Investigative storiesEnergy

A high price for poor planning

29 Aug 2016
Ilustracija: Đorđe Matić
In 2011 Electric Power Industry of Serbia took a loan at EBRD for the reconstruction and construction of small hydroelectric power plants. However, the works have not commenced until today. Only four percent of the loan has been utilized, while the already over-indebted EPS paid almost one million Euros as a fee for the undrawn funds

Four and a half years after taking a loan for the construction and reconstruction of small hydroelectric power plants, Electric Power Industry of Serbia (EPS) used up only four percent of the money obtained. Concurrently, they paid more than € 927,000 as a fee being charged for the unutilized portion of the loan.

In December 2011, EPS took a loan of € 45 million at the European Bank for Reconstruction and Development (EBRD), for the reconstruction of 15 old and the construction of two new small hydroelectric power plants. December of 2014 was specified as the deadline for implementing the loan.


Serbia pays a lot for slow project implementation

CINS has already written about slow implementation of infrastructure projects in Serbia and Bosnia and Herzegovina, the projects for which the authorities of both states used to take loans from international development banks and governments of other countries. From the beginning of 2008 until 30 June 2015, Serbia spent as much as € 35.2 million of fees for the unused borrowed funds.

Meanwhile, throughout the course of 2014, EPS gave up their plans to do the works on six locations and the loan amount was reduced to € 32.7 million. The end of 2018 was set as a deadline for the project completion.

Although the reconstruction of not one single hydroelectric power plant has started until today, EPS says that the project is being carried out according to the plan and that the delay in the due dates is justified. EPS representatives did not agree to talk to Center for Investigative Journalism of Serbia (CINS) reporters, but they sent two written responses on this topic.

“At that moment (at the time of taking the loan) we were lacking the analyses, feasibility studies and technical documentation, which is now causing extension of due dates for implementing the project”, stated EPS in one of responses to CINS.

During the previous years, EPS also paid fees for the unused funds under other loans.

According to the data of the Public Debt Administration, the fees paid by EPS on this basis amounted to over € 11.3 million for 12 loans active between 2008 and June 2016.

High debts and the problems faced by EPS in their business operations were frequently discussed in Serbia in the course of previous months.

In their report published in June this year, Fiscal Council specified that insufficient efforts have been made in solving the problems of EPS and that the debts of this company keep rising, which can jeopardize financial viability of the entire country.

In the course of 2015, the debt of EPS increased by over € 250 million, so that at the end of the year it amounted to approximately € 1.15 billion.

Investment into the future

Serbia made a commitment to the International Energy Community that, by 2020, 27% of the final energy consumption will come from renewable sources, while a part of these 27% would be produced by small hydroelectric power plants.

In the beginning of 2011, Dragomir Markovic, in his capacity of EPS General Manager at the time, announced their investments in renewable sources, saying that it is a must do for any serious company whose business activity is production of energy.


Small hydroelectric power plant Sićevo

At the end of the same year, EBRD granted EPS a loan for rehabilitation of the existing and construction of new small hydroelectric power plants. About three years later the original loan amount of € 45 million was reduced by € 12.3 million.

As specified by EPS, due to the “inherited unresolved property relations over many years and due to reviewed investment profitability” they had to withdraw from six locations. However, in another answer to CINS, EPS added that they continue to develop the projects for these locations, however not by using this loan, but “by seeking the possibility to finance the projects from their own funds”.

Construction and reconstruction works have not commenced even four and a half years later. By June 2016, only four percent, or € 1.3 million of the loan has been withdrawn.

Some of the consulting services agreements and equipment purchase agreements within the project were signed as late as in the second half of 2015 and throughout the course of 2016.

EPS stated that the delay was caused by several factors noting that the activities on the project development were under way and that, by the end of the year, 15 percent of the loan would be used, while the total amount of the money borrowed is expected to be used within the following two years.


EPS withdrew from the locations after a public call of the Ministry

EPS submitted a bid upon the first public call of the Ministry of Energy for allocation of the locations for construction of small hydroelectric power plants and was granted a license for 15 construction sites, which is the topic already covered by CINS.

Due to numerous problems, EPS was among the investors who withdrew from the locations in the very beginning. They immediately abandoned four locations, due to the unsolved urban development issues, while ten out of the remaining 11 locations were not cost effective and were burdened by hard-to-solve property relations. 

Among the reasons that slowed them down EPS mentioned the following: Amendments to the Law on Planning and Construction, due to which EPS had to modify their agreements with designers, the introduction of unified procedures for issuing permits, as well as procedures for ownership change over facilities and for obtaining water approval. They also needed additional time due to comprehensive documentation required for approval by EBRD standards.

EBRD stated that the loan for small hydroelectric power plants was granted as the analysis demonstrated EPS was able to return the money given under the loan. Moreover, the reasoning for the delay is sound and it is not a rare thing to happen.

“Now it looks as if they are on the right track to finalize the project, say EBRD representatives.

Aleksandar Obradović, General Manager of EPS at the time of non-utilization of the loans for small hydroelectric power plants, did not want to discuss this issue with the CINS journalists because, per his words, it would be unprofessional as he is not the head of the company any more.


Stojan Stamenković, an economist and a member of the Council of the Governors of the National Bank of Serbia says that the loans taken from the creditors such as EBRD and the World Bank are usually favorable: “and people grab them counting that they will implement the loan, while afterwards it turns out that there are numerous obstacles”.

Instead of generating new kilowatts of electricity power, EPS is paying fees for the unutilized funds, the so called commitment fee. Since taking the loan and until the end of June this year, the fees amounting over € 927,000 were paid.

Commitment fee is calculated in addition to regular interests, its amount depending on the amount of the loan and the dynamics of spending the money. As the projects are usually carried out in phases and the money is withdrawn accordingly, this fee is paid on the unutilized loan amount. If the loan is not used on time, a higher amount of money is paid on this basis.

In the table below you can see all EPS’s loans active between 2008 and 2016, for which commitment fee was paid:



The debts of EPS

The issue of EPS’s debts and its possible bankruptcy was initiated at the end of 2012, when Aleksandar Obradović was appointed as director of the company. Although the aim of this appointment was to reorganize the company and reduce the expenses, he was removed from office in March 2016, after the Fiscal Council reported that “poor business operations of EPS currently represent the highest risk for public finances of Serbia”.

Pavle Petrović, President of the Fiscal Council, had then pointed out a potential danger that the debt of EPS may burden the republic budget.

Financial statements show that, at the end of 2015, the international long-term loan liabilities of this company were about € 569 million, which is two times as much in comparison with 2014. The total value of the long-term loans was more than a € 1 billion.

In their report, the Fiscal Council warned that EPS is taking the loans with the aim of making investments, however, on the contrary “the company does not systematically make sufficient investments“.


At the end of 2015 EPS debt amounted to approximately € 1.15 billion.

As reported by the Fiscal Council, “Not only that in EPS they do not manage to improve the quality level of the electric power infrastructure, they even do not manage to keep it at the same level, therefore it is gradually getting worse every year.“

Criticisms referring to the performance of this company also came from Tony Verheijen, World Bank Country Manager for Serbia, who wrote in his blog that, in his opinion, EPS is a “bewildering phenomenon” and that the restructuring of the company is not headed towards the right direction.

In October last year, EPS took another loan at EBRD, a restructuring loan in the amount of € 200 million.

In mid August this year EPS recruited the companies Energoprojekt Entel and Economics Institute to estimate the value of the company’s assets. Aleksandar Antic, Minister of Energy, told media that this is not a step towards privatization, but a phase in restructuring and a step towards the company’s transfer to a shareholders company. 


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