No consensus in SERC: No collection of millions of network fee costs for EFT Tenants and Feal Široki Brijeg

Predrag Blagovčanin
Autor/ica 27.7.2022. u 10:56

No consensus in SERC: No collection of millions of network fee costs for EFT Tenants and Feal Široki Brijeg

Today, Elektroprienos BIH does not have the financial or technical capacity to connect new investors. At the same time, the companies “EFT Stanari” and “FEAL” Široki Brijeg have not paid a single KM for network fee services since the moment they were connected to the transmission network. This is a consequence of the fact that “SERK”, as the competent institution, did not establish the amount of compensation for this service. In this way, by favouring all producers, the income of Elektroprenos BIH of approximately 71 million in the period from 2016 was paid exclusively by end consumers.

Writes: Predrag Blagovčanin

The State Electricity  Regulatory Commission SERK, the institution responsible for the transmission and international trade of electricity as well as the operations of the transmission system, missed the opportunity to determine the compensation for the network fee to electricity producers who use the services of Elektroprijenos BIH since 2011, when the tariff methodology was established.

The fee for using the transmission network consists of two components. L component in the ratio of 35 per cent of power and 65 per cent of energy paid by electricity buyers and G component, which defines that producers who “inject” electricity pay from 0 to 10 per cent of the fee.

Since 2011, SERC, as the competent institution for Elektroprijenos BIH, has made 4 decisions on the tariff methodology based on which electricity transmission services will be charged. In no decision to date has the G component, which would determine the compensation for electricity producers, been defined.

In addition to the three entity-owned power industries, Elektroprivreda BIH, Elektroprivreda HZHB and Elektroprivreda RS, since 2016 the private electricity producers of the thermal power plants “EFT Stanari”, “Hidroinvest doo Rogatica” and the wind farm “Jelovača” owned by the company have been connected to the transmission network of Elektroprijenos BIH. FEAL” Široki Brijeg.

The consequences of not determining the G component are reflected in the fact that all private and state electricity producers are exempt from paying the primary electricity transmission service in the amount of approximately 71 million KM.

When we take into account the official data that approximately 13 per cent of the electricity in Bosnia and Herzegovina is produced by the EFT Stanari thermal power plant, and that SERK, at the time of connection of this thermal power plant to the transmission network in 2016, established a G component in the amount of 10 per cent, we come to the information that, on this basis, Vuk Hamović’s company would pay Elektroprijenos BIH approximately 10 million KM for this service.

Milorad Dodik in the presence of Vuk Hamović/photo: BN

From the moment of entering the BIH market, more precisely the territory of the RS entity, the company of the Serbian mogul Vuk Hamović has been in a privileged position. In support of such a claim are the researches of the portal, which found that this company’s concession fee was reduced by approximately 100 million KM.

Siniša Vukelić, the editor of the portal, emphasizes that the protection of this company by the political leadership of RS has been present since the lucrative business of electricity sales.

“In addition to protection in the processes of obtaining electricity, EFT will later engage in the exploitation of ores in the Stanari mine. After selling the ore to other electricity producers, EFT invests capital in the thermal power plant, which led to the amendment of the regulations on concession and coal exploitation, where two concession fees were merged into one. We calculated that RS loses 100 million KM on this basis. Minister Đokić, who did this, actually delegated the Law by ordinance with the explanation that it is illogical for the concession to be charged on two grounds. This explanation is strange considering that state-owned companies used to pay compensation, and with the arrival of a private investor, this was changed.”

The company EFT Tenants did not answer the questions of the portal Tač about the fees based on the network fee for Elektroprijenos BIH.

And where is that G component

The State Regulatory Commission for Electricity, the institution responsible for the functioning of Elektroprienos BIH, is managed according to the principle of “rotating presidency”. Although, as a rule, devoid of any political staffing, this is not the case.

The members of the three-member commission that manages this body are Suad Zeljković, the former prime minister of the Sarajevo Canton, a member of the SDA party, and Nikola Pejić. From Republika Srpska, Branislava Milekić, former director of Elektroprivreda RS and a longtime member of SNSD, was appointed to this position.

This institution informed us that, in accordance with the decisions, the tariffs for electricity transmission services do not contain the G component, that is, compensation for the electricity injected into the system. As they state, none of the producers, regardless of ownership, pay this fee. They did not offer a more detailed answer about the reasons for the non-payment of this fee.

