Research storiesEnergetics

Huge debts for heating are also paid by the citizens who are not using it

16. Sep 2016.
Ilustracija: Đorđe Matić
District heating system in Serbia is debt-burdened, expensive and inefficient. The debts are frequently paid by the municipalities, cities and by the state itself, with the money belonging to tax payers, many of whom do not even use this type of heating.

Tihomir Mitrović and his wife Ljilja, pensioners from the city of Niš, set aside almost one sixth of their monthly income in order to get warm during the winter. They live in a flat connected to the district heating, which supplies radiators with the heat through a pipeline of the city heating plant.

About one fourth of the flats in Niš are heated in this way, but some of the flat owners have decided to disconnect from the heating system because of high prices. The Mitrović family is not among them. Out of their pensions amounting to 32,000 dinars they pay 5,000 dinars every month to the city heating plant.

Tihomir says that it is hard for them to cover all their expenses with the pension. He explains that other solutions are pricy too and cannot be easily implemented, therefore this is currently the least expensive option for them.

 

In the beginning of 2016, the Niš heating plant owed over € 4.1 million for natural gas only. Between January and March the debt rose by another € 1.6 million.
Photo: CINS

A research made by the Center for Investigative Journalism of Serbia (CINS) shows that district heating is used only by one third of the population of Serbia, but the heating plants are indirectly financed by all citizens: by means of subsidies from town or municipal budgets, by overtaking suppliers’ debts and by making it possible for heating plants to borrow energy-generating products from the state.

Such heating system is expensive and not efficient enough, which is mostly affected by the type of energy-generating products used by the heating plants and the method of their combustion.

Heating plants are mostly public utility companies and they use one of the three types of fossil fuels for heating production: natural gas, fuel oil, or coal. Serbia has its own coal resources, but is importing 84.5% of natural gas and about 70% of crude oil – from which fuel oil is obtained.

Within the last three years, the accounts of as many as 32 out of 57 heating plants were frozen, while some owed considerable amounts to suppliers.

In the beginning of 2016, the Niš heating plant owed over € 4.1 million for natural gas only. Between January and March the debt rose by another € 1.6 million.

The representatives of this heating plant did not agree to talk to CINS journalists, nor did they answer the questions sent by e-mail.

Aleksandar Macura, an energy policy expert, says that everyone is at loss due to the method employed by the heating plants in generating energy – because it is expensive.

“You cannot turn gas into hot water and then sell it, from the economic standpoint it is a mission impossible”, says Macura and explains that, when you are developing something that is not the cheapest energy, “it causes problems which can be solved neither by regulation, nor by measurements or in any other way”.

 

 

Hundreds of days of blockade


District heating and the work of heating plants are in jurisdiction of local self-governments. Energy Development Strategy, published in December 2015 by the Serbian Government, provides the information that 57 out of 176 cities and municipalities in Serbia have district heating.

According to the Statistical Office of Serbia data from 2011, out of over 2.4 million apartments in Serbia, more than 535,000 were connected to district heating systems, mostly in the biggest cities. Data for Kosovo were not part of these statistics.

A Public Utility Company Belgrade Electric Power Plants supplies thermal energy to more than 300,000 homes, which is almost a half of the total number of housing units in Belgrade. About 94,800 flats in Novi Sad and about 29,000 flats in Niš are connected to district heating systems.

Financial statements show that at the end of 2015, some heating plants owed hundreds of thousands of Euros to suppliers. Within the last three years the accounts of 32 heating plants were frozen, 11 of them experiencing such blockade for more than 100 hundred days.

One of them is Public utility company Energana, based in the city of Sombor, whose representatives explained that their account was blocked due to gas debts and poor collection from consumers, while, at that time, they reallocated the funds for purchasing energy-generating products and used them for construction of a new boiler-room.

 

On 16 March 2016, the heating plant based in Novi Sad owed to Srbijagas almost € 8 million.
Photo: CINS

The very collection from consumers and the expenses for energy-generating products are the problems due to which some of the heating plants count on help from the town and municipal budgets.

At Energana from Sombor they say that the subsidies provided by the municipality “facilitate the operation of the heating plant and are also indispensable”. In 2015 they were granted subsidies worth almost € 538,000, while at the end of the year their debts to suppliers from Serbia were € 460,665.

At the City heating plant in Novi Pazar they say that the operations of this heating plant could not be run without subsidies – in the course of 2015 more than € 122,064 were paid to their account. On 31 December 2015 their debts to local suppliers were € 91,929.

