Significant Messages of Aluminij’s Director Dražen Pandža in an Interview for Večernji list

Aluminij Mostar

The first interview after being appointed for a four-year term, Director of Aluminij d.d. Mostar Dražen Pandža gave it to Večernji list. The interview under the title "Aluminij must go into privatization, bankruptcy is not a solution", positioned as the centerpiece on the cover of today's edition was conducted by journalist Zoran Krešić.

In addition to that, Pandža has sent several other important messages, including that the FBiH Government must fulfill the commitments assumed from the 2013 Agreement, also that the acceptable price of electricity for Aluminij is 40 € / MWh, and that Aluminij will not lower salaries because it does not want to further encourage people to leave the country.

The complete interview:

There have been three months of purchased peace in the year for the Mostar Aluminij, where with the delay of payment of electricity bills, which made this company with big debts a room for normal functioning. The new-old administration was confirmed, led by Dražen Pandža, who had been running the company in the most dramatic moments when the company was threatened by a complete breakdown. In the first interview after being appointed, Pandža announces the strategic steps of the management with him in charge.

What is the current situation in Aluminij?

- At present, we have a much more relaxed situation than it was in the previous months. First of all, this is the result of an agreement with Elektroprivreda HZHB on the supply of electricity with deferral of payments. So, this is a much simpler situation than the one we had at the end of the year.

Can you explain to us what this means in numbers?

- This means that Aluminij is offered the opportunity to consolidate in the period while not paying the electricity bills and to try to find a solution for long-term survival. It is precisely on this basis that the Management Board, which is appointed, is trying to work and to use this time to the maximum in order to prepare the Company in the long term for a period of survival and normal functioning.

What are the current prices on the market of electricity, raw materials, whether or not you are going to benefit or are they still a ballast?

- Unfortunately, we cannot say that the cost of electricity is in favor. Yes, we have a delay in payment, but this price is extremely high. If there is no delay in payment, it would be economically unjustified to operate. This can be the same thing for the future period. That price is quite high. Without the intervention of the Government or the owner, I have to say that in the long term, this kind of business makes no sense.

Such an honest statement can rarely be heard from a director…

- I'm trying to be realistic and not try trying to find a foothold where we can find it. We have said and constantly repeat, not only me but all the administrations before me - we must solve the issue of electricity and that is something that determines the fate of Aluminij. If we have normal electricity prices, Aluminij can be profitable, or the entire aluminum industry. Without this we are sure that any aluminum industry in the world cannot be profitable. This is best demonstrated by examples of successful aluminum companies.  Why Rusal and Dubal can work normally, why can they normally run companies in France and Germany dealing with this business? The answer is simple because they have electricity prices that are not related to the market. All companies that have market-related prices either fall or are in a situation where we are now. In our vicinity is a fresh example of a submarine CAP that was in huge trouble as it paid the market price of energy. The moment when the Government of Montenegro decided to intervene to help them, the company is doing much better. Aluminij from Mostar will always have current problems as long as it gets the price of electricity on the market basis.

But, Director, the question arises, given that everything is in the market, why would Aluminij have that special status.

- None, I repeat - no aluminum industry in the world works and pay the electricity price as we do now. Except some are wiser, for example, in Western countries, no one will ever publicly say that the aluminum industry is subsidized because there is no subsidy to them. But there is something called a concealed subsidy and they have again the price of electricity that is not related to the market. The Dubal is located in the desert and they use their own gas as an energy source. Rusal has inherited hydroelectric power plants from the Soviet Union, so they use them as an amortization and have a fairly cheap electrical energy. This is the reason for their success. We cannot solve our problems in this situation until the issue of supply and electricity prices is resolved.

What solution do you see and what is the price acceptable for Aluminij to operate positively? 

- It's a price of about 40 euros per megawatt-hour. But also, an important role in defining the price of electricity have fees. With such a "market" price of electricity, no company has any extra fees as Aluminij Mostar has. At the price of electricity, we pay another 7 euros per mWh. Under such conditions normal business is impossible. You have two parameters that the state can determine, and we are the only state-owned entity. Both of these parameters do not support us.

You are talking about network fee and what other fees?!

- Yes. We are talking about the network fee, but also the charges that are paid at the price of electricity. This includes fees for NOS (Independent System Operator), electricity transfer fees and renewable energy charges. Despite the numerous appeals we have been pointing out in recent years, in which we are trying to explain how much we are bothered by these charges that the state has determined, there have been two increases in the NOS for the network  fee since the beginning of the year and at the same time in fees for renewable energy sources. Only in collecting subsidies for renewable energy sources Aluminij participates with more than 25%. A similar example you will not find anywhere in the world, that renewable energy sources are funded by the heavy industry. Only on the basis of additional charges Aluminij will pay an additional BAM 2.3 million plus VAT this year.

Do you see the exit from this situation because you are dealing with parameters that are not promising, and you have only one year of some sort of grace period to put things on a healthy foundation?

- We see a solution to the problem in the plan and program we have made. This plan and program are based on several basic principles. The first principle is internal savings, the second principle is the assistance of the state where it is its responsibility and what is most urgent and we have said it countless times, it is the finding of a strategic partner, an investor who will enter into the company's ownership structure in the future. Aluminij must be privatized.  

Did you have any communication, contacts with interested parties?

- The owners are the ones who must take part in the negotiation process. We do not represent the ownership but the management structure. Responsible for answering such a question are the owners, and most of all, the Government of the Federation of BiH which has the largest share, but also the highest responsibility. We have information that there are several companies interested in entering the privatization process. We also know that there is a certain pool of potential partners who would be interested. We also heard from representatives of the Government that certain representatives were interested in entering the privatization process.

