The EAC is still run by a poorly qualified, ever-changing board and puzzling finances
By Brian Lait
Five whole years have whizzed by since I last wrote a report on my favourite nationalised concern (known as a semi-governmental organisation or SGO in local parlance), and I recall that back in the dark days of 2013 when Cyprus hit a massive self-inflicted financial crisis and was ‘bailed out’ with a mighty ‘loan’ of some €10 billion by the EU, IMF, etc., there was a Memorandum of Understanding (MoU) which stated very clearly that semi-government organisations such as the electricity authority (EAC) and the telephone authority (CyTA) would be privatised. Indeed, part of Article 3.5 of the September 2014 MoU stated that EAC was to be privatised “by mid-2018”.
I do not recall the EU, etc. announcing that privatisation was not necessary, and I certainly do not remember EAC being privatised in any way or form.
In an article back in November 2018, I commented “privatisation is what is required to get EAC operating on a proper commercial basis, and the sooner the better. However, I fear that the very left-wing unions who actually run this country will continue to prevent that, not least because there aren’t any politicians with the guts to defy them”.
Have I missed anything since then?
The EAC board composition still seems to change on a regular basis, and appears to always comprise members who have little, or absolutely no, knowledge or experience of the electrical industry. They are, presumably, favoured persons awarded a cushy, well remunerated post for a couple of years. Back in 2010, for example, the ten-person board included “businessman-computers”, “Greek literature teacher”, “mathematics University of Leipzig” and “bank employee”. In 2016 the board’s nine members included four lawyers (including the chairman), two certified accountants, two engineers and an architect. At the time of writing, the board has nine members of whom six took their position on August 3, 2021, including the lady chairman who is described as “entrepreneur”. Other members include a “banking expert”, an “academic”, “Leptos Group purchasing manager” and an “assistant professor – University of Cyprus, architect engineer”. There never seems to be a member who has worked his/her way up through the EAC. At present there are about 10 names mentioned in EAC management who all have degrees and suitable professional qualifications. For example, the general manager is both a BSc and MSc and the finance manager is both an MBA and FCA.
Given the mixture of titles held by board members and the apparent frequency at which they change, I am somewhat puzzled by the bold statement in the 2021 Financial Statements (F/S) (the latest year online), under the heading public governance which reads: “Directors have the skills, know-how and experience they need to perform their duties adequately.”
Other statements under this heading are equally baffling.
Part of EAC’s mission states that the authority is: “To provide……safe and reliable services in the energy sector…….at competitive prices…….”. However, as I am unaware of any so-called competition, what is meant by “competitive” when it comes to pricing?
Despite the cost of fuel reaching almost €386 million (over 43 per cent of the operating costs, 45 per cent of total income and 26 per cent higher than 2020), no mention is made in the reports of either the lady chairman or the general manager. This is nothing new, as it would appear to be an annual trait not to mention details of such an important subject and cost. Nor is there any mention made of the over €165 million paid for greenhouse gas emission allowances, up by over 121 per cent from 2020, almost entirely due to the increased price of the emissions. (Greenhouse gas emission allowances are certificates or permits giving the legal right to emit a certain number of tons of greenhouse gas emissions). In 2016 the cost of fuel was a modest €246 million and amounted to 50 per cent of operating costs and 42 per cent of total income, but back then we did not seem to have anything nasty to contend with like greenhouse gas emissions.
Staff costs were a mere €79 million in 2016, compared to €95 million in 2021 (an increase of some 20 per cent). Given that staff numbers in 2021 were 2,120 and in 2016 they were 1,993 (an increase of 5 per cent) there appear to have been some very generous salary increases along the line. Despite requests in past times I never received answers to my questions regarding how EAC’s staff remuneration compares to the national average. I imagine it compares very favourably!
Despite much assistance from the Cyprus Mail in following up a number of matters with EAC directly, my questions and comments regarding fuel oil appear to be as applicable today as they were when I first raised them some 11 years ago:
- Why doesn’t EAC purchase fuel oil in advance at a fixed price to minimise costs when prices are low? Way back, EAC’s then general manager simply stated “EAC does not make forward purchases.”
- What are the details of the international tender procedures that EAC follows to purchase fuel oil?
- How many tenders are normally received and what is the rationale behind securing fuel supplies this way?
If there is a material happening occurring after the date of the F/S (December 31, 2021 in this case), but before the date the auditors sign their opinion (June 21, 2022) then a footnote disclosure in the F/S is required so that F/S users are properly informed. The subsequent event typically has a significant impact on the financial position or earning capacity on the entity concerned. So, for the year 2021 we have such a note (number 30) which tells us of the invasion of Ukraine by Russia, and the resultant increase in the price of oil in international markets, as well as the possible knock-on effect on EAC’s profitability. It adds that “…management believes that it is taking all the necessary measures…and to maintain the viability of the Group and the development of its business in the current economic environment”. It finishes by assuring the reader that “…management is closely monitoring the situation and will act in accordance with the developments.” In 2021 the average price of oil per barrel was $66 (with a low of $54 and a high of $82) compared to an average in 2022 of $97 (with a low of $84 and a high of $117). I wonder how any such note would look if EAC had purchased fuel oil in advance, etc., etc.
During my professional career I urged staff to only draw a conclusion once they were satisfied that they had considered all the available evidence. However, I am about to break my own strict rule, as I am not privy to the internal workings of EAC. I suggest that EAC could be far better managed than at present, and to ensure that the government must take the appropriate steps, EAC should be privatised. The introduction of competent competition would help, although I see that what might be goodly competition in the shape of the €200 million Power Energy Cyprus (PEC) project has very recently been challenged despite the project’s foundation stone being laid back in 2019.
In the meantime the man in the street will continue to pay unnecessarily high electricity charges.
Brian Lait is a retired chartered accountant living in Cyprus.