Serbia exclusive: Privatization of Power utility company, scenarios and benefits, the analysis

Published on 19. January 2015., News Serbia Energy

Possible privatization of Serbia Power Utility Company EPS would provide short-term “lank” financial benefit for the budget, while at the same time would bring great risks. The risks are – the risk of a gradual EPS transition in the majority ownership of foreign partner and the possibility of a substantial increase in the electricity price. Serbia Energy business consultants for energy and mining sector are confident that partial privatization, like in case of Montenegro EPCG Power utility and TSO co, could be savior for state budget. Partial privatization could inject significant assets into state budget but also in the company itself. Investment in cash or equipment, or even constructon of new power generation facility could be bring Serbia huge benefits.

It might be best, that we govern ourselves by EPS, which needs a good internal reorganization and good management to become profitable and healthy company, without overstaffing, which will itself, without privatization, make investments in new capacities, because there are plenty of opportunities for it. These are the key messages from local experts.

Serbia Energy business consultants for energy and mining sector are confident that partial privatization, like in case of Montenegro EPCG Power utility and TSO co, could be savior for state budget. Partial privatization could inject significant assets into state budget but also in the company itself. Investment in cash or equipment, or even constructon of new power generation facility could be bring Serbia huge benefits.

Serbia should build and work everything by itself. There are many models according which the company could not do it by itself, and that the government does not borrow, only smart people should sit down and agree on how to do that.

Change of the company ownership means nothing and it is not a guarantee that the company will be profitable. If you have a quality management, it does not matter whose property is, whether public or private, there are a lot of government and private companies, that with good management, have good business results.

The potential benefits from the sale of a minority EPS part was a small recovery in the budget and that the money would be  “melted” in a few months, and reiterated that EPS privatization carried a lot of risk.

The question is who might be interested immediately to recapitalize or purchase part of EPS, as energy companies in Europe are not very willing to invest in new acquisitions and capital investments. Still some part of JV special arrangement could be found with Chinese, Arabic or Russian financial partners, some say many of them are not even energy business companies.

At one point the EPS recapitalization seemed like the best solution and this concept at the first moment, looking on business, looks as good, but hides many risks and pitfalls, why, he said, serious and intelligent people group need to deal with it.

Before all that EPS had to be incorporated and go out on the stock, in order to determine the true company value.

It is probably that also now EPS value is underestimated, and we should not rule out the possibility that some “big players” who are interested in EPS, will play to further underestimate EPS value in order to come up with cheaper shares in the company, as the first of the risks to which it might occur during the privatization process of Serbian power company.

The biggest might be the psychological benefit, as within the company the employees’ approach to work would be changed and redundancy reduced, because now this company, he said, employs whom it want and how it want.

The challenges were in front of EPS, such as outdated power capacities, need for new technology introduction and the construction of new generating capacities, as well as sustainability issues because of environmental pollution.

As other risks, as a minority partner in EPS, through investment, accounting, “for the moment” could become the majority EPS owner and then situation became very serious to consumers, because the electricity price would become much greater. If foreign partners who dictates management comes, the prices will go very high, and we can become a market for selling someone else’s electricity, There is another possible risk of EPS privatization. The fact is that no one would come to Serbia to make a profit and leave it here, but that the profit would go outside Serbia.

Source; Serbia Energy