Is it a sale of 44% of the government share at stake or is it 88% which is a share combined with workers’ share?

- No specific process has started, so it is not possible to talk about percentages.

One of the suggestions that is being heard again, and was put ad acta, is the statement of the Prime Minister Fadil Novalić that it might be time to think about bankruptcy. Is that even a solution for Aluminij?

- Aluminij is a company that may already be in bankruptcy by some parameters. Following the management's stand, bankruptcy would not be a solution.

Why do you say that?

- For example, if the Company enters bankruptcy, serious things will arise, or problems that no bankruptcy can solve. Namely, the question arises as at which price of electricity or alumina is obtained. These are the basic strategic raw materials that determine if you will end up positively or negatively. Regardless of whether you are in bankruptcy or not. These are, unfortunately, market parameters and the Company will not be saved by bankruptcy if it will still get electricity at 70 euros. Bankruptcy is not a solution if the problem with electricity price will not be solved. And if this problem is solved, then you do not need bankruptcy. And probably the most important question is who will sign any contract with the bankrupt company.

Hypothetically, in case the bankruptcy is declared, what would it mean for Aluminij?

- I think it would mean the end for Aluminij. The real question is whether any buyer would want to work with Aluminij d.d. Mostar in bankruptcy and whether our European partners, who have been buying goods for more than 20 years, would agree to sign a contract with the bankrupt company. Frankly, I do not think anyone would plan for a year or two and made a deal with a bankrupt company. On the other hand, who would sell you any raw material if you were in bankruptcy? Certainly, we should pay in advance, and we do not have any money for it. Perhaps bankruptcy is a suitable, natural solution for some other industries, but for an industry such as Aluminij, which requires full customer and supplier confidence, it is not a solution. Such a signal for them would be a hand brake with some pulling out of business with us. And Aluminij cannot just stop production. Once this production has come to a halt, and we saw it in 1997, it takes a lot of effort and work to restart. I'm not sure it is possible today to repeat what was feasible in that period. I repeat, therefore, bankruptcy, in our view, would not lead to a solution to any problem.

Why the Agreement from 2013 between Aluminij and the Government is not being activated, and which, it seems, enables exactly what you stand for?  

- Unfortunately, so far this document was just a dead letter on paper. We have been and will continue to emphasize this agreement. It is not normal to have a situation where one party has achieved almost everything in the deal, such as the issue of ownership, and the other side, specifically Aluminij, has not solved anything. It was the Government's obligation to subsidize production by the price of el. energy, and this is not done. Aluminij should have given compensation to former workers, but this could not be done because there were no financial conditions due to the well-known story of subsidizing electricity prices. Now we have more complaints of workers and potentially 10 million BAM of compensation, and on the other hand, the FBiH Government has gained an increased share in the ownership structure for what it was supposed to meet. The government has become a co-owner with 44% equity capital, Alumiij has not gained anything. Things can be resolved if Aluminij is declared a company of strategic importance to support the development of the aluminum industry so that export of this raw material from BiH can also be stopped. In that case, the network fee and all other charges would be lower. We now have the situation that the state encourages the export of electricity, which is absurd. Any electricity-exporting company does not pay the network fee, but local consumers pay it. The next absurd is that the producers in BiH export electricity free of charge, and then the same energy is imported to BiH through the traders, and we pay all those fees to them.

The first association in recent years for Aluminij is a big loss and a big salary. If you stop paying the salaries, would this company work positively?

- No. Under current conditions no, and even if no one in Aluminij gets a salary. The percentage of salaries in the amount of total costs is about 5.17 percent. Any reduction in salaries would not lead to the salvation of Aluminij, would not even help us. On the contrary. I also want to point out that the salaries of Aluminij’s Management Board have been significantly reduced, as we knowingly agreed, because we believe it is not right to have above-average salaries in such company and the situation in which the company currently is. The Management is aware that internal savings are necessary and that the total amount of salaries must be reduced. We will do this with a detailed audit of all the management positions and salaries. But surely, we do not want to go in the direction of reducing workers' salaries, especially the salaries of workers who earn them hard and fair. And currently when many people leave the country, including many highly educated and capable people, this company also has great significance. In that sense, it would not be advisable to encourage them to leave and lowering the salaries to highly skilled workers and top engineers, much sought after on foreign markets, would just mean that! After all, given the percentage of the share of our salaries in the total cost of the Company, what would any reduction in salaries would mean to us when the Government increases the state charges for more than 2.6 million a year? When it comes to the number of employees, we have decided that we will not hire new employees into non-productive parts of the Company. The Management has decided that parts that are not related to our "core business", specifically referring to vineyards, orchards, our tourist part, and all other non-producing parts will be rented.

Recently, part of businessmen and politicians politely voiced the expectation that during the confirmation of the construction of the VII thermoelectric power plant in Tuzla at the House of Peoples Croatian representatives would request the assurance of the electricity for Aluminij. How do you comment on it?

- I would be glad if BiH continues to build energy potentials because we believe we have room to develop in order to be more energetically independent. All this energy potential, in our opinion, gives hope that Aluminij will profit from this surplus production, rather than buying the external electricity we pay under market conditions, but that this electricity will remain within BiH and that we will pay it at normal prices. In any case, the state will not be damaged because we are paying taxes, contributions and more than 1000 people will work here if we have normal prices of el. energy. In no case can anyone lose if we have a normal electricity price. Will what you are talking about will be about block VII, we really have no information. This is not in our domain, but we welcome every initiative to build new energy plants in the country.

Aluminij Mostar
Corporate Communications