Serbian water potentials pearls awaiting new investment partners, Ljubomir Aksentijevic, Special Advisor to the Minister of Energy

10. June 2013. / Uncategorized

A country that seriously thinks about its future does not concede its hydropower resources to strangers and that is the rule, but it doesn’t mean that there are no exceptions. – The price of electricity is an important factor; therefore, we have started the process of a gradual adjustment

In recent years, various governments have adopted more than 100 strategies, and there only a few of them which didn’t experience the “destiny” of the strategy of the energy sector. For twenty years, none of all energy sector strategies has made a crucial impact because no new energy facility has been built – says in the interview for “kWh” Ljubomir Aksentijevic, Special Advisor to the Minister of Energy, Development and Environmental Protection, highlighting the importance of the adoption of a realistic energy sector strategy.

Although he agrees with some assessments pointing out that the energy sector development has so far been undertaken rather in a spontaneous and disorganized manner, he also thinks that we must not ignore the results of the rehabilitation of existing electric power facilities.

– When we take into account all modernizations, especially in the electric power sector, we may say that we “practically” got a new thermal power plant, but it still doesn’t mean that the aim of the strategy was achieved – says Aksentijevic. It can’t be disputed that the rehabilitations were made in the best interest and that these facilities have contributed to the security of electricity production.

What was so spontaneous in the approach to energy sector development?

A large number of protocols and memoranda of understanding have been signed, even two or three concerning the same facility. Maybe someone trusted a strategic partner who proved to be inadequate or thought that signing those memoranda would enhance political and economic relations. To be honest, there were some marketing tricks as well. None of these documents is mandatory, except that in some cases each party shall bear its own costs of the preparation of studies. At the moment, several feasibility studies must be redone.

Why?

Some of them were made based on the methodologies of potential strategic partners who ordered their preparation. These studies do not correspond fully, either legally or formally, to our conditions. The study, as a legal obligation of “Electric Power Industry of Serbia”, has to be reviewed by competent authorities, whose assessment is a basis for investment decision. One of the examples of the aforementioned is the study on electricity meters that has to be redone. It is not absolutely clear on which basis the European Bank for Reconstruction and Development approved the loan. Given that the study is inadequate, the bank should not charge the fees for unused loan, which in this case have reached one million euros. What would we do if a new study shows that these meters are not needed at all? A lack of action has created costly burdens. At the national level, such costs have reached astounding amounts. One of the ideas is that the Government of Serbia should forbid the entities which haven’t used their existing loans from applying for new ones. We have to be responsible, and by that I don’t mean to directly criticize EPS, but to point to a general principle. We are not looking for the culprit; however, it is necessary that everyone takes responsibility.

You recently said that we must not surrender the natural resources to foreign capital. How to prevent such a scenario?

In the world there are several theories about the role of foreign capital in the development of an economy. Some international financial institutions are trying to convince us that the development is impossible without foreign capital, which is somewhat true, but not absolutely applicable to all industries. In this respect, we may cite a famous Slovenian economist who wonders why international financial institutions advise us to base our economic growth on foreign capital and privatization, while they have developed their own economies on the basis of budget deficit and not on the policy they promote. However, this is an extreme attitude. A right attitude would be a mixture of theory and practice. In my opinion, the role of foreign capital is reflected in processing industries, where the the foreign capital brings “know-how”, stimulates exports and creates new employment opportunities. Selective use of foreign capital in the areas related to the exploitation of national resources is a separate issue. The hydropower sector depends on the potential of rivers, rainfall or, namely, on the laws of nature. Hydropower potential cannot be exploited in 10 locations at the same time, but only where it really exists. We cannot move a river or coal mines, but we can build gas plants at the location provided with a flow of gas, which hasn’t to be locally produced.

Why is it so important not to give up our natural resources?

A country that seriously thinks about its future does not concede its hydropower resources to strangers and that is the rule, but it doesn’t mean that there are no exceptions. In April 2004, we adopted the Strategy of optimal exploitation and sustainable use of natural resources. That document has apparently been forgotten. The strategy is clear and stems from the United Nations declaration on human rights which says that the basic right of a nation and a human is that the people who live on certain territory take charge of the way in which existing resources are exploited. The right of exploitation and giving concession for the use of mineral resources, forests and water is a sovereign right of the citizens of Serbia that must be exercised through the Serbian Parliament and according to laws.

