It was obvious that there would be problems in the Electric Power Industry of Serbia, says the president of the Fiscal Council, Pavle Petrović, adding that he had been warning about that since 2019. However, as he says, he did not expect a collapse of such proportions in the thermal power plant “Nikola Tesla” (TENT) in Obrenovac.
Petrovic said that an analysis of EPS’s business was done in 2019 and that recommendations were given for reform and increased investments.
On December 12 this year, the production of electricity in TENT was stopped and about 130,000 citizens were left without electricity due to low-quality, muddy coal that was used for heating. The thermal power plant did not have enough fuel oil in its reserves to speed up the combustion of coal. Due to the intervention import of electricity, extraordinary costs were made, which are measured in tens of millions of euros.
Petrovic said that the analysis at the end of 2019 determined that the quality of coal is “obviously” decreasing and that this should be kept in mind when drafting a business strategy according to EU requirements in the transition to non-fossil electricity sources.
“By analyzing the business at the end of 2019, we determined that investments in EPS are insufficient and that they are at the level of depreciation, even in some cases below that level,” said Petrovic.
He added that the opening of new coal discoveries was delayed and that there was a “compression” of salaries, ie that they were on average high, and that they were low for professional staff.
The Fiscal Council warned that EPS is at a turning point and that a strong turnaround in the company’s business and the urgent launch of a new, large investment cycle of five to six billion euros is necessary.
“Until the beginning of the 1990s, Serbia had a well-established electricity system, and EPS had a large surplus of production capacities in relation to the country’s electricity needs at the time. That surplus enabled it to cover the growth of domestic consumption in the previous thirty years without any major problems, although in that period they did not invest enough to preserve the existing production capacities,” the analysis states.
As it was pointed out, these investments should be the basis of the country’s energy stability, but also a precondition for the successful operation of the company itself, which is facing a gradual loss of market share due to the entry of other producers into the market.
Decline in production
The Fiscal Council also warned that long-term investments below depreciation are beginning to take their toll, that EPS’s electricity production has been declining in the last five years and that in 2018 it was about 3,000 gigawatt hours (GWh), or eight percent less than in 2013.
A more detailed analysis showed that behind this reduction in production are not one-time factors, but primarily systemic problems of the company due to which it could not provide sufficient quantities of coal needed for electricity production.
In addition, frequent production delays for various reasons have already slowed Serbia’s overall economic growth on several occasions. Thus, the problems in the production of EPS in the first half of 2017 brought down the growth rate of gross domestic product (GDP) in that year by 0.2 – 0.3 percentage points, and the negative impact on economic growth was repeated in the second half of 2018.
The problem of EPS is excessive labor costs
Another consequence of EPS’s poor investment policy until 2019, as shown by the analysis of the Fiscal Council, is that no plant at that time met all national and EU environmental regulations, so the company is individually the largest polluter in Serbia and one of the largest air pollutants in Europe, as its thermal power plants are at the top of the list of plants with the highest emissions of pollutants.
“In 2016, EPS released more sulfur dioxide than all lignite-fired thermal power plants in the EU combined, although its electricity production is more than ten times lower,” the analysis said.
It is added that the estimate, when taking into account the expected growth in electricity demand in the next five to ten years, is that EPS will lack capacity to produce over 5,000 GWh of electricity per year.
It is pointed out that the biggest problem of EPS is excessive labor costs, due to redundancy and inadequate structure of employees and generous salary system, so the most important reform task for that company is to provide strict control over expenditures for employees and prepare appropriate job systematization.
“The total distribution losses of EPS are among the largest in Europe and there is a huge need to reduce technical losses on the network and theft of electricity to an acceptable level. In order to provide funds for investments, EPS should be allowed to gradually increase the price of electricity,” the analysis states.
It was also pointed out that “a specific problem in the last few years is the significantly large payments of EPS to the republic budget, although there are not enough funds for their own successful business,” BiF reports.
