Serbia: Harsh path of 2015 power utility EPS restructuring & development

9. April 2015. / News Serbia Energy

Efficient management of power utility EPS ( Elektroprivreda Srbije) largely depends on its owner, i.e. what the State expects from EPS, but also on the expertise, experience and skills of the company management. If the owner (State) wants EPS to become a very efficient and profitable company, such as Czech ČEZ, then EPS must do what a private owner would do. And the private owner would lay off redundant labour, choose the best professional management, increase the KWh price and perform required technical and technological company upgrade.

The situation is completely different: if the State wished to keep the largest number of employees in EPS, if by lower electricity prices it wanted to “retain” social peace, if it turned EPS into a political polygon, in that case EPS would still incur losses and inevitably ride for a fall.

The key issue of EPS is bad managements which instead of managing the company efficiently, they mainly executed orders of their party head offices. EPS has a huge surplus of labour in administration, and the State invested in EPS just enough to make the system running. The construction of new capacities has not happened, and the technology is mainly dating back from the second half of the last century. Therefore, one should not be surprised at the fact that Czech ČEZ produces 1KW of electricity using twice fewer employees than Serbian EPS. The company sells electricity at significantly lower price when compared to the competition and cannot easily collect enormous outstanding debts of the citizens and also bigger debtors on whom the State turns a blind eye over the past decades. Decentralized management in the unique technological process slows down and makes it difficult to make timely and quality decisions for the entire system. The accumulation of the same positions and services in 13 companies needlessly increased its costs of business.

New management should define the most significant objectives in short-term, middle-term and long-term period and to obtain complete approval therefor from the owner, i.e. the State. Then, modern organization of the company should be established, and the program for solving the issue of surplus of labour should be made and implemented. The management needs the support and a precise and concrete plan from the owner for collection of outstanding debts from the major debtors, with the State being behind.

The management has to set a mechanism of market price formation, and social policy management (low electricity price) must be taken over by the State instead of EPS. EPS is to obtain the approval from the State for the manner of providing the funds for technological upgrade and the construction of new capacities. The funds can be raised in several ways: from dedicated portion of the KWh price, selling the minor shares package, recapitalization of EPS and (or) by means of favourable loans to be secured by the company owner, and to be repaid by EPS.

The idea of selling the minority shares package makes sense only if that money would be used for capital investments in EPS. If EPS were a highly profitable and stable company, with the State only acting as the owner, and the Management ran the company in a professional and independent way, the EPS shares would be, with steady and safe profit, very attractive to institutional investors who prefer safety of the market than the profit amount. It is acceptable also to invest in the construction of new capacities, through a model of public-private partnership, with the State having to be very responsible and cautious, since our practice showed that the general interest is of least concern when it comes to this type of cooperation.

EPS cannot be the main drive of the Serbian economy development. Considering the fact that Serbia does not belong to the exclusive circle of countries having extremely big potential for electricity generation, we should expect from EPS to produce sufficient and stable electricity quantity, following sound market principles, in order to meet the current, but also future needs of all the beneficiaries in Serbia. It would not be a bad thing if there were surplus of electricity for export, and Serbia should use the available resources in a careful manner, having in mind the complex game of energy products prices and making sure primarily that sufficient electricity is provided from national resources and production.

The key reason to that is significantly lower price of the KWh offered by EPS versus the one that could be offered by the electricity traders. The State ought to provide more information to the citizens in terms of what it means to change the electricity supplier and about the positive and negative consequences to occur by that act. The criteria for changing the supplier should not be only the price, because in addition to the price there are also other important parameters (continuity of supply, committed contractual obligations and sudden stock exchange prices leap…) for which I am not sure that “small” traders will completely and always adhere to.

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