The recent visit of the director of the Secretariat of the “Energy Community”, Janez Kopac, confirmed that there is constant pressure from the EU to “separate activities”, in this case the purchase and distribution of gas, as well as to separate the production and distribution of electricity.
This process is unfortunately approached spontaneously; splitting public companies is not easy, it leads to increased administration (various management functions are multiplied) as well as to high costs (development of new information systems, etc.). In this text, we will show with concrete examples that this process, apart from generating chaos and additional costs in the functioning of once unique companies, did not provide (at least currently, but in the foreseeable future) end users-consumers with lower prices or better services.
Railway crash
Zorana Mihajlovic stood out in forcing the hasty splitting of public companies. When she became the minister in charge of traffic, she insisted on the urgent division of the railway, by separating three new companies from the motherland – that is how the Serbian Railway Infrastructure, Serbia Train and Serbia Cargo were formed. The railway network belonged to the Railway Infrastructure, and the remaining two companies are engaged in the transport of passengers and goods, while the railways have become “open” to competition. The World Bank was also involved in the project, which partly financed a foreign consultant who devised the division concept. It is interesting that the World Bank still boasts of its contribution to the “successful” transformation.
The truth, however, is far from it – the newly established railway companies have not become any better and more efficient than the former single company.
It can even be said that the situation is worse, since the railway still swallows 128 million euros of annual subsidies from the budget, although the number of employees in “production” has been drastically reduced (but increased in the administration) by abolishing over 800 kilometers of railways. The economy and citizens did not notice any improvement in services, on the contrary: the railway network was reduced, so many parts of the country were left without railway traffic.
The real nonsense arose around the regulation of relations with creditors; three companies were separated from the single company, but workers’ lawsuits for unpaid income remained unresolved. Workers’ lawsuits against the parent company followed, which was left without cash inflows, but with a part of the property. The executors started selling the apartments and business premises of the Railways, as well as other suitable property, so the railway institute CIP was on sale, which in that “excellently performed restructuring” remained hanging as a dependent company of the Railways AD.
There has been a lot of public noise about the sale of CIP – of course, it is nebulous that one of the two large state institutes dealing with the design of railways and roads is being sold at auction. Finally, in order to prevent the sale, the state urgently changed the Law on Public Property, where a nebulous provision was introduced that enforcement cannot be carried out on subsidiaries of a public company.
Such provisions of the law only introduce uncertainty into the legal order, because they make it difficult for creditors to collect (which will eventually come with new costs). This scandal occurred after the division of the railway was carried out amateurishly and quickly, without taking into account that creditors, including workers, could not be tricked.
Even without the division of the railway, several private operators for the transport of goods or passengers could be introduced on the market, with the appropriate regulatory role of the Railway Directorate, which would prescribe the price of using the railway infrastructure to be paid by private individuals.
This is how the nonsense was made with the three newly formed companies, with the corpse of the queen that remained “hanging”, and only the administrative costs and losses increased, although over 800 km of railways were abolished and the number of workers in “production” was reduced.
A key indicator of the failure of railway restructuring is that no one today can say that railway services have improved; only chaos has increased, and the state continues to pour subsidies into its operations. The situation in the railway after the division is also shown by the fact that Miroljub Jeftic, one of the key people of Zorana Mihajlovic, the director of the Railway Infrastructure Company, was arrested for accepting a bribe of 15,000 euros.
Another split of EPS
At the beginning of the year, the distribution to a separate company was quickly separated from EPS. Although it was celebrated as a success, with the self-praise of Zorana Mihajlovic as the new Minister of Energy, the work is far from over. Outside consultants continue to work to end the division and avoid litigation.
At the same time, it is not at all clear why EPS is splitting at the moment, unless there is an intention to privatize either distribution or production. Instead of one well-established and powerful system, the state got two companies that will be torn down with division balance sheets and all the other problems that division brings.
In addition, a new information system for distribution will have to be created again, as well as the existing one will have to be adjusted (over ten million euros have already been invested in the EPS information system). The only indisputable result is that the companies that deal with the introduction of the SAP information system are rubbing their hands, because only on that basis will they collect another ten million euros.
If the formation of Elektromreza enabled new “players” to appear on the market, at least symbolically, that cannot be expected from the splitting of EPS into production and distribution, since there is no technical possibility to form competition in electricity distribution.
Will it be better for anyone in Serbia that distribution has become a new company or if there is competition in the low voltage network? Hypothetically, because it is technically impossible.
