Tomaž Orešič, EFT’s new Group Head of Marketing – Central and Western Europe, about company’s presence in south east Europe and development of energy market.
Tomaž Orešič, previously board member of Elektro Maribor, took the post of Marketing Director in the international company EFT for central and western Europe in EFT’s new office in Maribor. He told us more about the company, present in 17 European countries, where it supplies over hundred energy utilities, is also active on six energy stock exchanges and it last year achieved turnover of 600 million euro.
In your interview for Energetika.NET at the end of 2005, then being a board member of Elektro Maribor, you told us you expected more energy suppliers in Slovene market but also strengthening of the existent ones. You also said that the market would significantly change, not so much in 2006, but certainly in 2007. Some new suppliers have indeed entered the market. Are these changes in line with your expectations? Do you believe there is enough competition in Slovene market? What kind of changes do you expect until the end of this year and later?
I believe the wholesale market prices had a great impact on development of the Slovene market. The wholesale price in Slovenia has been rising in the last year comparing it to the exchange price in Leipzig. Two years ago we could calculate the price with EEX exchange index, however, the price for 2008 can only be calculated with the prices 20 or 30% higher than EEX. This index became almost irrelevant for Slovenia. The prices eastern (Hungary), western (Italy) and southern from Slovenia are thus of much greater importance for the Slovene price and that has also influenced the development in the retail market. With the level of price for the imported electricity so drastically high it is difficult to expect competitive energy suppliers in the retail market which would not have their own production capacities in Slovenia. So we can expect suppliers which own production capacities in Slovenia to have a decisive role in the next year or two. Until recently it was commonly believed that suppliers owning production sources in south eastEurope could offer energy at a lower price. Today we can witness demand already exceeding supply in the region, having higher prices as a consequence. Does that mean the energy produced in south east Europe will be more expensive than energy produced in Slovenia?
The market price in a particular national market is of greater importance than the production price of energy. As I have already said, the wholesale price in Slovenia almost entirely correlates with the Italian price or with the price in south east Europe and it is becoming similar among states. Direction of energy import remains from Austria, but due to congestion the price is equalized to the south east European one. The remaining energy shortage will be covered from that region.It is also hard to expect any positive influence to rise as a result of the new nuclear power plant inRomania and of the new 400 kV transmission line opening betweenHungary and Romania. Until Slovenia will so extensively depend on the electricity imports, we cannot expect different circumstances in our market.
“Energy industry needs profitable companies with clear long-term vision, which can in the long run assure reliable and secure supply with electricity,” is what you wrote in your blog. Do you believe energy companies in Slovene market do not perceive it as a profitable business?
In Slovenia we can witness some mutual belief that the energy industry should first of all satisfy wide public interest and not so much the interests of the company owners or the company itself. The security of supply is a foundation, but nevertheless there is also the legal framework which specifies the quality of supply and allows bigger or smaller profit. Only profitable and successful companies can contribute to development of new and quality service, adjustments to the market in the IT sphere and, most importantly, investments in new capacities in Slovene and other markets.
But the once state-owned companies follow this direction…
The similar foreign companies, located also in our neighbouring countries, are much more profitable and some of their owners also show more impetus to spread their operation to foreign markets. It is a fact, however, that some big expansion in the Slovene energy market is not attainable, so if Slovene energy companies want to grow, they will need to find their opportunities elsewhere. While the economy of scale issue is very serious in Slovenia, only growth can bring to higher efficiency. Moreover, the (previously) state owned companies need to wait for the majority owners’ decision in regard to the eventual mergers of these companies, their positioning in the energy pillars’ framework but also the possible further ownership unbundling of network assets.
What is the position of other suppliers comparing them to the incumbent utilities? All energy suppliers with no access to the Slovene energy production capacities are momentarily in a subordinate position. The current situation indicates that changes will occur in the mid term, additionally, the strategies of other suppliers in the energy market in Slovenia will depend on developments in the market.
So you are taking your own energy sources in consideration in the EFT?
EFT is active in 17 European national markets and its decision to enter a particular market depends entirely on the business opportunity which that market offers. The company’s choice is pragmatic and depends solely on the business sphere and market potential.EFT has until now been exclusively a trading company, however, in the last period it has decided to intensively invest in its own production facilities. The first major investment is already in preparation. We are talking about 420 MW thermal power plant Stanari, located next to Stanari coal mine in Republika Srpska, which has been owned by our company since 2005. With this 420 MW production capacity the company’s position in the region will significantly change but nevertheless we will search our opportunities for other production capacities elsewhere. Some of the projects are already being prepared.
