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December 12, 1994
. Vreme News Digest Agency No 168
Electricity Restrictions

Candle Handlers

by Dragoslav Nedeljkovic

Everything that has been happening with the electricity situation over the past weeks is just part of the fall of civilization that has overcome us. After all, the same is happening with all aspects of modern life in our country, whether it's shortages of milk, meat, cooking oil or flour, whether it has to do with city or intercity traffic... Electricity is a good example to analyze and see what happened and why some things are clearer in the dark.

Despite all the warnings and appeals by experts, no one seemed to care what situation electricity producers were facing until the power cuts were imposed; once we were left in the dark, electricity became the focus of media attention. Now everyone (including the man on the street and government ministers) is astonished and wonders why there isn't enough electricity. Everyone has an explanation. Most people are convinced that electricity is being exported, power cuts are being imposed to force a price rise, or at least that the power company is abusing the population intentionally. At the very least, the people running the power company are believed to be a bunch of incompetents who should be fired. The real miracle is how we've got this much electricity at all. Only another miracle will prevent the power system from collapsing this winter.

Electricity problems have become a serious political problem and winter hasn't even started yet. God only knows what will happen if the winter is long and cold and only he knows whether there will be enough to go around and if cuts will last three hours or half a day.

The prevailing belief that Serbia produces an excess of electricity dates back to arguments among the republics of the former Yugoslavia when politicians claimed that low prices profited the other republics and added that Serbia was supplying them with electricity. Those claims were not substantiated, but most people believed that Croatia and Slovenia would be left in the dark once Serbia cut their power supplies. The authorities in Serbia even claimed that France and Serbia were the only European countries that had excesses of electricity which could be exported.

The Serbian power company produced almost half of the former Yugoslavia's electricity and was one of the best and richest companies. The quality of its product met West European standards. The company itself was comparable to the best in Europe and in some aspects was better.

That company reached those positions after decades of development, know-how and efforts by experts and investments of more than 20 billion dollars, as well as market economy concepts and conscious decisions by its managers. Serbia's coal and hydro-electric potentials are best turned into money through electricity. Power plants were built to cover local needs and to sell electricity to others at a profit, whether to other former Yugoslav republics or other countries. For two whole decades, Serbia's power company (and former Yugoslavia's) were connected to the West European network, which allowed it to export and import electricity. Greece and Albania joined the system and several studies were completed on linking up Bulgaria, Romania and Turkey, with Serbia (i.e. former Yugoslavia) serving as an example.

In September 1991, high power lines and stations were destroyed during the war in Croatia and Serbia was isolated. It was left with an infrastructure built in completely different conditions. There were technical difficulties that local experts barely managed to overcome. Even without the support of the West European system, the Serbian system could probably have survived, or more precisely, it is still managing to survive. Unexpected problems surfaced. The state issued another decree and without investing any money became the owner of the 20 billion dollar system overnight. But it became the kind of owner which any normal country would require to have a guardian.

All of the Serbian governments lowered the price of electricity drastically, eliminating any sense of economics from the industry, and turned the most successful company into a loss maker. Last year's losses stood at 900 million DEM, but in real terms they are closer to two billion. This year those losses will be much higher. So we have once again seen that what took decades to create can be destroyed in the space of a few years.

This spring, the power company drew up a plan of needed repairs and rehauls and calculated that they need 500 million dinars to complete them. The owner, i.e. the competent government ministers, took a few months to decide that the rehauls had to be cut by half and promised 250 million dinars. Everything ran late and time was running out.

Late in August, 100 million dollars were secured (as Yugoslav National Bank governor Avramovic explained), which left 150 million to be negotiated.

The power industry just handed that money to repair companies (much of Serbia's industry). The power company can never repay that loan and it still owes 150 million dinars. The companies that undertook the repairs are screaming for their money because they don't have funds to pay their workers. And they regret working on credit.

