By Poly Pantelides
THE SEMI-STATE Electricity Authority of Cyprus, EAC, will no longer get away with being a monopoly in the coming years and needs to become competitive if it is to respond to a changing landscape, the Energy Minister has said.
Speaking on Monday at the EAC presentation of its 2012 results, Giorgos Lakkotrypis said the government was taking action to liberalise the market next year to enable consumers to choose their energy supplier.
“It is exactly for this reason it is urgent the EAC strengthens its competitiveness, immediately and substantially,” Lakkotrypis said.
“The authority cannot continue operating under the status of a monopoly, where Cypriots pay the most expensive electricity in the European Union and with the organisation facing the liquidity problems that have arisen,” Lakkotrypis added.
The energy regulator appointed an advisor earlier this year to review the electricity market model and remove barriers to active competition. In theory, the market is open to competition.
The EAC claims there have been no new entrants because the rates of return on capital are kept artificially low to keep prices down because of the high costs of power generation due to a dependence on fuel oil.
EAC board chairman Charalambos Tsouris said on Monday the low returns on capital (fixed by the regulator to up to 8.0 per cent for energy production) are “clearly not attractive to the private sector which has consciously decided not to compete with the Electricity Authority”.
“If the private sector was willing to accept the low [profit] margins granted to the EAC or if it were in a position to sell electricity more cheaply than the EAC does, it would already have become active in the Cypriot energy market,” Tsouris said.
The EAC posted a €77.2 million profit after tax in 2012, compared with €69.6 million in 2011. Tsouris said that some €48m of the 2012 profits went to loan repayments.
Meanwhile, the company needs to deal with its cash flow problem, made worse by overdue electricity bills, substantial employee allowances and a failure to restructure the organisation, according to the auditor-general.
Chrystalla Georghadji has said in her 2012 report on the EAC it was not clear whether the organisation was a going concern, i.e. whether it could stay in operation in the foreseeable future.
Her report said that at the end of 2012 the EAC was owed €57.2m in arrears from the sale of electricity. In the first three months of this year, the amount rose to €77.2m.
Meanwhile, the EAC’s annual report states the company will need to pay close to €397m in the span of this year, in capital and interest arising from debt obligations, as well as from trade and other payables.
But the EAC, as a semi-governmental organisation, has been asked to cut allowances by 15 per cent and agreed with unions to scrap 17 of a total of 42 allowances as of October 1. This includes scrapping the overnight allowance and an allowance known as the “call allowance” that was paid to EAC employees who used their phone on a Sunday to call colleagues on work-related matters. The “outside meal allowance” that came to almost €1.5m in 2012, will be cut by 25 per cent.
Overtime will now be paid for non-scheduled work only, but will be reduced by 50 per cent.
The EAC has also prepared a Liquidity Response Plan on a going concern basis to ensure it can meet is cash flow needs for the next 12 months. The plan assumes a decrease in sales and sales revenue.
In 2012, consumption went down by a total of 5.2 per cent compared with 2011, although there were slightly more consumers, from 544,000 in 2011 to 548,000 last year. The EAC said it expected consumption to fall by around 15 per cent this year “mainly due to the country’s economic crisis as well as to savings on the part of consumers”.
As part of the plan, the EAC is looking to reducing staff numbers by 10 per cent over the next five years and encourage 83 members of staff to take on early retirement at a cost of €5 million (compared with the additional €11 million it will cost the EAC to keep them on). The EAC is also expected to save on operating expenses, secure further financing and has warned it will intensify efforts to recover amounts owed to it by consumers.
Lakkotrypis hailed the EAC’s decision to reduce 49 managerial positions, as part of its efforts to trim expenses.
“For the sake of your organisation, but also of the country in general, I call on you to continue your efforts with the same boldness and decisiveness,” he said.
EAC 2012 annual report
Last year, some €1.19billion went in and about €1.08 billion went out of the EAC’s coffers. The authority’s profits counted €86.1m, €8.9m of which went to taxes.
The EAC spent €645m in fuel and €91.2m towards the salaries of staff and other related expenses. As a percentage of total expenses, fuel oil came to 58.7 per cent, salaries and related expenses came to 8.3 per cent.
According to the auditor-general, a total of 42 allowances were given out to EAC employees last year, which came to €11 million, some €400,000 less than 2011. Overtime alone came to €3.45 million of the amount paid out in staff allowances which also included an “outside meal allowance” of nearly €1.5 million and a travel allowance of about €456,000.
The EAC employed 2,319 staff according to its annual report, 2,270 were permanent employees. Some 1,142 pensions were given compared to 1,061 in 2011.
In 2012, the EAC actually had some €106 million available in cash and had taken out new loans totalling €75 million. The amounts went towards repaying debt (€48m); deposit guarantees (€42m); financing capital expenditure (€73m); and reducing bank overdraft (€18m).
