The Slovenia Times

Audit Finds Poorly Managed TEŠ Project Poses Risk to Owner HSE


Even in the preliminary budgeting HSE did not make sure the price was set realistically, reveals the report on HSE's cash flow management released on Thursday.

The preliminary estimate did not include all costs, not even the projected cost of the decommissioning. This led to the ballooning of the final price tag.

"There was a chain of deliberate misleading and doctoring of data," Court of Audit president Tomaž Vesel told the press.

The finding is nothing new, as the project went from a preliminary estimate of EUR 600m to a final price tag of over EUR 1.4bn.

But the report shows the investment will have a knock-on effect for the entire HSE group, the biggest power utility in the country.

It says it will be hard for unit 6 to achieve the planned financial results, which in turn will have a negative impact on the cash flow of the entire HSE group.

Indeed, until 2013 - the audit covered the period from the start of 2012 to the end of 2014 - HSE did not even have a cash flow scenario.

Moreover, it did not have an efficient and transparent system for the management of subsidiaries.

As a result, information about the project was unreliable, rendering it impossible to adopt optimal decisions about the project.

Aside from the mismanagement of the actual project, HSE also failed to ensure that the price of coal underpinning the investment would be achieved.

Šoštanj gets its coal from the nearby Velenje mine, which is owned by HSE.

The auditors also looked at the conduct of the Slovenian Sovereign Holding (SSH) and its predecessors, which manages state-owned companies.

It found that there were formal mechanisms in place to monitor HSE decisions with respect to the investment.

But nobody demanded reports from HSE that would show whether HSE has sufficient funding for the project.

The reason why the Court of Audit reviewed the project is that the investment was pushed ahead with a EUR 400m state guarantee.

The project is riddled with "exceptional deviation from the guarantee covenants, which puts the state in an unfavourable position given that the guarantee could be called up," according to Vesel.

The court has now given HSE 90 days to take "comprehensive and demanding" corrective measures. If they fail to comply, the court will demand the resignation of the HSE management.

Moreover, Vesel announced the court will demand damage liability from HSE and TEŠ management, and propose to the government that it merge HSE with the second state-owned utility, Gen Energija.

The report proves what many have been saying in recent months: that the project jeopardises then entire HSE group.

Indeed, just a month ago HSE had to inject EUR 248m into Šoštanj to keep the company afloat, and provided a EUR 72m capital hike to the Velenje coal mine.

Unit six is now in test operation and is generating record amounts of power, but the power plant is still clocking up a significant loss due to record low prices of electricity.

The report is also notable for the unusual amount of redacted information: over 100 of the 170-plus pages are completely blacked out due to HSE's insistence they contain trade secrets.

Vesel publicly called on the HSE management to declassify the data, but he expects the data to be revealed anyway, not least when the National Assembly receives the full unredacted report.


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