- 1 ton of oil ~ 6,29 barells x 60 $ = 377$ or 343€ (1 € = $ 1,1),
- 5 tons of lignite x 15 € = 75 € (in BiH 1 ton of lignite is extracted for 15 €).
We want to be partners with EC and contribute the transformation of the energy sector and further European integrations, but EC has to stop acting like a silent accomplice in the process of robbing of minority shareholders...
We have no dilemma that the future lies in decarbonisation and "green" or renewable energy sources (RES), but we do not want to silently observe this transition taking place at the expense of the poor in the Balkans and in favour of rich energy lobbies...
In the Republic of Srpska, we have a unique case where companies with a guaranteed regulatory return on capital are operating with losses, while in market conditions they would make millions in profits. On the other hand, privileged entrepreneurs are allowed to make enormous gains, and they would not survive in the market competition for a single day...
It is necessary to investigate how the "Parent Company MH ERS" made a profit of 33 million BAM while the 10 subsidiaries operated with a total loss of 20,594,856 BAM...
Energy lobbies persistently advocate that BiH, Serbia, Montenegro and Macedonia should follow the Croatian policy of stimulating the renewable energy (RES) producers, but the example of Croatia shows us that citizens needlessly subsidize international RES industry with 250 million dollars annually, while the state is becoming a loser...
As announced at the Great Regional Small Shareholders' Conference held in July this year at the Hilton Hotel in Podgorica, recently the "Energy Sector Minority Shareholders Association" from the territory of Republika Srpska was formally registered...
Dear Mr Kopac,
We are writing in request for your assistance and cooperation with respect to your statement given at the “Energy Summit - Trebinje 2020”, to the effect that you are willing to help minority shareholders in “Elektroprivreda Republike Srpske”.
It may seem strange that we are writing after almost 8 months after your statement, but before we addressed this request to you, we wanted to introduce ourselves in terms of our work and to familiarize the wider public with the complexity of the problems related to the energy sector. It is not pretentious to say that, in a short period of time, we have earned good reputation and have received large attention of all the stakeholders in the energy sector.
Minority shareholders organised through the “Energy sector minority shareholders association” gathers together more than 10% of ownership (the state being the 80% owner) within the all subsidiaries of the “Mixed Holding of the Energy Industry of the Republic of Srpska” (hereinafter: “MH ERS”) and are advocating for their rights and better transparency of the management’s work.
According to the Statute of the parent company ”MH ERS” (Article 133), its work is public, but the financial and audit reports of its business operation have been hidden from the public for years. Pursuant to Article 9 of the statute: “Parent company coordinates and runs, together with the competent Ministry, all the activities that are related to the structuring of the energy industry sector in the Republic of Srpska, as well as those related to the status and position of Elektroprivreda RS in wider surroundings.”
Only after our public criticism, MH ERS published the financial reports, yet without the management’s notes and explanations, so they continue to perform their business activity in an utterly non-transparent manner.
For the sake of your full understanding of our position and the circumstances in the RS energy sector, we are providing the chronology of events:
The ”first robbery“ of the minority shareholders of ERS distribution companies occurred at the time “Elektroprenos BiH” was formed in 2005, when a large value in civil engineering facilities and equipment was taken out from distribution enterprises (public trade companies) without compensating the minority shareholders. For example, pursuant to the balance sheet that you can find on the Banja Luka Stock Exchange link, it can be seen that the value of equipment for “Elektrodistribucija Pale a.d.” (AOP 12) was reduced from 81.718.064.BAM to 37.137.462 BAM, while the value of civil engineering facilities for “Elektrohercegovina a.d.” (AOP 11) was reduced from 64.198.979 BAM to 37.253.528 BAM, etc.
We know that you were not part of that process (because EC was established in October 2005), but the same occurred as the result of separating functional entities on the basis of international agreements, hence we allow ourselves the right to say that EEC does, after all, bear moral responsibility for the sustained legal violence, since it never at least criticised this unprecedented process.
