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Friday, June 3, 2011
James Nye: “We are building the first modern power utility in south-east Europe”

“EFT is at an exciting threshold. Our company is set to become the first privately owned power utility in the region, developed not through privatisation of the state power sector, but through organic growth and green-field investment”, says in an interview for CORd magazine, James Nye, one of the founders of the EFT Group. 

How has the current economic situation impacted your results? 

We have managed to record a profit in each year since we started trading electricity a decade ago. Last year we delivered over 26 Terawatt hours of electricity in 22 countries and achieved a record turnover of EUR 1.3 billion. The company’s equity as of January 2011 stands at EUR 208 million. Considering that this result has been achieved in a developing market, burdened with various constraints and volatility, we are obviously very proud of this achievement. One of the more important reasons for this success is the unparalleled knowledge within EFT’s ranks of the complex intricacies of the regional electricity market. We have managed in good time to attract the best energy professionals in the region and this gives us an analytical edge at times of volatility. We were thus able to anticipate the effects the collapse of the global financial system would have on the European and in turn the regional electricity market. This enabled us to take up the right market positions at the right time. Sadly, we are not yet seeing any strong signs of recovery in the region, so there are still many challenges ahead of us. 

We are witnessing the majority of the region’s largest companies experiencing severe difficulties in servicing their debt as a result of economic downturn. Is EFT troubled with the same issue? 

In short, no. Our growth model has been and is rather different to most companies operating in the region. As I mentioned earlier, we have accumulated more than EUR 200 million of our own capital. Very early on we decided to keep the majority of profit within the company. That has been a prudent decision, as it now allows us to have a relatively small debt exposure and at the same time have a sound basis for investment. 

Energy sector is very time-intensive and capital- intensive, in that it takes a lot of time and money to develop assets. It is rare for trading companies to make this step. Why did you decide to do this? 

We started cross border electricity trading in the region back in 2000, when such activity became possible. EFT developed with the cross border electricity market, which today is incomparably more liquid, transparent and competitive than ten years ago. In the medium to long run this region is set to experience economic growth, while at the same time it has a growing energy deficit and abundant and unused energy resources. With the development of the electricity market, indeed the development of the whole region through its accession to the EU, investment in energy here will become increasingly attractive for the large western and eastern power companies. Looking in the long term, the choice we had was twofold – to remain solely a trading company seeking to maximise its profit, or to try to invest that profit and develop our own production assets. Even though it was a far more difficult route to take, we chose the latter. We feel that is the only way we can maintain our place and position in the market with the arrival of the bigger market players. 

There is a prevailing perception that the region is still politically too unstable to be able to attract major foreign investment, that simmering national tensions remain a major problem. What is your experience as a major investor?

 I would say the relatively slow pace of structural reform is a far bigger obstacle to attracting investment than danger of renewed conflict in the region. We strongly believe this to be the case and have backed this view with over EUR 100 million of investment so far. The region has plenty to offer. Take our experience in Bosnia as an example. In 2005 we privatised the Stanari coal mine in central Bosnia. This was a mine on the brink of collapse, located in an area ravaged by civil war. The mine had stagnated during the 1990’s and became overburdened with losses and debt in the years after. It almost ceased production in 2004, its infrastructure and machinery was out-dated and mostly non-functional. People were not paid for months, so worker unrest and indiscipline became incessant. I remember when we took over the mine some people were laughing at us, that we did not know what we got into. But, things turned out differently. We immediately settled all debts, invested in completely new machinery and brought in a whole new, professional management team. The response from the miners has been phenomenal. With their help we have modernised every single operation of the coal mine in record time, so that now it operates according to same standards as any mine in say Germany. This includes precisely measured efficiency of the miners, quality of service, protection at work and protection of the environment… We created more than 200 new jobs in the process, 460 miners now regularly receive a salary which is far above the national average. The mine is profitable, it is the single biggest concessionary fees contributor to the central government, and is also the biggest local tax contributor.

So far your investments have been focused in Bosnia and Herzegovina. Why is it the case? 

Bosnia and Herzegovina has probably the largest energy potential in the region. The government recognises this as one of the country’s competitive advantages and works hard to attract and enable investment. With the said EUR 100 of investment in Bosnia and Herzegovina, we are the leading foreign investor in its energy sector. Our flagship project is the development of the Stanari thermal power plant, which we are building adjacent to the said mine. The project is now entering its final phase and we expect the new state of the art 300 MW plant to be operational by the end of 2014. This will be the first major thermal power unit to be built in the region in over twenty years. In addition to this we are developing a medium sized hydro unit on the river Neretva. 

Why are there no major investments in the Serbian energy sector? 

From the perspective of a private investor in the energy sector, there are countries in the region which at this time offer a more attractive investment environment to Serbia. The much needed reform process in the Serbian energy sector started brightly following the democratic changes in 2000, but then quickly faded from 2004 onwards. The Serbian energy sector today is characterised by a dominant and inefficient state power monopoly, non-existence of the market place, inadequate legal framework and excessive bureaucratic process, as well as an irrational pricing policy which equally subsidises both the industry and the whole population. The cost of such policy is the inability of the state power company to develop normally and lack of foreign investment. Such policy is not sustainable and will lead to higher price of energy in the long run. We are now starting to see some steps in the right direction and can only hope that the reforms will continue in the future.

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