The Slovenia Times

HSE to Seek Standstill Deal With Alstom


Košorok said the key task for the holding currently is to reach a deal with the banks, which would allow the continuation of the TEŠ6 project. "We need to tell the banks how and with what measures we will be able to repay the loans," Košorok told the STA.

HSE is facing cash-flow problems due to the low price of electricity and the high costs of the TEŠ6 project. In spite of this, Košorok maintains that the construction of the new coal-fired generator must be brought to completion given how far it has already proceeded.

Alstom, which is the main contractor for TEŠ6, recently said it would suspend works on the project if it did not get payment for the equipment which it had delivered so far. Two invoices are already overdue, while a third one is due for payment at the end of the year, with the total amount due to the French company at nearly EUR 30m.

Košorok stressed that a suspension by the chief equipment supplier must be avoided given "that 85% of the works have been performed, 95% of all contracts signed and EUR 1.1bn already paid".

"We have told Alstom that the solvency situation at HSE is not rosy and could well be troublesome for the next three years due to electricity prices and our high production price. Alstom is aware of this."

He announced that representatives of the French company would visit HSE for negotiations in the coming days. "We must be aware that EUR 1.1bn has already been paid [for TEŠ6], most of that to Alstom. It is due a further EUR 200m, but it must understand that the situation has changed."

Košorok said that HSE intends to propose a standstill deal to Alstom pending an agreement with the banks, assessing that entering a lengthy legal dispute with the French company makes no sense for either side.

He brought into question decisions taken at TEŠ and HSE in the past regarding TEŠ6, a project that has been plagued by cost overruns. "The right course of action is something that should have been considered when the contracts were being signed. This begs the question of whether all risks were factored in."

The HSE boss, who has been at the helm of the holding for just over a year, suggested that the key assumptions about the project made in the early stages between 2006-2009 were off. The price of electricity has fallen from EUR 55 per megawatt hour in 2009 to EUR 40 now even though the thought back then was that it could not go lower.

A key assumption for the feasibility of TEŠ6 is the price of coal, which Košorok believes was also not set realistically in past plans. "To my great surprise we established in late October that the agreed price [of EUR 2.25 per gigajoule] is not achievable and that there is a question of whether it was ever achievable."

He said that the HSE would maintain that the price of coal from the Velenje mine must remain as low as possible. "The Velenje coal mine will have to achieve this with structural and organisational changes. The first step, of course, should be the sale of non-core assets."

Košorok indicated that the price of coal was not the only mistaken calculation from the past. He said that increasing costs, which have seen the price of TEŠ6 rise from an initial estimate of nearly EUR 700m to over EUR 1.4bn, could well be more a matter of poor planning.

"I wouldn't say that the project has become more expensive - perhaps it was to cost that much from the start, but those responsible failed to plan for the additional sources, the fall in energy prices."

A review of past decisions is already underway, but Košorok is scant regarding details. "The relevant investigating bodies that are currently reviewing the case from a criminal point have most of the relevant documents. My decision as the executive is to find out whether there are grounds for damage liability."

"One must be aware that thousands of documents must be reviewed," he said, explaining that law enforcement bodies are most likely checking for possible wrongdoing related to white collar crime or a failure to exercise due care and diligence.

As for establishing possible damage liability of previous managers, he said such investigations "tend to be lengthy because credible documents must be pieced together into a mosaic of responsibility". "The easiest thing is to make reproaches through the media, but I believe that it is more productive for such investigations to be carried out quietly."

In spite of the doubts about past decisions, Košorok believes that TEŠ6 can still be profitable. "As I've said before, the most important aspect for this is the first link in the chain, that is the Velenje coal mine."

While doubting that a strategic partner can be found for TEŠ6, Košorok believes that there is greater interest among investors for HSE. But he warns of the serious consequences that the sale of the main energy producer in the country would have for the energy sector as a whole in Slovenia.

"What would a strategic partner do? It would not need HSE, it would not need marketing, it would also have its own accounting and legal departments...The only thing that it would need is a technical director at the individual production facilities."

He thinks that it is still possible for HSE to avoid having to be sold. "We can avoid this with a broad set of measures which must foremost be aimed at rationalising and optimising operations...over a period of three to four years."

For this a realisation has to be made that change is needed. Košorok hopes the recent debates in the group about optimisation, which prompted an angry response from the trade unions, have led to the realisation that everything is not as it once was.

"As long as HSE has enough money which it is willing to distribute, we can have perfect harmony, but as soon as the money is gone, we are the bad guys," he said about the recent divide between unions and the management.

Achieving a change in mindset is one of the main priorities for next year. "We will all need to start realising that the challenges which are before us and are related to finishing TEŠ6 require a lot of money which will not be secured by making conditions and threats."


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