In recent years, ELCEN’s turnover was on a decreasing trend (2010-2014), but with a substantial growth in profit in 2014 as compared to the previous year, with a decreasing number of employees. Beyond the figures on paper, the company was constantly under pressure because RADET invoices (its main client) remain unpaid, and it took numerous talks and negotiations with suppliers in order to continue to operate. We learnt from Marcel Nicolaescu, ELCEN’s general manager, what their plans are for 2016 and what strategy should be followed, in his opinion, to stabilize the heat market in the capital.
Esteemed Mr. Marcel Nicolaescu, let’s start with the numbers! How did things go in 2015, in terms of three basic indicators: turnover, profit, number of employees?
At the end of 2015, ELCEN reported a turnover of lei 1.51 billion, of which RON 623.6 million from electricity, lei 888.9 million from heat and the remaining lei 3 million from other sources. The company achieved lei 107.6 million in net profit in 2015. However, we are talking about accounting profit. Because we still have money to collect from RADET. And the amounts are pretty impressive. We are not talking about lei 1-2 million. It’s easy to say: ELCEN makes a profit, why are they still asking for money from RADET? However, it’s even easier and more logical to look at these historical debts rolling like a snowball and creating huge problems for us with our gas suppliers. Just like we are waiting for RADET’s invoices to be paid, our suppliers are asking for their money for the goods they supplied. This is where the City Hall should understand that we are in a vicious circle which ultimately affects the consumer. All our efforts, each year, were for the people to benefit from decent conditions – hot water and heat. Especially given that our collection ratio from individual clients is very high, between 94% and 96%.
As regards our staff, as in any company, we have a fluctuating headcount, but we are now somewhere above 2,000 employees.
It is clear, financial statements may, sometimes, hide the actual circumstances of a company. You referred to difficulties in collecting money from RADET, which causes tensions with the raw materials suppliers, but also liquidity problems. Where are you now in your relationship with RADET and what are the outlooks to recover the debts?
On 31 December 2015, RADET Bucharest had a debt amounting to lei 3.6 billion to ELCEN, which at the end of the first quarter of this year increased to lei 3.73. We are currently in the process of debt recovery. We have a decision of Bucharest Tribunal obliging RADET to pay ELCEN approximately RON 259 million, overdue debts according to the protocol concluded between Bucharest City Hall – RADET – ELCEN, on 18 December 2008. RADET accounts have been garnished to recover this amount. But this is only a small portion of the money we need to recover from RADET for the goods we supplied.
The problem is that the City Hall allocates less and less money for the subvention each year. RADET needs a certain amount to cover the subsidy, and the City Hall keeps granting less and less, with every year passing. Let’s look, for example, at this year’s budget. The needed subvention was of nearly lei 800 million, while the City Hall only allocated approximately lei 550 million. If the City Hall paid these amounts to RADET, and then the money got to us, the situation would be different. This is a duty that the City Hall has towards its citizens. In addition, ELCEN holds another enforcement title for lei 1.492 billion, which is to be implemented in the near future.
The RADET deadlock has numerous causes, coming from a complicated history. The solution discussed in previous years – a merger between Elcen and RADET – is no longer considered as an option. An option circulated by RADET officials involves the construction of district heating plants, which would be smaller and closer to the end consumer. Do you find this idea feasible?
The deadlock with RADET Bucharest needs to be understood under its two aspects, the financial and the technical one. The financial deadlock is caused by RADET’s failure to pay heat invoices for the goods we have produced and delivered, but which were not paid. The technical deadlock comes from the precarious situation of transport mains, which lead to high energy losses, of up to 30%. The system’s hydraulic regimen was always below the specific parameters: flow and pressure, on both supply and return circuits. Currently, they are at approximately 30% of the value of parameters for which the entire heating system was designed.
The solution that is “no longer an option”, for valid legal reasons, was the one in which ELCEN was to first become managed by Bucharest City Hall and then, together with a RADET changed into a trading company, should have formed the new SACET.
