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Majdanpek: Two companies, tons of fuel oil, and millions of debt

23. Apr 2018.
Ilustracija: Đorđe Matić
PUC Majdanpek was founded as a new district heating company as the old one had been over-indebted; however, it has been operating using support extended by the Municipality which takes loans to assist the company for years. Subsidies for heating present one of the major items in the 2018 budget, while in recent years some 10% of the budget was allocated for this service

In the last five years, Public Utility Company (PUC) Majdanpek received at least 342.4 million Serbian dinars from the municipal budget, mostly to pay for fuel oil needed so that it could produce thermal energy. The company was founded in 2012 because of the accrued debts of the company in charge of provision of this service till that moment – PUC Komunalac.


The only outcome of such a move was the fact that instead of the first company, in 2012 citizens of Majdanpek got another company to support from the local budget – almost immediately after its establishment, the new company requested money from the Municipality. The old company is nowadays mostly in charge of water supply; its account has been blocked since 2012.


What happened in Majdanpek is a part of a broader issue existing throughout the state – district heating systems, used by about one third of the total population of Serbia, do not operate with sufficient success and need financial assistance. As heating plants may not pay for fuel oil or gas necessary for their operation, they are financially supported by towns and municipalities, besides large amounts of money they receive as subsidies. On top of it, this also includes funds from citizens who do not use district heating, such as those living in rural settlements.


Even though local self-governments are in charge of district heating, the state frequently intervenes, mostly by allowing heating plants to borrow fuel oil from the Directorate for Commodity Reserves. In the beginning of 2018, the new company from Majdanpek owed the Directorate 766.7 tons of fuel oil, while the Municipality owed it 790.7 tons, as well as 81,200 dinars of interest to be paid for the borrowed fuel oil.


According to Đorđe Roškić, director of the new company, the heating plant could now operate without assistance from the municipality.


In his interview for Center for Investigative Journalism of Serbia (CINS), Dragan Popović, former mayor, says that the new company was founded because the old one was burdened with debts, with citizens owing to the company on the one hand, and the company owing to its supplier on the other.


“There are also other reasons why PUC Komunalac has such a large debts, including low price of heating, high price of fuel oil, and the large number of employees in the utility company” says Popović. “For all these reasons, PUC Komunalac was not able to heat Majdanpek anymore.”


The new company has not resolved the issue of heating in Majdanpek. Citizens of this mining town in east Serbia, on the border with Romania, keep complaining that they pay high a price in comparison to the quality of the service they receive.


Ljubica Aleksić (74) says that heating bills are a major cost item for her. In previous winters, she had to use electric power to provide some additional heating for the flat where she lives. Her fellow citizen Radiša Ilić (64) got disconnected from the district heating system last year.


“I had not had adequate heating in years, so I was forced to additionally heat my premises using electric power, which I could not sustain financially ”, says Ilić.


Aleksandar Macura, expert in energy policy, says that district heating systems operating on fuel oil are not sustainable: “You extend a service the costs of which are so high that the service is not affordable for those who purchase it”.


Fuel oil and budget combustion


PUC Komunalac was founded in 1997. Until autumn 2012, it performed the activities of heating, water supply and sewage pipeline maintenance, funerary services, waste disposal, and similar. Financial reports for the given year indicate that the total debt of the company amounted to somewhat more than 256 million dinars.


PUC Majdanpek was established by the decision of the Municipal assembly on 10 October 2012; at the end of the year it was decided that the newly founded company would be paid for heating – starting from that season, which was already underway. The new company was registered at the same address as the old one.


Đorđe Roškić, who had previously been in charge of heating in Komunalac, was appointed acting director of the new company. Roškić is still the company director.


When PUC Majdanpek was founded, the old company continued to operate. In 2014, municipal authorities founded yet another company, PUC Vodovod, which was delegated the activities of water supply system maintenance, funerary services, and some other activities.


According to the Articles of association of PUC Komunalac, the company is nowadays mostly active in collection, distribution, and treatment of water. Its account has been blocked for more than five years, while on 17 April 2018 the sum due amounted to 204.4 million dinars.


Less than one month as of the establishment of the new company, its director requested the Municipality to extend the company financial assistance for purchase of 25 tons of fuel oil “for the purpose of functioning of the town heating plant Majdanpek“. The value of the assistance was about 1.6 million dinars, and the Municipality made the payment on the same day.


In its response to CINS, municipality noted that costs of purchase of fuel oil are envisaged in the heating plant subsidy programme: “One of the basic problems of the Heating plant relates to the type of fuel used: in financial terms, fuel oil has been the least favourable fuel for a long time“.


PUC Majdanpek has two accounts; till the end of 2012, the Municipality transferred 26.3 million dinars to them. The amount does not include the money marked in the reports of the Treasury Administration as “sale of commodities and services”.


In the following years, in the course of the heating season the company would address the Municipality up to several times a month, requesting money and submitting bills for fuel oil purchased. From the beginning of 2014 to the end of 2017, the company was paid about 134.5 million dinars on these grounds only.