Now, the “second robbery” of five distribution shareholder companies is in progress, which should be achieved through separating ”supply business” and transferring all the customers into an “LTD”, 100% owned by the “Parent company MH ERS”, again without compensation of small shareholders, as it has been explained in an interview for the portal capital.ba. Currently, small shareholders own 20% of “distributions”.
This time EC had to act critically and insist process to be done in a proper and legal way.
The “third fraud” against minority shareholders has been described in the “Public release regarding the Mixed Holding ERS result announcement” from 8 May 2020. It is reflected in negative business operation (and negative return on capital) of the subsidiary shareholder companies of “MH ERS” (-20,6 mil. BAM) while the “Parent company MH ERS“ operates with large profit (+33 mil. BAM)!? Short financial report was finally published under our pressure, but we have not received answers to our questions submitted in writing.
Simply speaking, “Parent company MH ERS“ monopolistically trades with cheap and regulated electric energy, produced by subsidiaries, resells it at a higher prices, thus unfairly making profit instead of subsidiary shareholder companies! A typical financial fraud or money tunnelling scheme through transfer pricing. As the market is gradually getting liberalised, this illegally gained profit will be all the greater.
The sole activity of a “holding“ should be managing the subsidiaries, but not in a way to make profit by tunnelling money out of subsidiaries which are publicly traded companies ! Profit has to remain with the subsidiaries (which, today, are doing business with zero profit in the best case, or making a huge losses). It is important to stress that “MH ERS” is a holding, not a concern.
Purchase price of electricity for each of the five shareholder companies ( “HE Drina“, „HE Trebišnjica“, „HE Vrbas“, „RiTE Gacko“ and „RiTE Ugljevik“) within „MH ERS“ is regulated separately. Relative ratio of approved prices reaches up to 1:2 ! For example, for 2020, the planned approved prices for “HE Drina” is 3,35 pfKM/kWh and for „RiTE Gacko“ 7,53 pfKM/kWh. At the same time, for example, for „HE Stanari“ the price of electricity has not been regulated, which is discriminating.
In the electric industry of RS, another illogical and partly illegal situation has been thought out, and the new, “fourth robbery” of minority shareholders is on the horizon.
Namely, “Parent company MH ERS“ is planning to use the counter-legally acquired money from dependent enterprises (it would be logical to invest the capital collected through dividends received from subsidiaries) in order to build a huge solar power plant, and to sell electricity at prices which will guarantee huge return on capital as described in our article (minimally 13,5%). On the other hand, subsidiaries which produce electricity will take over the burden of balancing (without any compensation for this service) production from the solar power plant (and other OIE), while operating the business without return on capital, or, with negative return on capital!
We kindly ask you to use your authority to influence the actions of the “Parent company MH ERS”: (five power plants and five distribution companies) with the aim of transitioning to a fair and market-oriented business operation, thus preventing the intention of fraud and theft of minority shareholders.
Responsible corporate behaviour and transparency is in the interest of all, both small shareholders and all the citizens of the Republic of Srpska, because the same are also majority owners of “MH ERS”!
Believe it or not, a provision has been incorporated into the subsidiaries statutes, under which representatives of the state capital act only in the interest of majority shareholders and in common interest (which means state interest) , not all the shareholders, which is illegal, unconstitutional and unprecedented in corporate history. We quote: “Members of the Surveillance Board, nominated before the Parent company, are obligated in performing their functions to consistently represent common interests, interests of the Parent company and the Mixed Holding “Elektroprivreda Republike Srpske”…”
We kindly ask you, in relation to the “second”, “third” and planned “fourth” theft of minority shareholders exposed in this letter, that you contact responsible persons in the Republic of Srpska.
We also ask you to contribute to a fair energy transition, described in our recent article “Is a fair energy transition possible in the Republic of Srpska and the region?” in the interest of all, and particularly to the losers of transition.
