Montenegro exclusive: Restructuring of the Electric Power Industry company; electricity market, investments

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The Electric Power Industry of Montenegro JSC Nikšić (EPCG) is a majority state owned electric power company established by the decision of 1998 on transforming the PEE “Electric Power Industry of Montenegro“ Nikšić, with the aim of carrying out economic activity, i.e. the production, distribution and supply of electricity.

A significant step in the recent history of the “ Electric Power Industry“ of Montenegro (EPCG) was the adoption of the Energy Law in 2003. The Law has also determined the formation of the energy efficiency unit within the Ministry of Economy. One of its most important decisions is the demerger of the EPCG into separate units for production, transmission and distribution. In November 2003, the Demerger Committee determined the Main Concepts of Functional Separation of the EPCG, according to which, until the making of decision on Company privatization, the EPCG will remain vertically organized, divided into four functional units (FU): Production (HPP “Perućica“; HPP “Piva“, TPP “Pljevlja“ and small hydro power plants), Transmission (an energy entity providing transmission services and a transmission operator who simultaneously also performs the function of a market operator until the Energy Agency has decided otherwise), Distribution (an energy entity for providing distribution services and a distribution operator) and Supply (an electric power entity for electricity supply).

In January 2004, the Energy Regulatory Agency was registered as a legal entity. In may 2004, the Board of Directors of the EPCG JSC Nikšić adopted the decision on the Macro-organization of Functionally Separated EPCG prepared by the Demerger Committee. The  proposal had been harmonized with the Energy Law and the EU regulations, and it represented the basis for the implementation of reforms. In the proposal, it had been envisaged that EPCG should be functionally restructured into a vertically integrated company with four functional and two organizational units. The envisaged functional units are: Production, Transmission, Distribution and Supply, whereas the organizational units are: Electrical Construction and Joint Services.

At the end of 2005, a major trade in the EPCG stocks began in the Montenegrin stock exchanges. In September 2009, the Agreement for Sale of Shares and Recapitalisation was signed between the Government of Montenegro and the Italian Company A2A. The Italians acquired the ownership share of the Electric Power Industry of Montenegro JSC Nikšić amounting to 43.7 percent, whereas the Montenegrin share in the ownership structure is 55 percent. The five-year contract expires at the end of this year. According to this contract, if the investor has implemented the five-year investment plan successfully, he gains the right to become a majority owner after five years. The other option is for the Government of Montenegro to buy back the Electric Power Industry and return it to state ownership. In the several following months, the fate of the Montenegrin Electric Power Industry should be decided.

In 2013, the achieved production was 3809 GWh. The capacity of the Montenegrin electric power system is based on the capacities of the production plants HPP “Perućica“, HPP “Piva“ and TPP “Pljevlja“. The hydro power plant “Perućica” generated 1334 GWh, the hydro power plant “Piva” 1140 GWh, the thermal power plant “Pljevlja” generated 1311 GWh, whereas the small hydro power plants generated 30 GWh of energy. The overall installed production capacities of power plants amount to 868 MW, of which 685 MW or 76% belongs to the hydro power plants, and 210 MW or 24% to the thermal power plants.

Today, in Montenegro, electricity is distributed through 4573 substations of various transformation voltages (110/10 kV, 35/10 kV, 10/0,4 kV) and of various powers, and through more than 20 000 kilometers of aerial cable lines of various voltages, to which most of the buyers are connected directly. Today, the Electric Power Industry of Montenegro produces 2.656 GWh of electricity annually. Montenegro, in spite of the low level of utilization of its hydro potentials, is one of the rare countries in the world which generate 60 percent of electricity from renewable, hydro-sources.

The electricity market was opened at the end of 2009, by the decision of the Energy Regulаtory Agency. It has been said in the ERA that Montenegro started adjusting  the prices of electricity in domestic producers with those in the exchange already two years ago, so they do not expect abrupt jumps in electricity prices with the market opening.

As a reminder, it is only as of 1st Jаnuаry 2015, as it has been envisaged by the Law, that the buyers will be able to change the supplier, because it is then that the obligation of the EPCG as the public supplier ceases. For all buyers, except for the households, the electricity market in Montenegro was opened in 2009. As from the next year, everyone, also including households, will become a qualified buyer, which means that they will have the right to choose the supplier on their own. At this moment, in addition to the EPCG Supply, Montenegro Bonus, supplying the Aluminium Plant Podgorica, also possesses the supply licence.

The Government has recently adopted the Summary of Draft Energy Law. The provisions of the Law, which has been harmonised with the EU directives, provide a higher security of supply of energy generating products for the citizens and, at lest normatively, guarantee a better protection.

The most important innovations, according to the Draft which is under public debate until 15th September, are bigger obligations of the electricity or gas supplier, who will sign contracts with the buyer which precisely guarantee the quality of delivery and the buyer’s indemnities in case of a failure to render the quality prescribed by the Energy Regulatory Agency.

Within the sphere of investments, the construction of the second block of the TPP “Pljevlja“ is a priority. The Czech Škoda Praha, the Powerchina Hubei Electric Power Survey & Design Institute and the China Machinery Engineering Corporation CMEC have remained in the race for investor.

In the Proposal of  Energy Development Strategy of Montenegro by 2030, it has been estimated that the investments will amount to more than four billion euros. By the Strategy, the investments of more than 3 billion have been envisaged by the year 2021, and of more than 1.1 billion euros from 2022 to 2030. This amounts to around 4.2 billion euros in total, i.e. on annual basis, from 280 to 300 million euros of investments into energy sector, which is around ten percent of the present GDP in Montenegro.

In the Energy Development Strategy, all energy subsectors have been covered, coal, oil and gas, electric power engineering, energy efficiency and renewable energy sources. Projects have been envisaged such as the Thermal Power Plant Pljevlja II, Morača, Komarnica, the high-voltage submarine interconnection cable between Montenegro and Italy, Ionian-Adriatic Pipeline, wind power plants and small hydro power plants.
The shareholders of the Electric Power Industry of Montenegro (EPCG) have recently adopted the decision on turning the company’s tax debt amounting to 45 million euros into the company’s share capital. After the issue of the EPCG shares, based on the conversion of debt into share capital, the state will own 56.9 percent, the Italian company A2A 41.7 percent, and minor shareholders 1.34 percent of the electric power company’s shares.

At the end of December last year, the Parliament demanded that the state’s claims amounting to 45 million euros on the basis of taxes and contributions be exchanged for capital according to the nominal value of shares.

The total capital value of the Electric Power Industry (EPCG), after the increase of capital, amounts to one billion euros. In the information about the increase of the EPCG capital, published on the website Montenegroberze, it has been stated that the company has increased its capital by registering the issue of shares based on the conversion of debt into share capital.

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