Official data indicate the Pljevlja Coal Mine is in debt and has accumulated operating losses, so it cannot finance the opening of new deposits necessary for the operation of the second block of the Thermal Power Plant (TPP) Pljevlja with its own funds.
The single largest shareholder of the Mine, which was threatened with freezing of accounts due to tax debt, is Italian company A2A, followed by the State of Montenegro, while the third largest shareholder is the brother of the Prime Minister, Aco Djukanovic.
Official documents, as well as documents in possession by the MANS Research Centre, indicate that the Coal Mine should invest 230 million in the opening of deposits and re-cultivation of land by the end of operation of the first and second block of TPP Pljevlja. The Government document “Technical and Economic Assessment of Thermal Energy Potential for Supplying the Second Block of the Thermal Power Plant with Coal”,[1] which was adopted in July 2013, estimates the investment costs for the opening of deposits at 145 million euro.
The document did not state the costs of re-cultivation of new deposits, even though this is an obligation prescribed by the Law on Mining. The documents in possession of the MANS Research Centre[2] indicate that the Coal Mine estimated the costs of re-cultivation for the Potrlica deposit at 1.17 euro per tonne of coal in 2010. According to baseline studies[3], which were used as the basis for the development of the Draft Detailed Spatial Plan for TPP Pljevlja, the mineable reserves in new deposits amount to 73 million tonnes, which indicates that the costs of re-cultivation which would be incurred by the Mine would be more than 85 million euro.
The financial statements of the Pljevlja-based company (Report for 2013. and Report for 2014.)[4] indicate that it has accumulated large losses and debts toward the state, and that it survived for years thanks to loans guaranteed by the state Montenegrin Electric Power Enterprise (EPCG).
At the end of last year, the Coal Mine had nearly eight million euro of long-term loans with maturity longer than one year, while short-term liabilities of the company amounted to a total of 40 million euro. Among this amount, the obligations for taxes and other public revenues amounted to a total of 26 million.
According to the latest official data the Department of Public Revenues (DPR) published last week[5], the Coal Mine still has large debts toward the state. Specifically, its debt for taxes and contributions amounted to 14 million euro, while the other black list by the DPR states a debt of 374 thousand euro (concessions, VAT…).
The audit report for 2014 calls into question the certainty of the company’s operation, indicating that the company’s uncovered losses amounted to 17.3 million euro at the end of the year, while its short-term liabilities exceed its current assets by almost 28.7 million euro. “These issues indicate the existence of significant uncertainty in the company’s ability to operate in accordance with the principle of business continuity”, stated the auditor in its report for 2014.
According to the financial statements of the Mine, which were published on the website of the Securities Commission, between January and the end of June this year the company recorded a profit of 2.1 million, and accumulated losses amounted to 19 million euro.
The Mine has failed to finance its regular operating costs from income for years, instead incurring credit debt despite it not being able to provide adequate collateral. In this way, the company’s audit reports for the last two years indicate that the Coal Mine raised a loan of 15 million euro from Erste Bank Podgorica in 2012 in order to settle its tax liabilities. In addition to its own promissory notes, it also used promissory notes of EPCG as collateral, as well as cessation and surety agreements which the Pljevlja-based company concluded with the state-owned energy company.
In 2013, the Coal Mine signed a loan agreement in the amount of 4.3 million euro with Hypo Alpe Adria Bank from Podgorica, which was used to refinance the liabilities from an earlier loan by Hypo Bank from Klagenfurt. Promissory notes of the Mine and EPCG were also used as collateral for this loan. The Mine also took two new short-term loans from the First Bank (Prva banka) in 2014 amounting to almost two million.
In the Draft Energy Law, which is being reviewed by the Parliament, the Government proposed coal mining for the needs of producing electrical power to be classified as an activity of public interest. The Law on State Aid Control allows state aid (subsidies, fiscal exemptions, debt write-offs, etc.) for activities of public interest.
To date, there is only one company engaged in coal mining for the purpose of producing electrical power in Montenegro: the Pljevlja Coal Mine. Any form of state aid to the Pljevlja-based company, such as write-offs, clearing of debts, etc., would be at the expense of the state budget, and could be linked to indirect aid to the project of building the second block of the TPP.
