addition, it is necessary to analyze the financial positions of all individual companies within EPCG. Although the potential for development is extraordinary, it is quite certain that there should be no continuity with the bad decades-long habit of staffing according to party rules, but the engagement of staff must be on a meritocratic basis, which ensures that EPCG is the backbone of economic development – concludes Vučinić.
Avoid the British mistake of “Wimbledonizing the economy”
Vučinić also points out that Margaret Thatcher’s rule in Great Britain is particularly specific.
– The legacy of Nene’s rule is extreme deregulation, especially of financial markets, privatization of state-owned enterprises, including health, electricity and water supply. The goal of such radical steps was the rehabilitation of strong economic growth after years of stagnation – Vučinić points out.
He states that it was then that the term “Wimbledonization of the British economy” was coined, embodied in a metaphor that suggests that it does not matter where the players who play come from as long as the game takes place in London and the host reaps the benefits of “organizing the tournament.” At the same time, America’s strong economy was based on a proven formula based on five pillars: private enterprise, competition, private property, the profit motive, and consumer sovereignty, eKapija writes.
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