So is it any wonder that a system that once produced 37 billion kilowatt hours of electricity a year can now barely produce 30, or that productivity is falling and that the power plants are falling into disrepair with increasingly frequent errors and a constant threat of collapse. The system is no longer stable or safe and it takes real skill to prevent its collapse and the ensuing damages. What happened in Plevlja, Montenegro is a good example. The power plant there is going to be out of commission for at least six months and will take 10 million dollars to repair.

All of this has only covered production. The consumption side is even bleaker and more incomprehensible.

The authorities have two motives in keeping electricity prices low and both are wrong.

The first is the struggle for stability, i.e. fear of inflation. If they approve a drastic price rise, it could set off other price hikes and we know what comes after that. That premise is wrong, because every analysis in the world, including domestic, says that electricity prices have only a minimal effect on industry costs - three percent at the most. The exceptions are industrial branches where electricity is a raw material and not a source of energy. Expert analyses show that the Serbian economy uses electricity irrationally - two or three times more than necessary. So the economy should be forced into using electricity rationally, but not through orders and decrees, but through economic measures instead. And that's the harder way.

The second motive is allegedly to maintain the population's living standards and preserve social peace. There probably isn't a citizen who thinks electricity prices should rise, especially not drastically. The whole thing is very simple: producing electricity costs money and has to be paid for; with economic prices, everyone pays for what they spent, but in our case everyone pays what is levied on them and not what they actually spent. We had that model and it has probably been abandoned.

What is surprising is how little the people know. Electricity is one of the few, if not the only, thing that is 10 times cheaper here than in other countries. Everything else, from food to industrial goods, is often much more expensive. And no one is complaining about those prices, but a rise in electricity prices would cause unrest and demonstrations at once. This is a phenomenon worth investigating.

The consequences of that price policy are lethal and the authorities are committing a power and economic crime. Electricity consumption is a good way to determine the level of development and living standards in any given country. In that respect, Serbia is thirty years behind developed European countries. But when you take consumption per household, Serbia ranks at the top. Serbian households use more electricity than households in Denmark, Germany, France and Italy. The enigma isn't hard to solve: almost no one in Europe has electrical heating because it is irrational and uneconomical. Even farmhouses are electrically heated in Serbia and distributors say some even heat their stables with electricity. Here are the arguments to back up my claims of crime: burning coal to produce electricity wastes two-thirds of the heat produced and by the time it gets to households another 10% is wasted. Only one-fifth of the energy produced by coal reaches us. By turning it back into heat we return it to the state it was in in the thermoelectric plant. That produces only losses - both energetic and economic.

And the citizens, whatever we think of them as voters, are rational. They use what is cheapest.


The chart illustrates my point.


Households in developed countries use a fifth or less of overall electricity production and the economy uses the rest. In Serbia, the population uses 60% and up to 80% in winter. That shows the level of development in the economy, as well as the nonsensical price policy implemented by the government. There isn't a power industry in the world that could survive that kind of pressure during the winter. Even the most developed countries would have power cuts if they used electricity that irrationally.

That artificially-created situation is characterized by the reactions of people involved. The producers, usually serious and responsible people, have done their best to produce more (dangerous and unsustainable over the long run), but are obediently doing what the authorities tell them to. When you see what is happening you can't help but wonder if they have any brains. In a single month, they imposed four different administrative measures (block rates, quotas, division into consumer groups, and finally notices to all consumers) which they knew would not have any effect. Romania under Ceausescu was the only other country to do something similar.

Administrative measures can't raise production or lower consumption. Insinuations about electricity exports, speculation and pressure deserve no comment. Yet they have spread far and wide among consumers. Politicians are helping spread them because they are handy tools to score political points with. Every appeal for lower consumption has resulted in higher consumption as soon as it gets cold. People are acting rationally.

The authorities are a story in themselves. The government adopts a balance of production and consumption every month that has nothing do with reality. Now they've even turned to daily quotas.

According to those government documents, the power industry is meeting its production quotas and producing surpluses while Serbia is left in the dark. If it weren't serious and sad, it would be funny.

No one has mentioned the vast involvement of the current government or the previous governments, but they have directed the anger of the population elsewhere.

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