Unlike Elektroprenos BIH, for which this institution has never determined the G component, this integral part of the tariff methodology has been defined by the Independent System Operator NOS since 2018. However, in the context of NOS, these expenses do not represent a significant financial burden for producers.

In 2019, this fee for “EFT Tenants”, “Hidroinvest doo Rogatica” and the wind farm “Jelovača” owned by the company “FEAL” Široki Brijeg was between 110 and 120 thousand KM.

For the sake of illustration, the revenues of Elektroprijenos BiH are almost 15 times higher compared to the revenues of NOS, and it is easy to conclude what the obligation of these companies would be if SERC determined the G component in the tariff of Elektroprijenos BiH.

Branislava Milekić/photo:

Unofficially, the reasons for not introducing this component for the financing of Elektroprenos BIH are the lack of consensus among SERC members. A highly positioned source of the Tač portal from the energy sector points out that this act directly benefited private producers of electricity in BIH.

“Given that there is no explanation, analysis or similar in the valid decision on the tariff, which would offer an answer as to why the G component was not determined, it is obvious that it was a question of favouring private producers of electricity in BiH in such a way that by not determining such an obligation, it was possible for them to acquire a significant profit. It is important to point out that the G component is determined for all producers in Bosnia and Herzegovina, of which the three largest and most important are the three electricity companies in Bosnia and Herzegovina, but in the context of the specific G component to the electricity companies in Bosnia and Herzegovina, due to their structure as vertically integrated companies and a joint account in the context of the source of income, it is realistically irrelevant from for which components they pay the tariff, while for private producers the non-determination of the G component is a significant financial stimulus.

The company “FEAL” Široki Brijeg, which owns the “Jelovača” wind park, also did not respond to our inquiries regarding the tariff methodology.

Depending on the industrial capacities, the very level of development of the transmission network as well as the energy strategy, the G component, according to the “ENTSO-E” report on tariff methodology, is charged in European countries in percentage amounts of: Austria 9 per cent, Bulgaria 17.3 per cent, Finland 18.6 per cent, Great Britain 14.2 per cent, Ireland 25 per cent, Montenegro 36.3 per cent, and Sweden 37 per cent.

Countries such as Germany, Albania, Greece, Italy, Serbia, North Macedonia, etc. do not have costs on this basis within their methodology.

From corruption to politicization: The electric power system of BIH

The consequences of the absence of significant income from declared exports, the more precise non-determination of the G component, as well as the generally very poor business and investment policy of Elektroprienos BIH, a state-owned company owned by the entity, are reflected in the business balance sheets. Thus, in 2021, this company operated with a loss of 11.6 million KM.

The reasons for operating in the red, according to information from this company, which received an income of 2.2 billion KM in the period from 2006 to 2021, are unpaid claims from Aluminij d.d. Mostar and the company “Al Trade” Mostar in the amount of approximately 7.2 million KM and the cost of transit on the transmission network of 4.3 million KM.

Map of the BIH/SERC electric power system

However, the key problem for Elektroprijenos BIH at the moment is the lack of network infrastructure in parts of BIH where future electricity plants from renewable sources are concentrated.

At the beginning of May of this year, this company addressed SERC as well as other institutions with a request for an urgent meeting in order to solve the problem of a large number of requests for connection to the network. According to the official register of Elektroprijenos BIH, at this moment this company has issued consent in principle for the connection of 38 wind power plants with a total power of 2126.1 MW and 39 solar power plants with a total power of 3047.9 MW.

Given that the locations of the investments are located in Western Herzegovina, Eastern Herzegovina and Western Bosnia, the investor’s connection is not possible, given that the network infrastructure in these parts of Bosnia and Herzegovina does not exist.

We would like to remind you that this year SERC cancelled the quotas for renewable energy sources, which were aimed at analyzing the real regulatory possibilities of the BIH energy system due to the entry of significant production capacities from renewable sources of electricity, as well as a sufficient period of time for Elektroprijenos BIH to build and expand the necessary network infrastructure.

Given that this has not been done, the question arises as to what Elektroprijenos BIH did during the mandate of HDZ staff Matan Žarić and what are the investment plans of this company based on? In response to an inquiry from the Tač portal, they pointed out that long-term investment plans can be viewed through data on transferred investments.