Nebojša Lukić, a professor at the Faculty of Engineering in Kragujevac says that when the district heating systems were developed, their advantages were pollution elimination, increased efficiency in heat production and the improved comfort of living. A wider availability of natural gas made annulled the advantages, while the disadvantages like transport losses, maintenance expenses and employee compensations became obvious.

Lukić adds that this is why the price of heating keeps rising and is also hard to maintain it in free market, while the cost-effectiveness of the entire heating system is questionable.

Taking over the debts


The most widely used energy-generating product in heating plants in Serbia is natural gas, which is mainly imported. Public company Srbijagas purchases gas from the company Yugorosgaz, the majority owner of which is Russian company Gazprom (50% of ownership). One fourth of Yugorosgaz is owned by Srbijagas.

On 21 March 2016, the heating plant based in Niš owed to Yugorosgaz about € 5.7 million. On 16 March 2016, the heating plant based in Novi Sad owed to Srbijagas almost € 8 million. Belgrade Electric Power Plants did not submit to CINS the data on their debts.

Srbijagas also purchases gas from the Petroleum Industry of Serbia (NIS) the majority owner of which is Gazprom. In 2015, Srbijagas owed to NIS more than € 194 million. In December of the same year Government of the Republic of Serbia decided to take over this debt and to turn it into a public debt – a debt of all the citizens of Serbia.

As specified in the draft law on this transaction, business operations of Srbijagas from 2008 to 2013 were run under non-economic conditions, which also comprised “illiquidity of the economy and the district heating”.

Another energy-generating product widely used by the heating plants is fuel oil and NIS is one of its distributors. The method the state uses to provide help in this situation is somewhat different – through the Directorate for Commodity Reserves, which possesses the goods for supplying the market in exceptional circumstances.

 

 

You cannot turn gas into hot water and then sell it, from the economic standpoint it is a mission impossible
Photo: Media Centre

Aleksandar Macura, an energy policy expert

During the last four heating seasons, Directorate for Commodity Reserves supplied the heating plants in Serbia with more than 16,924 tons of fuel oil. Fuel oil was mainly supplied to heating plants from December to April, sometimes even several cisterns per day (about 26 tons of fuel oil can be stored in one cistern).

From January to mid April 2015, 846.4 tons of fuel oil were supplied to the heating plant in Smederevo – this being a practice in 2016 as well, when about 300 tons of fuel oil were delivered to this company in just one month.

Heating plants usually borrow fuel oil when they cannot pay for it and after they get funds, they buy it on the market and return to the Reserves.

Besides the opportunity to borrow fuel oil from Reserves, in 2013 the heating plants were given the opportunity to restructure the debts. Under this restructuring program, the heating plants were divided into five groups according to the time period defined for paying the debts, this period varying from 12 to 60 months. The group with the longest deadline is the largest, comprising 13 of these heating plants.

In the document approving the debt restructuring, the Ministry of Mining and Energy notes that “fuel oil reserves are considerably lower than in the previous period” and that, therefore, it will be possible to purchase fuel oil from the Reserves only under the conditions set by the Ministry.


Alternative solutions


As one of the main reasons for having such state of heating plants is the method employed in heat generation, CINS interviewees agree that current system needs to be changed.

Aleksandar Macura, an energy policy expert, says that an “modern definition of district heating implies that the heat should not be produced by direct usage of fossil fuels – without producing electric or other types of energy at the same time”.

Professor Nebojša Lukić explains that, from the economic standpoint, district heating makes sense as concurrent generation of electric and thermal energy, as a waste energy coming from large industrial plants, or in case of specific heating plants, such as waste-incineration plant.

“If we do not start solving the problem of district heating in Serbia, the losses will soon exceed necessary investments”, says Lukić. He also adds that usage of renewable energy sources, such as biomass (biological waste and waste deriving from wood processing, plants and plant parts, namely fuels obtained from them, etc.) could also be a solution.

The representatives of the Novi Pazar heating plant say that usage of biomass would reduce the expenses of the heating plant – and also the heating price – by about 30 percent. However, this would require an investment of € 12 million.

Vladimir Stevanović, a professor at Belgrade Faculty of Mechanical Engineering, says that a single energy-generating product is not sufficient for energy provision, but that a mixture of various energy sources could provide for a “condition tending to be sustainable“.

Among plans by the year of 2030, Energy Development Strategy notes expansion of the existing district heating systems, with reduction of oil and coal usage, and increased use of biomass and natural gas.

The representatives of the Ministry of Energy did not agree to talk to CINS journalists on this topic.

 

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