Also in Slovenia?
It depends on the opportunities, but clearly, we have interests in all countries where we are present.
EFT is particularly active in central and south east Europe. What is the difference among business environments in these parts of Europe?
There are countries which are friendlier to new entrants in their energy markets and there are countries which are not. I could not say that that depends on a particular region as every country has its own political characteristics and market specifics, on which the new companies are dependent on. Generally, the European policy strives towards the merging of the European national markets into one single European energy market, which should be open and transparent, and to enable operation of all market participants. The desired competition and quality of service for the customer’s benefit can only be achieved this way. Any other restriction in a particular country is limited in time and in the role to serve the profit maximisation for the incumbents.
Could we say that original EU members support European policies to a greater extent and are therefore friendlier towards new entrants in the market?
It depends. If we take United Kingdom and France for example, they share completely opposite views on liberalisation and energy market opening. Similar comparisons can be found among new members, Poland or Bulgaria. Slovenia is not renowned as a country to be open towards new or foreign energy companies entering its market. These assumptions are, of course, very general. Official political positions of individual countries considering the third energy legislative package, expected to be discussed this autumn, are of greater relevance. We can witness quite different positions towards European Commission’s aspirations, most of all the Commissioner for Competition’s, Mrs Kroes’, that the new European energy directive would separate the network management from other activities, above all production and sale. Not long ago we witnessed the common position of six European countries, old and new, opposing this solution and trying to prove that ownership separation is harmful. But the countries supporting this solution approved to the Commission’s proposition this spring. Therefore we cannot really draw a line among old and new EU members on the issue of competition and on how the legislation has been applied, as every single country has some specific balance of power in the sector, different political aspirations of official energy policy or energy companies’ owners.
Let us return to the strategy of your company. What prevails in deciding for production sources? EFT wishes that support or opposition to new investments proposals would depend entirely on particular project’s influence on the security and competitiveness of supply in the market. It is a fact that new energy production capacity lack in the whole region and if someone is willing to invest, all environmentally and economically feasible investments should be welcome. Any delay or hesitation can be costly. If we compare the investment costs and time of delivery for equipment of large thermal energy production capacities two years ago with the present ones, we can acknowledge substantial extension of delivery time and price rise. We cannot foresee all that, but it is a fact that things should happen more quickly.
How much is EFT planning to spend yearly for production capacities investments?
That depends on TPP Stanari investment’s development and all the other projects. The whole investment for TPP Stanari will account approximately 600 million euro.
Since 1st June you have held the position of Group Head of Marketing – Central and Western Europe in the EFT Group. With your arrival the company has also opened its office in Maribor, prior to that it had only had one in Ljubljana. Have you therefore contributed to a more active EFT ‘s operation in Slovene market?
EFT has had its office in Ljubljana for three years, where it continues its operation, but it is true that the company has not been active in the retail market until now and that is why not much has been known about the company’s activities in the Slovene market. So you are also considering operating in the retail market? Concerning EFT’s further activities we will examine the market conditions and decide upon business opportunities.
You are already active in the wholesale market. How do you approach the big Slovene consumers? By sending them offers?
Presently we do not hand out offers for 2008 in the retail market. EFT has until now been operating in the wholesale market and has had some industrial and business end consumers. We have balanced energy in Slovenia daily and participated actively in everyday auctions on Slovene borders. All this is remaining in place.
You are responsible for marketing in the area of central and western Europe. What about Slovene market, what are you planning to focus on?
EFT’s future focus are energy projects in the entire region, according to the opportunities that individual projects offer. Our focus is therefore not on particular countries. Slovenia is believed to be a bridge between EU and south east Europe? Do you see it in this role as well?
Slovenia definitely is a geographical link between EU and the former Yugoslav countries, therefore I believe we could take better advantage of that. It is not enough to only rely upon your geographical position, we should also prove the importance of our role by employing skilled and competent people at the significant European energy institutions and by active operation in the neighbouring markets. This is the only way we could participate in creation of energy policy and also have an important role in the region. The Energy Community Secretariat in Vienna is competent for the sphere of energy policy in south east
Europe. It would be good if
Slovenia improved its role in this institution’s activities. We have for this reason, among other prominent guests, invited the director of the Energy Community Secretariat to attend the international conference Energija07 (www.energija07.si) which is to take place in November in
EFT has been established by Vuk Hamović with the help of Dr Svetislav Bulatović, who works in Belgrade. Has the position of the company been therefore strengthen in the south east
EFT has played a significant role in the energy market of south-east Europe. This year the company will deliver over 16 TWh of electricity. The construction of its own production capacities is only going to strengthen EFT’s significance in the region. It is a fact that important part of business is carried out in Belgrade, which however does not automatically influence the company’s strengthen position in south east Europe. We have skilled and credible individuals working in all offices in 14 countries that EFT has all over
Europe and they contribute to development of the company, every one of them in their own particular field and geographical position. EFT is an international company with a clear vision of growth, investment in production capacities, market position and human resource development. So the common belief is that suppliers with their own production capacities can actually be competitive?