Also, the way how our poor countries are subsidising the rich west is precisely described through our article ”Superciuk”.
At the very end, it is unacceptable for EC to cooperate with someone who openly conducts legal violence against minority shareholders and breaches the fundamental postulates of corporate governance and market economy.
We want to be partners with EC and contribute the transformation of the energy sector and further European integrations, but EC has to stop acting like a silent accomplice in the process of robbing of minority shareholders.
Since our work is fully transparent (unlike ”MH ERS”) this letter will be published via our web site.
Looking forward to hearing from you, please accept my warmest regards,
On the behalf of the Council of “The Association of minority shareholders of the energy sector”,
We have no dilemma that the future lies in decarbonisation and "green" or renewable energy sources (RES), but we do not want to silently observe this transition taking place at the expense of the poor in the Balkans and in favour of rich energy lobbies.
In the past, lignite was considered as a gift of nature in BiH and Serbia. Lignite was domestic oil. One ton of oil is the energy equivalent of 5 tons of lignite. The calculation is quite simple:
The calculation shows that in a terms of energy, "bh oil" is cheaper than real oil by about 80%. It does not require spent of foreign currency, and at the same time this industry creates a large number of jobs.
The European Union (Energy Community) is unquestionably preparing the ground for the closure of coal-fired power plants in the region. When producing 1 MWh of electricity in a thermal power plant, 1 ton of CO2 is produced. The current price of CO2 emissions is approximately 30 euros / ton (growth trend is planned). If our TPPs now accept the obligation to pay for CO2 emissions (30 euros / MWh), this would almost double the price of electricity and lead to the unprofitability of thermal power plants, and they would go bankrupt.
This process has already started quietly and through the back door, and as of recently in Montenegro CO2 tariffs are paid on 1/3 of the total production of TPPs in Pljevlja (24 euros per ton).
Is it possible to fairly reconcile the requirements of the EU (closure of an entire industry, which brings the loss of thousands of jobs with the loss of capital for the state and small shareholders in TPP) and the legitimate interest of the citizens of the Republic of Srpska and the local community? Yes! It's possible.
It must not be forgotten that Thermal Power Plants in the Republic of Srpska (BiH) are joint stock companies that have their own capital. When a political decision is made in Germany to close a coal-fired thermal power plant, the damage is compensated, and we should also look at another example from Germany, TE Datteln.
We point out three possible scenarios for the closure of coal-fired power plants in the Republic of Srpska (and the same can be applied to Montenegro and Serbia).
The first model. EBRD („EU“ or a third party) buys out significant stakes in mines and thermal power plants and gradually shuts them down in real terms over time, paying fair compensation to workers and the community. And they can get a concession for a solar power plant on the surface of the mine and TPP.
The second, fairest model.
If citizens are going to pay incentives for expensive electricity from renewable energy sources (RES) and if Thermal Power Plants in RS (BiH) will pay a fee for CO2 emissions, then part of those funds should be returned to thermal power plants - joint stock companies to compensate for the losses.
For example, if a mine and a thermal power plant of 200 MW have a capital of € 200 million, a dedicated "fund for compensation of workers and construction of RES" should be established within that joint stock company. Part of the incentives for RES and CO2 emissions would be returned to this earmarked fund. After a number of years, the value of this fund would increase to a sufficient amount to compensate: workers (for severance pay because they lose their jobs), capital (old megawatts from coal-fired power plants are replaced by new "RES megawatts" in the amount of € 200 million) and the local community.
If the first or second model is not the option, than the third, "black scenario" is certain, so citizens will pay incentives for expensive electricity from RES and that money will go corruptly to privileged individuals, which we wrote about in the article "about return on capital". It means that our poor citizens will finance the rich industry of RES in the West through incentives, which we wrote about in the article: Do the poor peoples of the Balkans finance the rich West - "Superhik", explained by negative example in Croatia.
