High-voltage financial shock - Electricity market price to jeopardize industrial producers' work

High-voltage electricity consumers will be buying electric energy directly on the market as of 1 January 2013, and some of them fear that the price will be 60 percent higher than it is now.

Among the big consumers are successful companies: Lafarge, Sirmium Steel, NIS, Messer Tehnogas, Kronospan, FAS, Holcim, Titan, Sevojno Copper Mill, which employ thousands of workers and are top exporters in Serbia, and these new, high expenses will contribute to them losing their competitiveness, cutting exports, and even stopping production and declaring bankruptcy in some cases.

As some of these consumers say, despite the fact that the Energy Law allows for a free choice of electricity supplier, nothing has been changed in regard to the setting of a price for this fuel, given that there is no realistic possibility of refusing an already defined and offered price, like in the case of tariffs, that is, regulated prices approved by the Serbian government.

- Although we understand that the aim of the Electric Power Company of Serbia (EPS) is to increase the electricity price, we believe that such drastic and momentary increase may cause an immense economic damage to both individual companies and the economy of the Republic of Serbia in general - explain the consumers we`ve talked with.

In their opinion, one of the possible solutions is to increase the price of electricity in a responsible manner, which would not lead to a price shock in the market and other dramatic consequences, but give time to the industries hit by that increase to gradually adapt over the period of minimum three years.

Such practice is seen in certain EU countries, where the transition period lasted for between 5 and 10 years.

People at the Energy Agency told us that the market in Serbia had been potentially open to all buyers since 2008, with the exception of households.

- It is believed that from that time on, buyers have been preparing to start buying energy in the market independently. When it comes to natural gas, purchases at free, unregulated prices account for about 40 percent of the total annual consumption since 2010. However, there has been no interest in buying electricity on the market because its market price would be higher than the regulated one - said people at the Energy Agency.

When asked whether the price of electric energy would really go up 60 percent, they said that they were not responsible for market prices.

- There are 59 licensed electricity suppliers in the free market in Serbia. The price of electric energy will be a result of the market competition between these suppliers. It cannot be expected that the price will be lower or equal to the current regulated price, which does not reflect the real costs of operations and development of power companies because of the efforts that government bodies put into limiting the growth of regulate prices.

Private companies are additionally discriminated because large state-owned consumers are also big debtors. Among the largest debtors are companies in the restructuring process, which this status protects from enforced collection. That process is nowhere near the end, and the state plans to reduce the incentives paid to them as early as next year. On the other hand, such companies will also face higher expenditures in the future.

This new rating system will hit existing producers, but it will definitely affect the interest of new comers as well because the terms of industrial production are becoming less and less attractive.

There are good examples too

In spite of the fact that the Energy Law validates EU directives for the development of internal electricity and natural gas market, some members of the European Union still take steps to help industrial producers.

One of them is Germany, which decided to start a mechanism for reimbursing industries in 2014 because of an increase in electricity price. That increase is expected in the next few years due to a larger production from renewable energy sources and the obligation to buy quotas for carbon-dioxide emissions in the EU. This measure aims to preserve the competitiveness of the German industry in international market and prevent production relocation, and Berlin will partially compensate largest consumers for electricity expenses.

We now have to wait for a reaction from our state because until the publication of this article, the Energy Ministry did not send answers to the questions we had asked them.