BALKAN BLOG: Silence on ‘scandal’ at Serbia’s EPS suggests all is not as it seems

BALKAN BLOG: Silence on ‘scandal’ at Serbia’s EPS suggests all is not as it seems
By Alex Young in Belgrade December 1, 2016

When reports of “the greatest scandal” to ever hit Serbia’s giant national power utility Elektroprivreda Srbije (EPS) first began appearing on November 26 and Prime Minister Aleksandar Vucic intoned that he would speak to the public on November 29 when he had all the “precise information”,  people expected a bombshell. However, sources in Belgrade say the ensuing silence and lack of new information suggests something else is going on.

The alleged corruption scandal, according to EPS officials, centres on a power trading subsidiary that only in June became part of the EPS group as part of a wider effort by the previous management to consolidate the sprawling company, which for decades was little more than an agglomeration of fiefdoms run by entrenched interests.

According to the officials, EPS Snabdevanje (“Supply”) had apparently lost 300 large customers (the lucrative ones, such as Philip Morris, Lafarge etc.) and this was due to malfeasance by managers at the subsidiary during the previous administration of EPS. This had led to losses in the “tens of millions”, which have yet to be accurately assessed. Public broadcaster RTS reported that 15 managers of EPS Snabdevanje have either been dismissed or reassigned to new jobs.

However, further information out of the company is proving hard to get; most crucially, about why the present administration at EPS appears to blame the loss of the large customers on the previous management, when sources say it’s clear that those customers began leaving from May, months after the managers had left. Dragan Jeremic, the previous head of EPS Snabdevanje, left on February 1, while Aleksandar Obradovic, the previous director of EPS, was fired on March 3 for political reasons ahead of the snap elections in April. EPS did not return calls or respond to emails for this story.

According to Blic newspaper, where the original report about the scandal appeared, EPS Snabdevanja managers increased the price charged to large buyers without permission and without the knowledge of senior managers. This resulted in the utility losing multiple supply tenders to these customers.

However, sources say that while they can’t rule out corrupt practices, what is more likely to have happened is that the new EPS director, Milorad Grcic – a party hack drafted in by Vucic with no business or industry experience  – has allowed those managers to raise prices, which has caused the large customers to start drifting way to competitors.

That is why EPS’ share of electricity sold in Serbia has fallen from over 99% earlier in the year to around 98% today, and on present trends will drop to 96% over the next few years. The amounts may seem small, but it’s the most lucrative customers at the top that are being lost, not the susbidised grannies, and given that EPS makes 80% of its money from just 20% of customers, this will have a huge impact on its financials over the coming years if allowed to persist.

Trying to shift blame for the loss of lucrative customers onto corruption and mismanagement by the previous administration might have seemed like a good idea at the time to Grcic – until it snowballed into a huge story that now has the attention of the PM and the country.

The turn of events comes just as the perennially lossmaking EPS finally reported some good news. On November 25, EPS reported profits of RSD15.3bn (€124.2mn) in the first nine months on the back of cost savings such as laying off workers and stamping out waste and corruption – efforts which have been ongoing for about the last five years.

The International Monetary Fund and World Bank have pressed Serbia to deal with the problems at EPS for years, with Tony Verheijen, the World Bank’s Country Manager for Serbia, calling the utility “a bewildering phenomenon… [where] vested interests have managed to divert the discussion to one over severance levels, which is in many ways a secondary question”. The new ‘political’ management at EPS since April is not to the multilateral lenders’ liking, say sources, and Vucic apparently met with World Bank representatives on November 30.

Those World Bank officials will no doubt have wanted to hear more about the ‘scandal’ at EPS, though they are unlikely to now be any the wiser. The president of the Supervisory Board of EPS, Branko Kovacevic, said on November 30 that the board has not yet received the report of internal control EPS, nor did it expect to get it soon.

Don’t hold your breath. The Serbian government wants this quietly to go away lest people start asking questions about why EPS is rapidly reverting to its bad old ways – a poorly run company that is an object of political patronage.