The result of the third "black scenario" would be enormous losses of mines and thermal power plants due to agreeing to pay the CO2 emission fee, for example, as in Bulgaria (in just one year, “TPP Marica East 2” made a loss of € 435 million). The financially exhausted state will then be forced to send mines and thermal power plants into bankruptcy in which scenario workers will remain "short-sleeved" as well as shareholders (the state owns 80%).
The message of this statement is that, without reasonable and fair negotiations with the Energy Community (EU), the citizens of the Republic of Srpska and the Region will face a disaster. They will run out of valuable resources and will keep paying expensive electricity.
Although BiH emits only 4.5 tons of CO2 per capita comparing to developed countries who emit more than 15 tons of CO2 per capita, its poor citizens will subsidize the Western RES industry through incentives, and in addition credit it with our savings so that their banks could also make a profit.
Only privileged investors in the RES sector and related management, as well as corrupt structures will fare very well financially.
The policy of the RES sector must be in the interest of (the citizens) of the Republic of Srpska, ie the countries of the region. Articles of this type, advocating for the well-being of the community, are a real rarity. On the other hand, the RES sector has huge direct incentives (eg in Croatia alone more than € 250 million per year). Due to huge incentives, they have huge influence, so they have an impact on the media, associations, portals, symposia, scientists, "commissioned studies", …
The citizens pay incentives, but no one stands up for them. This article attempts to advocate for the interests of citizens, shareholders and local communities.
UMAES Council Member
Regulatory / guaranteed return on capital, as a category, was created to prevent companies which by their nature have a monopolistic character, from abusing their position and making enormous profits.
In the Republic of Srpska, we have a unique case where companies with a guaranteed regulatory return on capital are operating with losses, while in market conditions they would make millions in profits. On the other hand, privileged entrepreneurs are allowed to make enormous gains, and they would not survive in the market competition for a single day.
Namely, the Energy Regulatory Commission of the Republic of Srpska approved the return on capital to the regulated activity of the subsidiaries of the "Mixed Holding of the Electric Power Industry of the Republic of Srpska" (hereinafter "MH ERS") in the amount of 2-3.5%.
Due to poor policy and management, the total return on capital (ROE) in the subsidiaries "MH ERS" is negative. In 2018, ROE amounts to -1.064% (loss of capital of KM 37.4 million), and in 2019 -0.659% (loss of capital of KM 22.9 million). See Table 1.
Subsidiaries of "MH ERS" are continuously impoverished while all electric power companies in the region operate with a positive return on capital (Croatia (HEP) ~ 5%, Montenegro (EPCG) ~ 4%). Even "Elektroprivreda BiH" has a positive return on capital: 1.657% (in 2018 profit in the amount of 49.2 million BAM) and 0.678% (in 2019 profit in the amount of 20.1 million BAM).
At the same time, some "privileged entrepreneurs" are guaranteed a rate of return on their own funds of 13.5%. The calculated rate of return on borrowed funds is 6%, while the structure of equity and borrowed capital is set at 20%:80% (See "Decision on the amount of guaranteed purchase prices and premiums for electricity produced from renewable sources and efficient cogeneration" of REERS from July 6, 2019).
As can be seen from Table 2, the actual return to privileged entrepreneurs ranges from 21.5% up to 29.5% depending on the interest rate they pay on borrowed funds (market research confirmed that money can be borrow at about 4% from domestic banks, while international financial institutions lend to such projects with about 2%).
The data that REERS states about the weighted return on total committed capital of 7.5% is just a mere statistic that hides the exact calculation which clearly shows that privileged entrepreneurs earn up to 30 pf a year per invested 1 BAM, or an enormous 30%.
Recently, the Government issued a Decision granting a concession to "EFT International Investments Holding Limited", based in London, to build and use a solar power plant.
We propose to immediately suspend any new contracting of guaranteed purchase prices and premiums for electricity produced from RES (renewable energy sources), as these guarantee outrageous earnings to privileged individuals for risk-free operation.