Will we then be left without resources?

If our box of family treasures is not yet empty, it is badly truncated. Of all precious jewels, only a few pearls have remained. Drina and Danube rivers still have potential as well as some smaller water streams. For that reason, we must carefully consider all aspects before according the right to exploitation over any resource.

Are we capable of that?

We owe that to future generations. That’s why the strategy is necessary. The Ministry is aware of inherited obligations of the state, but we are trying to overcome the problems through dialogue. If necessary, in some cases we could accept a model of strategic partnership, giving up a minority stake, but we must provide a strong reason for justifying such a decision. Proponents of the venture would have to present arguments before the Assembly and explain why it would be of national interests. In case of coal, we could consider 50/50 partnership model, i.e. we would give coal and a partner everything else. Gas reserves are for now in “NIS” and “Gazprom Neft”, but in a few years thanks to “South Stream” pipeline we will have as much as 5 billion cubic meters of gas per year. But the question is whether and how much we need gas-fired power plants. They need to be constructed provided that the price of energy produced in them is adjusted by our purchasing power parity. Partner has to take into account the input price. The truth is that these plants are working faster, but nevertheless the energy produced in this manner is more expensive, serves to fulfill peak demand or to export. The decision on our participation in these projects should be made on the basis of a typical cost-benefit analysis. We must preserve water and forests for our grandchildren. We don’t have substitutes for water resources, nor forests. The main responsibility is to keep in mind the future of generations to come and protect the national interest, which is not purely economic. The question whether we would get a good price for kWh is not of a decisive importance, it matters more who would use our water and forests. These resources shouldn’t be privatized because they belong to the citizens of Serbia. Government, ministries, political parties and management who are not capable of acting in the best national interest, do not perform satisfactorily the task entrusted to them.

It is often said that the price of electricity is the main reason for lack of investment. Is that completely true?

It is only partially true. Electricity price resulted from a feasibility study does not take into account market conditions, i.e. who would purchase electricity and in what quantities; it actually reflects the structure of a project. From the point of view of investor, return on invested capital is the key criterion, regardless of whether they run a chocolate factory or hydropower plant. However, we do not opt for that kind of strategic partner.

What kind of partner would suit us best?

We need a similar large company that sees electricity production as a potential and is willing to capitalize on it. Therefore, what we need is a combination of investment logic and a complementary way of thinking about the industry. Such partners are hard to find, but they exist. The negotiations are in progress and I hope that we soon will be able to see the first results. The status of co-owner of a power plant grants a strategic partner right to buy electricity in advance, share “know-how”, sell electricity together with us and use joint capacities.

Yet, foreign investors most often claim to be discouraged because of the low price of electricity in Serbia?!

The price of electricity is an important factor, and in that respect we have started the process a gradual adjustment. In order to be able to “digest” higher price, the industry should have an efficient production technology, which requires a huge investment. And it may take two to four years. The price shocks have to be prevented and the citizens and companies need not to be afraid that the electricity price will skyrocket overnight by 60%. No one would ever do that.

Will EPS soon be able to become a profitable company and, with earnings from higher electricity price, independently finance some projects?

It certainly will. The assumption that a company has to be financially strong in order to be able do build new capacities is false. Moreover, all restructuring processes are in line with EU standards, but they take time. Every change has to be adapted to social and political realities. Neither can the Government of Serbia, nor the management now declare the 23rd century, and skip everything in between. It is necessary to constantly move forward in the right direction, in accordance with the conditions provided by the institutional setting. The reform of EPS isn’t possible without involvement of the employees. It is not logical to say “from now on everything will change”. Without consent of the employees to follow the new strategic direction, as well as harmonization of all social, economic, technological and political aspects, no management would be able do implement changes.

The employees have to play this “game”

How to explain the necessity for reorganization?

We have to explain that things that must be done are not only a consequence of the decision of the Government or the management of EPS, but that they actually stem from EU directives, the Energy Community Treaty and the Energy Law. As we want to become a member of the EU, we have an obligation, which has already expired, to adjust some things. We cannot put in doubt our own laws, nor EU laws. We must not go with the flow. It is necessary to advance, encouraging communication at all levels of management, and to explain to the employees their status, compensation policy, strategic direction, as well as what they will gain or eventually lose in this process. Thousands of people do not understand what is happening. They wait and watch the football game, instead of playing it.

Source;Kwh

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