Officials of the Coal Mine confirmed the company is counting on state aid, but they claim it would only relate to long-term repayments of tax debt.
“We are considering applying for state aid in the part relating to the renegotiation of the existing debt towards the state. Therefore, it is not our intention to further burden the state coffers, but to return existing debt in a timescale acceptable to both sides”, states the official response of the Coal Mine.
This article was made with the support of the European Union as part of the project “Zero Tolerance for Corruption”. The contents of this article are the exclusive responsibility of the Network for Affirmation of the NGO Sector – MANS, and the opinions contained herein cannot be considered as the opinions of the European Union in any circumstances.
Thermal Power Plant lost 40 million of revenue in 2009
Representatives of the Coal Mine were asked whether the company has the financial strength to keep up with the project of constructing the second block of the TPP and on what basis they can claim that, since they are in debt and have accumulated losses, which indicates that the company cannot finance the opening of deposits for the second TPP block from its own funds.
“If the Thermal Power Plant operates in a stable manner throughout the year in the following period, and if the coal price is at an acceptable level, the Mine will also operate in a stable manner. With annual revenues of between 40 and 50 million euro, and with further rationalisation of operating costs, the Mine will be able to finance further development from its own funds as before. At this moment, the Mine regularly pays all its obligations, and the only item where we are late is the payment of contributions on employee wages. The fact that these arrears are constantly being reduced is certainly encouraging”, the company management replied.
They stated that the Mine started production in 1952, 30 years before the opening of the Thermal Power Plant, adding that “its functioning has been stable since, without any serious losses and problems”.
“Since the Thermal Power Plant was opened in 1982, the Mine was technologically restructured and adapted to the needs of the Electric Enterprise, therefore at this moment production for the Thermal Power Plant amounts to around 95 percent of the total production. This actually means that the Mine is entirely dependent on the operation of the Thermal Power Plant. The problems you mentioned were mostly incurred in 2009, when the Thermal Power Plant was out of operation for nine months, and when the Mine lost around 40 million of revenue”.
Coal Mine Pljevlja: account freezing would paralyse us; development projects can also be implemented through loans
When asked whether the company was still threatened by the freezing of its accounts due to tax debts to the state, officials of the Mine stated that a freezing of accounts “would completely and momentarily paralyse the Mine”.
“The Mine regularly meets its current tax liabilities and reduces arrears for contributions. At the beginning of the year, these arrears amounted to almost 18 million, and now they are reduced to 14, with the ambition to reduce them to 13 million by the end of the year. A freezing of accounts would completely and momentarily paralyse the Mine, and we do not see the logic in such a move. If the loan renegotiation is adopted through the mechanism of state aid, then the danger of freezing accounts will not exist even from a formal standpoint, and the Mine will be able to finance development projects through loans from commercial banks if the need for it arises”, states the official position of the management of the Mine.
They were also asked whether the Coal Mine has the financial strength for new investments, given that it should invest 230 million in the opening of deposits and re-cultivation of land by the end of operations of the first and second block of the TPP.
“We do not know the source of information stating 230 million of investments, since we have lower figures. However, even if the planned scope of investment is 230 million, we are talking about a period of almost 50 years and consequently, investments of around five million per year. If the Thermal Power Plant operates in a stable manner, the Mine could finance this level of investment. This year’s investment plan also envisioned an amount of around five million euro”, the Coal Mine management replied.
[1] Information by Government of Montenegro on the Project TPP Pljevlja II, from July 2013
[2] Study assessing the impact of surface mine Potrlica
[3] Baseline studies for Detailed Spatial Plan of Pljevlja Thermal Power Plant and Strategic Assessment of Influence on Environment for the DSP
[4] Auditor’s report for 2014, auditor’s report for 2013
[5] http://www.poreskauprava.gov.me/vijesti/153035/SAOPsTENJE-AzURIRANA-LISTA-NAJVEcIH-PORESKIH-DUzNIKA.html