If someone wants to produce electricity from renewable sources, let him do it on the market without the right to mandatory purchase and let him balance that production himself. In our author's article, we wrote about the failed RES policy in Croatia, and now an even worse model is being created in the Republic of Srpska. At the moment, scandals and arrests are underway in Croatia due to privileges for private investors in RES.
In the next article, we will write about the possible fairer energy transition of coal-fired power plants in RS to renewable sources. If incentives for RES are introduced and charged from citizens, they must not be in favor of individuals but in the interest of the Republic of Srpska.
We hope that the Government of the Republic of Srpska will pay more attention to the preservation of capital in "MH ERS" and subsidiaries, and not to allow high returns of individuals. Our activities, above all, try to protect the state capital because the state is the largest individual owner in subsidiaries. However, our power as minority shareholders is limited. We will continue our activity using the power of arguments and analysis, but it is also necessary for the state to be more actively involved in this process in order to stop the impoverishment of dependent companies.
UMAES Council Member and Member of BoD of DUIF Kristal invest Banja Luka
The summary results of the "Mixed Holding of Elektroprivreda Republike Srpske" (hereinafter "MH ERS") for 2019, can be analysed through the financial reports of the subsidiaries published on the website of the Banja Luka Stock Exchange, and namely:
So, we are talking about a negative return on capital made in a regulated business where a return on capital is guaranteed.
According to an article published on ba.ekapija.com, the profit of the "Parent Company MH ERS" in 2019 amounts to 33 million BAM. According to the Statute of the "Parent Company MH ERS" (Article 133), the work of the same is public; however, the financial reports of its operations have been hidden from the public for years.
It is necessary to investigate how the "Parent Company MH ERS" made a profit of 33 million BAM while the 10 subsidiaries operated with a total loss of 20,594,856 BAM.
Article 357, paragraph 5 of the Law on Companies of the Republic of Srpska reads: "Affiliated companies, in terms of this law, are organized as a holding company when the parent company has exclusively the activity of management and financing of subsidiaries".
If the "Parent Company MH ERS" really made a profit, then it is necessary to return it to the subsidiaries of "MH ERS", otherwise it is probably an abuse of position.
The sole activity of the "holding" is the management of subsidiaries, so that the "parent company" must not make a profit by tunnelling money out of subsidiaries. Profits must remain with subsidiaries.
We cannot claim with certainty, but the conclusion is that the Holding made a profit through price transferring of the electric energy, to the detriment of subsidiaries.
UMAES will address the Holding with a request for publication of financial statements as well as a request for explanation.
Energy lobbies persistently advocate that BiH, Serbia, Montenegro and Macedonia should follow the Croatian policy of stimulating the renewable energy (RES) producers, but the example of Croatia shows us that citizens needlessly subsidize international RES industry with 250 million dollars annually, while the state is becoming a loser.
Croatian citizens, energy consumers, pay the fee for CO2 of 25-30 EUR/ton which is calculated in the price (this will be ignored here for simplification purposes, given that coal energy production in Croatia is insignificant) as well as the fee for renewable sources in the amount of 10,5 Croatian lipas per kWh (the so-called ”incentives”). In 2018, the amount collected for renewable sources amounted to 1.602.336.050 KN or 216.531.898 EUR.
The installed power of plants operated by “privileged producers” in Croatia, who receive incentives for RES is 829 MW.
Suppliers, mainly “Hrvatska elektroprivreda“ (HEP), are obliged to purchase all the energy from “privileged producers” at the price of 0,42 kn/kWh (56,7 EUR/MWh (Law on Renewable Energy Sources and Highly Efficient Cogeneration). This price is much higher than the market price, where cheaper electric energy can be found for approximately 25% less money.
In 2018, 2.480.952.380,95 kWh was purchased from “privileged producers” for the amount of 1.042.000.000 kn (140.810.810 EUR) – (source: Annual Report by Croatian Energy Market Operator for 2018. www.hrote.hr).