Elektroprijenos BIH/photo: Adi Kebo Ž

Unclear investment planning, continuity of blockages in the administration’s work, as well as the unsubstantiated introduction of the rights of potential investors, according to our interlocutor, have put this company in an unenviable position.

“According to current information in the sector, Elektroprijenos BiH has major problems with financing as well as planning the construction and expansion of the network. Obviously, the introduction of the rights of a large number of investors and the impossibility of connection will result in a series of lawsuits, which can have major repercussions for Elektroprijenos BiH and its owners RS and FBiH! In the context of Elektroprenos BiH, the segment of the lack of responsibility of the Assembly is also significant, because it is not clear what the prime ministers of the RS and FBiH governments are doing as members in the context of the work of the governing body of Elektroprenos BIH?”

Entity-owned energy companies in this year alone, due to disputes before international arbitration courts, lost approximately 104 million KM. Elektroprivreda RS 90 million KM due to the lost dispute with the Slovenian company “Vijadukt” due to the termination of the concession for the construction of the Vrbas hydroelectric power plant. Also, due to the lost profit, Elektroprivreda BIH must pay 14 million KM to the Austrian Strabag due to the Vranduk project.

The question arises as to what kind of repercussions on Elektroprijenos BIH there will be from possible lawsuits from investors in renewable sources that have essentially been introduced into the law, but they have not been able to connect to the transmission network.

A key figure in energy processes in the past 20 years, Stipo Buljan, secretary of the Federal Ministry of Energy, Mining and Industry and member of the Board of Directors of Elektroprijenos BIH, when asked by the Tač portal about potential lawsuits from large investors as well as the process of issuing energy permits, which goes beyond all legal frameworks, pointed out is that the process works without any protections.

“The energy license is issued by the Federal Ministry of Energy, Mining and Industry with the consent of the FBIH Government and the FBIH Parliament. Considering the fact and complexity of obtaining the above-mentioned consents and due to a number of objective reasons, the non-holding of the sessions of the Parliament, they could not be obtained within the specified period.

Stipo Buljan/photo:

In an unofficial interview, Stipo Buljan emphasized that Elektroprijenosa BIH is late with investments due to the political blockade, the coronavirus pandemic, as well as the increase in the price of all equipment, but that the company is strong enough to overcome this crisis. As he pointed out, he is not familiar with the letter sent by Elektroprijenos BIH to the competent institutions.

Party piggy bank for fiscal stability

Political relations at the level of BIH reflect on the work of Elektroprenos BIH. We remind you that in 2018, the conflict between HDZ and SDA blocked this company and 180 million KM for investments.

Officially, the blockade was caused by the lack of consent for Matan Žarić to remain in the position of the first man. In the middle of 2020, following the agreement of the entity’s prime ministers, Radovan Višković and Fadil Novalić, the work of Elektroprijenos BIH was unblocked and the investment cycle worth 200 million KM at that moment began.

Portal Tač wrote about the way in which companies close to the ruling parties, depending on the operational area of Elektroprijenos BIH, get multimillion-dollar energy infrastructure construction projects. In the context of the way in which Elektroprijenos BIH implements its own development plans, an interesting example is the construction of the Šipovo substation worth 4.6 million KM.

The tender for the construction was won by the company “Elektroobnova” Banja Luka, and the documentation clearly specifies that the location of the substation will be built within the company Čajevac, which, due to circumstances, is owned by the mayor of the municipality, Milan Kovač, a prominent SNSD member and one of Milorad Dodik’s most loyal staff.

Matan Žarić/photo: DW

Opened with the presence of the head of Republika Srpska and announced as a significant contribution to the development of the economy, to this day, this facility has no economic justification.

The politicization of the energy sector, dilettantism as well as the high level of corruption at the moment open the question of whether this sector will develop and what its future is. Possible privatization from the foreign state and private companies or continuation of functioning without a clear strategy.

In the continuation of the Tač series on the energy sector, we bring a story about the fact that during the biggest energy crisis, NOS is headed by a part-time director who, in addition to this position, also holds a position in the cabinet of SNSD’s Minister of Foreign Trade and Economic Relations, Staša Košarac.

Predrag Blagovčanin
Autor/ica 27.7.2022. u 10:56