NewsFinancial maneuvers: EPCG's covering of CEDIS's deficits raises concerns

Financial maneuvers: EPCG’s covering of CEDIS’s deficits raises concerns

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The Board of Directors of Elektroprivreda (EPCG) has granted book approval on Wednesday to cover the €15 million deficit of its subsidiary, the Montenegrin Electricity Distribution System (CEDIS), for the previous year, as reported by Pobjeda.

In tandem, EPCG has adjusted invoices to align with regulatory-approved rates for CEDIS, further mitigating the losses of the company. This maneuver, however, is described as financial “acrobatics,” marking the third consecutive year that EPCG has shouldered CEDIS’s losses.

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As a consequence, EPCG’s financial statements reflect losses, impacting dividends payable to the state budget from this government-owned entity.

According to sources within Pobjeda’s editorial team, all three members of EPCG’s audit committee opposed the decision of the Board of Directors. They argued that granting book approvals would significantly affect the reported financial results of both EPCG and CEDIS, potentially triggering negative implications regarding profit taxation and transfer pricing. The committee expressed concerns over the timing of the book approval, considering it unusual to grant such approvals almost three months after the end of the fiscal year. They cautioned against interpreting this move as an attempt to manipulate the balance sheet.

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The audit committee members stated their inability to assess the justification for such transactions, as they fall under the purview of management decisions. Consequently, they advised against EPCG’s management making a decision to grant book approvals.

The new composition of EPCG’s Board of Directors, elected in February, includes Milutin Đukanović (Nova Srpska Demokratija) as chairman, alongside members Tahir Đonbaljaj (Albanska Alternativa), Neven Gošović (Demokrate), Simo Jokić (PES), and three experts in the field of electric power engineering – professors Jovica Milanović, Vladimir Katić, and Zoran Miljanić.

This decision extends EPCG’s practice of covering its subsidiary’s deficits. Last year, EPCG injected €21.6 million into CEDIS to address its losses from 2021 and 2022 through recapitalization.

EPCG shareholders endorsed a proposal last June to increase the company’s stake in CEDIS, leading to the injection of funds for financial consolidation, aimed at mitigating market disruptions.

These financial maneuvers preceded CEDIS’s decision to withdraw its request at the end of 2022 for determining regulatory-approved revenue for the previous year.

The President of the Regulatory Agency for Energy and Utilities (REGAGEN) Board, Branislav Prelević, highlighted the consequences of disregarding the regulatory framework. He cited instances where the Agency’s proposal for covering technical losses at a rate of around €119 per megawatt-hour (MWh) was affected by CEDIS’s withdrawal of its request, leading to compensation through temporary prices at €53 per MWh.

This move, Prelević claimed, resulted in CEDIS incurring voluntary losses of significant amounts.

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