Therefore, calculation says that Croatian citizens pay slightly above 216 million EURO for “incentives”, as well as additional 35 million EURO through the difference in the price paid in relation to actual energy market prices, which in total makes 250 million EURO per year.
Nowadays, power plants (wind and solar) can be constructed at the price of about one million EURO per one megawatt of installed power. Currently, HEP is constructing wind power plant at the price of 1,16 mil. EUR/MW and a solar power plant at the price of 0,86 mil. EUR/MW, without any incentives.
The above given data indicate that Croatia and/or HEP could construct all the renewable energy sources built so far in the period of just 3,29 years, using the “stimulating” funds collected from citizens!
By far the largest "privileged producers" are wind power plants. Following are the three quotes from the conclusion of the article "Croatian market of energy produced from wind power plants" by the Institute of Public Finance, from January 2018.
The same article states, and it can be verified from publicly published financial reports, that companies ("privileged producers") finance only 14 percent of invested funds from their own sources, on average, and 86 percent are financed from other sources, mostly long-term loans from domestic banks.
From all the above, it follows that Croatian citizens, illogically, with large sums of money (fee for renewable sources) subsidize the development of Western RES industry and financially help, mainly foreign investors (through deposits in banks), who create a small number of jobs in the country.
Citizens lend them 7.14 EURO based on only 1 euro brought by ”investors”!
Out of a total of 15 active "privileged producers", the most extreme example is "Selan", German company, which shows us that the borrowed portion of the invested funds amounts to as much as 96 percent, with an annual return on own funds (ROE) of an incredible 220 percent!
Now it becomes clear where the title "Superciuk" comes from (the villain from the Alan Ford novel who steals from poor people and gives to rich).
So, instead of HEP, i.e. the state, being a "privileged producer" and paying off its investment in only 3.29 years, Croatia concluded 12-year contracts (with guaranteed prices) with "privileged producers". These producers will make huge profit in 12 years, with zero risk, pay off the investment and after that period will continue to operate wind power plants with concessions. Nonsensical.
If, from those 12-year contracts, we exclude 3.29 years (required for 828.3 MW to be build), the fee for renewable sources for the remaining years would amount to an enormous 2.1 billion EURO ((12-3.29) x 250), money that Croatian citizens donate mainly to foreign investors.
Should the countries of the region, BiH, Serbia, Montenegro and Macedonia follow the example of Croatia, which energy lobbies persistently promote, or should they learn from the Croatian fiasco and, instead of developing foreign RES industry, turn to developing their own renewable energy industry, and in the case of the Republic of Srpska, above all, use the huge hydro potentials?
Member of the Council of Energy Sector Minority Shareholders’ Association of the Republic of Srpska (UMAES) and DUIF Kristal invest Banja Luka Board of Directors Member
As announced at the Great Regional Small Shareholders' Conference held in July this year at the Hilton Hotel in Podgorica, recently the "Energy Sector Minority Shareholders Association" from the territory of Republika Srpska was formally registered.
Through its activities, the Association will try to protect in the best way the interests of minority shareholders of the energy sector, which are mostly made up of citizens of Republika Srpska, both directly and through shares in investment funds. From the very beginning, the Association has significant shareholder support in all the issuers that make up the energy sector, especially in hydroelectric power plants (HPPs on the Drina, Trebisnjica, Vrbas) where we already gather about 10% of the total shareholders.
The Association will actively contribute to the development and improvement of the capital market environment, as well as to the development of corporate governance individually in issuers and in the final to economic development of Republika Srpska.
The aim is also to change the negative perception of minority shareholders, who are mostly seen as a destructive factor in Republika Srpska. The association will be focused on creating value for all shareholders, building partnerships with the majority owner, ie. country.
In addition to the domestic stakeholders, support for the founding of the Association was provided by shareholders from Serbia, Montenegro, Croatia, as well as from Western Europe.