Serbia: Balance sheets of power utility EPS are empty for investments, electricity price increase is the key milestone for EPS restructuring26. May 2015. / News Serbia Energy
The idea was for the electricity price to go up two times – by 15 percent. Now is considered to make three price increases by 10 percent each year.
In the next three years, electricity price will most likely have to go up by a total of 30 percent. The only question is how the percentage of price increase will be distributed. The battle is in progress in order to reduce this year’s price increase to a minimum. The original idea was to increase the electricity price in the next three-year period, two times, by 15 percent each. Now one of the discussed models is to go with the three price increases by 10 percent each year. In any case, any delay in price increase in this year, will await us in the next two years as the IMF insists that Serbia during this period reaches the market price of kilowatts.
Electricity price increase will be one of the most important steps in the EPS’ financial restructuring plan, which must be adopted in early June.
In the Memorandum with the International Monetary Fund (IMF) our government committed to raise the price of electricity by 15 percent on April 1, which did not happen. The same document states that, if necessary, in 2016 the electricity price will increase additionally. According to the agreement with the IMF, the deadline for completion of the EPS’ financial restructuring plan was the 31st of March. Fund officials now expect it to be finished in early June and that the precise amount of price increases can be seen in it. According to our findings, this will be a requirement necessary for the board of directors of this international financial institution to approve the first review of the arrangement with Serbia in late June. According to the Consumer Protection Act, at least a month has to pass from the day of proclamation of price increases. This means that the electricity price could not to go up before early July and that consumers won’t receive higher electricity bills before August.
The agreement provides that the price of electricity increases partly through the introduction of excise duty and partly through direct increase. Excise tax revenues would go into the budget, and revenues from price increases to EPS. Given that the situation in the state treasury is much better than expected there is room for that part of the price increase to be slightly lower. But our interlocutors say that they will not step away from the introduction of excise duty on electricity.
What is so rotten in the balance sheets of EPS that makes the price increase the only salvation for this company?
As they say in the Fiscal Council, “EPS is a ticking time bomb of public finances that can explode in the next few years if the company’s balances are not put in order.” The situation in this company is reminiscent of the situation in “Srbijagas” a few years ago, except that if the EPS suffered its destiny – the taxpayers would not have the money to save it, the Council warns.
– There are two reasons why EPS is now reminiscent of “Srbijagas” once. The first one is that last year this company took a loan for liquidity or for running business. When you borrow money for investments that is one thing, but when you take it for liquidity then it is a bad sign. EPS has a profit only on paper, because the balance sheets show claims which are obvious clear that they will never be charged. That is another reason why EPS is reminiscent of “Srbijagas” – say in the Fiscal Council.
In one of the reports of the Council says that unsuccessful business of “Srbijagas” was so evident, as it was covered by taking loans, which were partially used for the repayment of earlier loans – which is an unsustainable business model. And what is worst of all is that all these loans directly go on the expense of taxpayers, because they were taken with the guarantee of the state, although it was clear that the company will not be able to pay them back. This is obvious in the case of solidarity tax.
According to the reports of the Agency for Business Registers, in 2013 (data for this year are still unavailable) EPS was in the second place in highest achieved operating income of 220 billion dinars. On the other hand, the withering is that with the accumulated losses of app. 120 billion dinars, EPS almost shares the first place with “Serbian Railways”.
Therefore, the experts in this matter were very surprised by the statement of Aleksandar Obradovic, EPS’ CEO, made to the RTS at the beginning of the week “that as far as this public enterprise is concerned, the price increase is not necessary to happen this year,” and that he therefore assumes that there will be no electricity price increase. Even more so because it is the exact opposite of what he was saying last August as acting Director, warning that the EPS only in the last eight years had lost around six billion euros because it failed to deliver electricity at market prices.
The EPS’ first man, though distanced himself this time, added that, “this company is now in a much better situation when it comes to the price of electricity, then it was six months ago, since it overcame the winter season very successfully.”
– When a politician makes such statement the people don’t even react anymore, because we are accustomed to all sorts of promises and nice wishes. But when the CEO of EPS says that he doesn’t need electricity price increase, then it’s at least embarrassing, says Dr. Slobodan Ruzic, former advisor to the Minister of Energy.
He asks how Obradovic thinks to start new investments in EPS, if not through an increase in electricity price and better collection. No new facility has been built for a quarter of a century. Unless, he plans to borrow some more and to suffer the destiny of “Srbijagas”. Only the debts of citizens for electricity rose to 75 million euros, highlights Ruzic.
– When you say the economic electricity price in Serbia, you don’t mean the price at the stock exchanges, but the one with which EPS can cover its costs and have a positive balance. In our case such price is significantly lower than the market. By some estimates a kilowatt of electricity in Serbia instead of the current five euro cents, according to that criteria, should cost around seven euro cents, explains our interlocutor.
He agrees that the price of electricity has always been a social category in our country, but added that we should not destroy the largest public company at the expense of that.
– By the fact the IMF insists on a higher price of electricity, it is concluded that they are better housekeepers of this public company than we are, which is embarrassing, says Ruzic.
Statements made by Obradovic also left speechless one of the former CEOs of EPS, who points out that the situation with the price of electricity in EPS is such that Obradovic can constantly have an open request for electricity price increase and will not go wrong, because this price is lower than the one EPS can continue its development with. Claiming that this public company doesn’t need a price rise the state and EPS are at a loss. The state, because there is no possibility that by charging the special fee through electricity prices, as throughout Europe, to support renewable energy sources, whose sales bring money back into the state cashbox, and EPS because without an increase in the price of electricity is not able to run business positively.
The same source said that waiting for the restructuring makes sense, and to see how big savings will be, and then to determine the percentage of increase in electricity prices, but even without this restructuring is well known that the EPS needs higher price.
Download as PDF :