Montenegro’s EPCG reports H1 profit but might end 2013 in loss because of KAP

By bne IntelliNews July 30, 2013

Montenegro’s state-controlled energy firm EPCG operated profitably in the first half of the year but might still end 2013 in a significant loss if it is does not receive EUR 61mn for the electricity consumed by aluminium firm KAP, the head of EPCG’s board of directors, Srdjan Kovacevic, said.

Kovacevic told TV broadcaster RTCG in an interview that the first six months were extremely good for EPCG and the company eyes EUR 40mn profit by the year-end. “This will still swing into loss if the above liabilities are not paid.”

He explained that at present the EUR 60mn debt owed to EPCG for the electricity supplied to KAP (including via Montenegro Bonus and power grid operator CGES) is calculated as revenue in EPCG’s balances – and if it is not paid, this would directly impact this year’s financial result with a negative EUR 60mn.

The government, which owns 55% of EPCG, is trying to revise this year’s budget in order to settle some of KAP’s debts, including the one to the energy producer. However, it is very likely that the budget revision proposal fails to pass parliament since the members not only of the opposition but also of junior coalition partner SDP are against it – and in particular against the state taking over KAP’s debt to EPCG.

On the other hand, as Kovacevic specified, EPCG’s overall debt towards the state is EUR 46mn (including unpaid VAT and unpaid taxes and contributions on employees’ wages).

There have been speculations that the management of EPCG – run by Italy’s A2A, which also holds a 44% stake in EPCG, has allowed the piling of KAP’s debt because in return the government has silently let it not service its fiscal dues.

According to Kovacevic, the Italian management had too much trust in the Montenegrin parliament and government regarding KAP, which resulted in the current state when it is owed a huge amount of money. Since the financial results of EPCG are consolidated in the balances of the Italian company, this EUR 60mn loss would also impact the financials of A2A. Therefore Kovacevic believes that the problem should be solved in negotiations between the government in Podgorica and A2A – in opposite, there are fears the Italian company could file an arbitration claim against Montenegro.

EPCG already saw its first-quarter net profit soaring to EUR 14.6mn from EUR 1.4mn in Jan-Mar 2012 after operating revenue jumped 13% to EUR 77.7mn over the period, while costs fell 27% to EUR 56.7mn, data from its financial statement showed.

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