That depends on a particular market. In Slovenia we are right now facing a situation where only suppliers with their own production capacities are competitive, in the central European market however, where the EEX price is relevant, the suppliers are more or less equal. Slovenia currently depends on the import of electrical energy and we cannot expect some competitive sources from abroad on a short term.
In Serbia, where your company is also active, the situation occurred where only two electricity suppliers took part in a public tender, considering there are 18 qualified suppliers in Europe. But even these two offered smaller amounts of energy that EPS needed. Can you explain why it is not possible to assure bigger amounts, at least as much as needed, and why have other suppliers not reacted?
The actual problem is that there is a lack of energy in the region. That was most obvious when high temperatures occurred in July and the consumption rose immensely. It is therefore a great problem to assure enough energy as your case clearly confirms.
Do you expect this situation to change? Supposedly the interest to invest in new capacities in south east Europe is immense…
Ideas of new investments in all countries, ranging from Slovenia,Hungary, Austria, Bolgaria, Bosnia and Hercegovina, to Serbia, certainly appear. We would of course wish some investments to be realised as soon as possible, so this would influence market conditions. It is nevertheless a problem that procedures of preparation and realization of investments, assurance of energy equipment as well, are being prolonged. That pushes the time limit of starting new facilities into the future. But all along the consumption grows immensely.
In Slovenia the procedures in the field of permit obtaining can be of quite long duration. The antagonism between environmentalists and energy professionals is also quite common. Does that also occurs in other countries in this part of Europe?
That certainly depends on a specific country. But we cannot afford to postpone investments in energy sources in Slovenia any longer. Some lobbies are declining investments in hydro production, which is the cleanest, they have also opposed the wind power plants and building of transmission lines. Additionally they oppose the thermal energy as well as the nuclear power plants. Maybe presently the price does not reflect the opposition of the mentioned investments but we can nevertheless expect the price to result from the production and transmission capacities’ situation in the country. Slovenia will have much greater problems than is facing presently if new investments do not begin soon. It is therefore important to overcome certain issues and decide what sources of supply are we planning to use.
What is the solution in your opinion? Maybe an active dialogue between environmentalists and energy professionals?
We can certainly not achieve any progress by forcefully entering the environment, the dialogue is therefore necessary, but we certainly need to acknowledge that we are facing serious hindering in energy supply without new production facilities. We cannot rely on import, which has already been proved with the above mentioned case of EPS.
Considering the progress of project realisations in Slovenia, is it possible to expect some supply hindering or can we still avoid them? Maybe comparing it to the investment impetus abroad? It is certainly difficult to comment on that, it is true however that energy infrastructure is much more developed in Slovenia than many places abroad. But we are nevertheless in inferior position considering energy production and we should seek opportunities to invest here and abroad.
Returning to the EFT’s position in south east Europe, is the company ready for other companies’ entrances in the regional market? Many western companies have indicated their interest to do so. How is your company facing this challenge in and is it inclined to cooperate with its competitors?
EFT is a very open company, prepared to cooperate with any company that shares mutual interest with EFT. Can you compare the work style in a public company to the private company?
I do not wish to comment on activities of my previous company, however, I would like to mention it is nice to work in a company with a clear vision and such high level of credibility. EFT has top-level managers in its business spheres; these are the area of electricity trading, risk management, investment decisions, but also in the field of mining and other technical knowledge.
What does “marketing” in a company like EFT actually mean?
The marketing area covers marketing activities in particular fields in countries of central and western Europe. The company is not known to the wider public as it is not present in the B2B and B2C retail market but it communicates directly with other energy companies and institutions.
So what exactly is your company’s strategy, to offer energy at the lowest price or to offer it at a higher price with some extra service?
This question relates to the retail market and we are still a bit careful to comment on that. It is a fact however that the supplier needs to offer the low price possible, since the final consumer makes its decision upon the price exclusively.