According to the data of the Treasury Administration, from October 2012 to 19 October 2017, the Municipality paid the company the total of 342.4 million dinars.

 

 
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All this time, the company has been purchasing fuel oil from the Belgrade-based company MV Jona, owned by Veseljko Mirković. According to the 2016 financial report, PUC Majdanpek owed the company 19.6 million dinars.

 


Veseljko Mirković nowadays says that the business is lucrative “from time to time”, while the heating plant always owes him: “I secure my business by taking promissory notes, with a 45-day maturity date, and wait for collection. Now they owe me more than 30 million dinars, while the season was ended five or six days ago. Usually, they can hardly pay“.


Even though indebted itself, in 2016 PUC Majdanpek granted interest-free loans to the company from which it was founded – Komunalac – at the amount of about 5.1 million dinars.


“That is what we paid them earlier, and they paid us back, having paid us all funds from collected receivables”, say Roškić, adding: “We had to close it this way, so that employees could receive salaries, that related to water supply and waste management, otherwise the town would be paralyzed.“


In 2016, Municipal subsidies presented a large portion of income of PUC Majdanpek, while the financial report for the same year states that the company profit amounted to 191,000 dinars only.


In the Municipal budget for 2018, the planned subsidies for district heating amount to 110 million dinars. For comparison, this is almost by seven million dinars more than the amount planned for healthcare and accommodation together, by four times more than the amount planned for agriculture, and by about two times more than the amount allocated for social and child welfare.


Municipality replied to CINS that the largest amount is allocated for the heating plant as its costs of operation are the largest.


Energy expert Aleksandar Macura says that if establishment of the new company is regarded as crisis management, it could find its “legal and logic expression”; however, this would imply existence of a vision of how to deal with the issue. Macura adds: “If there is a crisis of supply, if may not last for 15 years as this crisis of ours does”.

 


Parallel fuel oil market


Besides purchasing fuel oil at the market, Serbian heating plants also receive fuel oil from the Directorate for Commodity Reserves. Such fuel oil is returned in-kind, with heating plants purchasing fuel oil and returning it to the Directorate; this is also subject to payment of interest on part of heating plants. However, in practice, such returning is mostly delayed, while in numerous cases interest is written off.


On 22 January this year, PUC Majdanpek owed Directorate for Commodity Reserves 766.7 tons of fuel oil in total.


According to the contract concluded with the Directorate in September 2013, the heating plant was to return fuel oil by 30 September 2017. The return of the commodity with the assessed value of about 58.2 million dinars was guaranteed with promissory notes, but the company was not obliged to pay interest. One day before the expiration of the deadline, the Directorate and the company concluded an annex to the contract to extend the return period until 2020.


The Municipality of Majdanpek itself is also one of the debtors of the Directorate for Commodity Reserves. According to the statements from the Directorate, its debt amounts to 790.7 tons of fuel oil, while on 25 January 2018 its debt based on interest amounted to 81,200 dinars.


In the last two and a half years, the Municipality and the Directorate concluded two contracts for 400 tons of fuel oil respectively. In both contracts December 2018 was stipulated as the deadline for the return, besides the obligation on part of the Municipality to pay interest. From the beginning of 2016 to the end of July 2017, the Municipality returned about 830 tons of previously borrowed fuel to the Directorate.


Because of the poor condition of the district heating system in Serbia, the Directorate granted the heating plants which owed it fuel oil debt reprogramming. In line with it, PUC Majdanpek was supposed to pay back its debt within four years, while the deadline for the Municipality was two years.


The list of debtors also includes the old company in Majdanpek, PUC Komunalac, which owes the Directorate 1,946.8 tons of fuel oil; this is one of 23 debtors which was, after the 2013 debt reprogramme, written off the interest of almost five million dinars. As stated in the reply of the Directorate to CINS, court proceedings were launched in relation to this debt.


Potential solution


According to plans of the Ministry of Mining and Energy, PUC Majdanpek is one of the nine heating plants which will, by 2020, switch to heating using biomass, using a loan of German development bank KfW. Heating using biomass means replacement of fuel oil, gas, or coal in heating plants to use, for instance, plants and parts of plants, residue from fruit-growing, agriculture, and wood processing industry, as well as a part of selected municipal waste.


Đorđe Roškić, director of PUC Majdanpek, says that this switch would mean rescue for the company: “Our calculations indicate that we will thus halve the costs“.


When asked whether this would also halve the price, Roškić replied: “You know what, this is not only the price. The price may not be low because we use subsidies, and it is in our interest to relieve the budget“.


Draga Dimitrijević (66) is one of citizens dissatisfied with heating in Majdanpek:


“This winter we have not been satisfied, whenever we called the heating plant they would say they needed a new pump to install in the sub-station. Now, the heating season is over, and this hasn’t changed. They say ‘your street is planned for next year’. So, those who live by the next season will see whether it will be any better“.

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