Republika Srpska exlusive: Energy utility ERS goes towards centralization

31. October 2013. / SEE Energy News

The announced reorganization of “Electric Power Industry of Republic of Serbian” (ERS) in 2014 will go towards the unification of the existing subsidiaries in one or two companies with much greater potential for investment in the construction of new energy facilities, consider its shareholders and the experts.

Economic experts say that the current organization and management of parent and 11 subsidiary companies within the joint holding ESR limits the optimal use of its resources.

The market value of the three hydroelectric power plants, two thermal power plants and five distribution companies in the ERS system on the Banja Luka Stock Exchange is 280MEUR, which is only 15% of book value. Last year, the eight subsidiary companies made ​​profit in the summary amount of 17 million KM, and if we take away from that a total loss of the two remaining companies of 9.5 million KM, we get that the total capital gains is only 0.2%.

Experts say there are two aspects of change, whereby one relates to providing more efficient and rational organization, and the other to create the conditions that free resources of depreciation and part of the profit intended for development combine in order to finance capital projects.

ERS reorganization announced Zeljka Cvijanovic, RS Prime Minister, and Zoran Tegeltija, Finance Minister, speaking about the upcoming development of economic policy in 2014. Tegeltija said that it is estimated that ERS is quite fragmented organizationally and as such it can hardly comply with the expectations for the realization of large investments.

Milorad Dodik, the RS president, emphasized the need for changing the organization of ERS two years ago, saying it was intended to create a legal entity with the right to invest and the ability to manage investments in lower level localities as the parent company.

In the Company for the management of Pension Reserve Fund (PREF) of the RS, the second largest shareholder of ERS, they believe that the reorganization of the system would contribute to more efficient operations and thereby allow higher profits, which is in the interest of all shareholders.

– By connecting all the companies in the ERS system, or connecting five production companies, we would get a respectable company that has the financial and human resources to build new capacity and to finance development projects of high value. In addition, I do not think that it is impossible that so efficient company, in addition to the Banja Luka Stock Exchange, will be listed on the stock exchange in Warsaw or London, which would open up new possibilities to raise money for financing new generating capacity by borrowing through issuing bonds, or by capital increase with retention of the majority state package, – said Darko Lakic, director of the Management of PREF.

In addition to the reorganization, the development of the power sector is assessed as very important in order to displace social policy from the ERS in institutions dealing with social policy.

– I think that we are society which is not rich enough to have everyone receiving subsidies through the electricity price. So, those who are able should pay the price of energy that allows the sustainable development of this sector, while the social policy should allow lower prices for consumers who can not pay the market price – said Lakic.

Zdravko Milovanovic, an expert in the energy sector and Professor of Mechanical Engineering in Banja Luka, said that it is ungrateful to predict what will the change in organization of ERS bring without the insight into the proposed model.

– Centralization carries its own advantages and disadvantages. Certainly, the unification of certain units and functions would lead to cost savings and would simplify decision-making in ERS, knowing that according to the EU directives in the energy sector, system must be separated, at least in financial terms, to production and distribution part – Milovanovic said.

He said that the restructuring of the energy sector requires a thorough analysis which would imply changes and other laws, noting that one should not neglect the interests of local communities.

Current organization

Holding company “Electric Power Industry of Republic of Serbian” consists of the parent company in Trebinje, five production companies – HPP in Trebisnjica, HPP on the Drina river and HPP on the Vrbas river, mine and power plants Ugljevik and Gacko, and then, the distribution companies “Elektrokrajina”, “Elektrodoboj”, “Elektrobijeljina , “Elektrodistribucija Pale”, “Elektrohercegovina” and the Research and development Center of electric power (IRCE) in Eastern Sarajevo.

Source; Serbia Energy See desk

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