The ELCEN-RADET merger is still viable. Moreover, ELCEN wishes to set up, as soon as possible, a pilot project for Grozăvești area, involving the construction of a new Grozăvești entity which, together with the relevant transport and distribution system (a small SACET) will prove the feasibility and viability of this system. Similarly, other ELCEN plants may be assigned heat transport and distribution networks, of course with the relevant personnel from RADET. Thus, there will be four such SACET entities, which can be managed in a far better way, from all points of view.
Of course these projects can only be implemented with the involvement and participation of all stakeholders, starting with ELCEN and continuing with RADET, Bucharest City Hall and the Ministry of Energy.
On the construction of district heating plants, it must be said that if the thermal plants are correctly sized for areas in the capital with less heat than needed, they could be welcome. The investment will necessarily be the subject of a feasibility study that will highlight its profitability or lack thereof.
It is also known that the European Union encourages high-efficiency cogeneration and the lowest cost of production of electricity and heat are in highly efficient cogeneration units. ELCEN is now fully compliant with the cogeneration requirements and especially with environment requirements, proof being that our energy units qualify and receive a bonus, according to the support scheme.
However, ELCEN still has to refurbish and upgrade an important volume of its production capacities.
ELCEN faces the following constraints:
- Until 2020, the company needs to upgrade the burning system in 6 steam boilers of 420 t/h each;
- Until 2023, the company needs to commission combined cycle units (gas turbine, heat recovery boiler, steam turbine), capable to produce electricity and heat simultaneously, under high efficiency conditions;
- The ratio between the heat needed in summer and the heat needed in winter is approximately 1 in 12. More precisely, consumption in Bucharest is 140-160 Gcal/h in the summer and approximately 1600-1800 Gcal/h in winter. This reality obliges ELCEN to also commission high end heat production installations, known as CAFs (hot water boilers) in each of its 4 plants.
The commissioning of the above objectives will ensure that quality heat is provided to the end consumers, cheaper than today. ELCEN already started the modernization and renewal of its energy producing assets, and the procurement procedure to modernize two CAFs of 100 Gcal/h each, in CTE București Vest and CTE Grozăvești. For CTE Grozăvești, a procurement procedure is to be started for a high performance, high efficiency, combined cycle cogeneration unit.
ANRE also advanced the possibility – imposed by the sharp decline in natural gas prices – to give up, until the end of this year, the gas price liberalization schedule for the population. How would you be affected by such a decision? Do you see it as necessary and welcome, or on the contrary?
A measure to waive the gas prices liberalization schedule for the population would be beneficial in the short term, given the low level of imported gas at the time. This reason is only valid if ANRE does not impose, by way of changes and/or interpretations of the Network Code for the national natural gas transport system, discriminatory tariffs which would hinder the purchase of cheap imported gas.
In the medium and long term, we need to take into account the price volatility of oil and petroleum products on the international market. They may have upward developments which, of course, would lead to an increase of the price of natural gas, including the gas used in the production of heat for the population. Under such circumstances, the liberalization measure could create difficulties for both the population and the producers of heat for the population.
For this reason, ELCEN believes that in the future the price of natural gas for the population (including the gas used by heat producers for the population) should be controlled by the regulator, of course, in a form agreed upon with the European Union.
Electrocentrale București will be affected by an upward trend of natural gas prices for the population, which, in the end, will ultimately impact the price of the heat ELCEN delivers to the people of Bucharest.
What are your investment plans for 2016 and what do you predict in terms of the evolution of ELCEN’s main financial indicators?
The company’s income and expenses budget for 2016 was not approved by the Government yet, but it provides for profit. ELCEN aims at a very ambitious program regarding the investments and projects this year. Basically, until 2023, our company needs to replace more than 50% of its current production capacity. Part of the current energy units are close to the end of their lifespan and are obsolete both from a technical point of view (physical and moral wear and tear), and from the point of view of compliance with the environment legislation, they no longer being authorized to operate.
If all factors involved in this matter support the actions proposed by ELCEN then, starting in 2023, the Bucharest heat supply system will have modern, reliable capacities allowing significantly smaller costs to the end consumer.
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The full version of this article can be read in printed edition of energynomics.ro Magazine, issued in May 2016.
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