Criticized by the largest shareholder of the company, Electrica’s management team responds with figures: one year from listing, Electrica increased its net profit by 30%, revenues from supply also increased – contrary to market trends – and investments in network modernization increased in the first half of 2015 by 20% vs. 2014. Investments remain the priority of the company for the coming period, including in smart metering, Ioan Roşca, General Manager of Electrica SA, explains. At the same time, the company carries out the reform plan set before listing, of which the first concrete results are: a new organizational chart of the company, a new corporate governance code, a new code of ethics, plus a platform for whistleblowers.
Dear Mr. Ioan Roşca, I propose to start from what seems to be the main concern of those who monitor Electrica’s activity: the important volume of liquidities available for the company. What is the amount we are currently talking about and what should be in your opinion the main destinations, in the near future?
According to the latest individual financial statements, in late June, the company had cash, treasury bills and government bonds worth RON 2,106mln. The volume of liquidity attracted following IPO is RON 1,866mln, excluding the amounts used for the stabilization period.
Regarding the second part of the question, first it should be mentioned that we have committed, including under the listing prospectus, to invest in distribution network, in order to improve the operational performance, and that’s what we are doing: we have the most ambitious investment plan approved among all distribution operators in Romania. For example, we are talking about upgrading the existing infrastructure, about network development for the connection of new consumers, about investments in smart metering – but also about consolidating support functions.
Of course, we also have an important investment availability, which we want to capitalize as much as possible for the company, and obviously for shareholders. As known, Electrica has explored several opportunities for acquisitions, including regionally, and continues to seek, in line with its core business and risk profile. Enel or Fondul Proprietatea cases are famous. On the one hand, we understand certain expectations in the market about using the investment capital obtained by Electrica following its listing, but on the other hand we need to do it properly and not at any cost.
Do you consider a share capital increase in subsidiaries, if the takeover by Electrica of minority stakes held by Fondul Proprietatea fails to materialize?
As known, the General Meeting of Shareholders of November 10th approved the empowerment of the Board of Directors to start negotiations with Fondul Proprietatea for the acquisition by Electrica of the entire stake owned by FP in the share capital of our subsidiaries. This process should be completed by late March and approving the actual conclusion of the contract will be decided by the General Meeting of Shareholders.
Personally, I believe that this acquisition is absolutely natural, facilitating the reorganization of the group. It should be noted however that we don’t want to make this acquisition in any circumstances. The price must reflect realities in the market. As known, we have also had negotiations with the Fund at the beginning of this year, but at the time we did not reach any agreement.
One of the main expectations following listing and keeping in the company the money obtained was for Electrica to start in force a process of modernization of infrastructure, for a better quality of services. What is the stage of these investments compared to the program undertaken for 2015?
Electrica has in progress the most ambitious network investment plan approved among all distribution operators, both for this year, in which we are talking about over EUR 121mln, and until the end of the regulatory period, for which we have approved an amount of over EUR 715mln. We started in force, as you say, this network modernization process, and figures are the proof: in the first six months of this year, we increased investments in networks by over 20% compared to the similar period last year.
Specifically, with the risk of being too technical, I say that works are being executed to move from 20 kV voltage over 3,000km of medium voltage lines and 2,400 transformer stations, to replace over 6,000 medium voltage transformers, to rehabilitate approximately 4,000km of low voltage network, to achieve over 800km of new medium voltage network, to install over 4,000 small transformer stations and the examples can continue. In all these projects, we are talking about completion deadlines until no later than 2018!
Given the mandatory stages in achieving an investment objective, we estimate that commissioning plans undertaken and approved by ANRE for determining distribution tariffs will be achieved, which are worth RON 564mln, most works having completion deadlines in the fourth quarter of this year. It’s important to mention that all investments provided in plans for 2015 are being started.
In what way is Electrica’s activity affected by ANRE decision to reduce the regulated rate of return from 8.52% to 7.7%?
A calculation made at the level of ACUE member companies revealed, at the time, the fact that this change would determine a reduction by approximately 12% in the financial profitability of companies in the field. The natural consequence would be to break investments, which automatically affects the quality of services.
It’s not fair to change the rules of the game during the game, so several companies member of ACUE Federation, including Electrica, have decided to go to court to cancel ANRE Order and the related methodology.
We strongly believe that sudden changes in the regulatory framework make the business environment unstable and unpredictable. Such decisions simply chase investors away, mainly scared of unpredictability, and for a listed company it does not sound encouraging. We, at Electrica, had a strong feedback from investors in this regard…
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The full version of this article can be read in printed edition of energynomics.ro Magazine, issued on December 2015.
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