It is no secret that the new division of EPS was forced by Zorana Mihajlovic, who started to force the division of activities as soon as she replaced the traffic department with energy. Such pressures also existed in the early 2000s, when the transmission system was separated, but it was (quite correctly) decided that EPS should remain as a single system for the production and distribution of electricity.
Of course, it is not difficult to conclude that it is better for the state to have one powerful electric power company, instead of two “halves”. A large and powerful company can more easily finance the huge development needs that EPS has; instead, this year will be spent making new balance sheets and regulating relations with creditors.
By the way, we should not forget that Minister Mihajlovic, at the time when she was the Minister of Energy (from 2012 to 2014), promised the “corporatization” of EPS, which should lead to the company operating profitably. At that time, she did not mention the separation of distribution into a separate company. For now, “corporatization” has been abandoned, and division has come to the fore.
The war between Bajatovic and Mihajlovic
The next target of Zorana Mihajlovic is Srbijagas, which should be divided into a company for trade and a company for transport and distribution of gas. According to the Minister, the allocation of the distribution network would enable a “third” company to sell gas to consumers.
At the same time, she does not mention that this is already possible, since Srbijagas enables the import of gas from abroad, with the payment of a certain transport fee, which is determined by an independent regulator. Precisely because of that, it is not clear what kind of improvement would result from the allocation of distribution, with the cessation of practically micro-enterprises that will deal with the supply of gas. The division of Srbijagas is complicated by a series of contracts and several mixed companies that the company has with Gazprom as its main gas supplier.
For now, the management of Srbijagas is obstructing and ignoring the threats it received from the ministry. Of course, we do not intend to “defend” the behavior and obvious obstruction of Srbijagas director Dusan Bajatovic in this text, who made huge mistakes in running that company, but the fact is that at this moment that division has no real justification.
By the way, it is interesting that Zorana Mihajlovic is constantly conducting a huge personal PR campaign which presents herself as energetic and efficient, but a simple insight into the ministry’s website shows how empty these phrases are.
Apart from countless news with her photos, the site lacks basic information about who is in charge. Thus, we cannot find out the names of all assistant ministers, nor find information about who the state secretaries are.
By the way, the minister “transferred” not only the former state secretaries to the new department, but also picked up several assistant ministers. If, in accordance with the law, the Secretary of State is already a “political person”, the assistant ministers should be professionals. However, that cannot be said for her staff. Let’s just mention that Miodrag Poledica, who was arrested with Jeftic in the affair about accepting bribes, was also brought to the position of State Secretary in the energy department from the Ministry of Transport.
The division of any company, not just a public one, is a daunting and often tedious job. The procedure is somewhat reminiscent of the divorce of a long-term marriage of a wealthy family, because many common goods are shared, and that is not easy at all in life.
The key reason for the splitting of large systems is the blind implementation of “EU directives”. The EU insists that the allocation of the infrastructure of public companies to special legal entities will increase competition on the market and facilitate the entry of private operators, in order to form a market instead of a monopoly.
In principle, this cannot be objected to; the only problem is that in a poor economy like ours, it does not work, but on the contrary, it leads to the creation of chaos due to division, with increased administration and, of course, higher costs.
Where the division has taken place, there has been no real competition, nor can this be expected in the near future. Even where it was easiest to expect (the electricity market), private suppliers do not provide more than a few market estimates.
The division of EPS and Srbijagas is being pressured by the Energy Community, a voluntary association of the countries of the “region” (with Ukraine and Moldova), with the threat of some “sanctions”, ie the loss of the right to vote. Both threats are completely insignificant, because it is an organization from which Serbia can withdraw at any time without any damage.
Today, Serbia is at best ten to twelve years away from EU membership. Neither now nor in the foreseeable future, there is not a trace of desire for enlargement to any country in the Western Balkans, due to the huge internal problems of the Union.
If the EU would still insist on splitting public companies for the final “closing of chapters” or “clusters”, Serbia could do so at a time when EU membership is certain, in the short term. However, today, it is extremely illogical to hurry with that under the pretext of European integration, since that only increases the administration and creates new costs. And where this has already been done, it should not be forgotten, there was no improvement for the end users.
At this moment, it is incomparably better for Serbia that, instead of splitting, public companies, through the active action of regulatory bodies, open their infrastructure parts to third parties, in order to introduce competition. After the division, the regulatory bodies determine the business conditions of the company that manages the infrastructure. Why couldn’t all this work nicely without division and all the costs and problems it brings? – Nova Ekonomija reports.
