Dear citizens,
As the president of the EPCG Board of Directors, I have the obligation to inform you and remind you what we have done in the previous period and what we plan to do in the future. In this regard, in several texts I will try to bring you closer to what it is all about.
In the first text we did introduction to the story, we dedicated ourselves in the second some problematic decisions until 2021, in the third review relationship to the Thermal Power Plant before and after 2021 and the state of HPP Perućica and HPP Piva, in the fourth review of realization of the business philosophy "Produce where you spend", in the form of successful projects "Solari 3000+/500+" and "Solari 5000+", in the fifth state in connection with other important projects of our company, and in the sixth we processed some important business processes and decisions of vital interest to the company's operations. In this text, we will deal with the Ironworks.
One of the business decisions that caused a lot of public attention, and continues to do so Decision on the purchase of Željezara property. The former giant, which employed 7.000 workers, came to the brink of collapse. The state was left without property, over 1.000.000 m2, and over 6.500 workers without jobs. We all witnessed the dramatic events that took place in Nikšić and in Željezara. We had 229 workers on the roofs and a complete shutdown of the factory. 31.08.2022. in 200, over XNUMX workers were dismissed and went to the labor office. In the same period, EPCG, in accordance with the legal obligation, issues its own shares in the amount of 52.867.581€. The first issue of own shares, which were created as an alibi for the payment of that amount of shares to A2A when taking over the ownership stake, in the amount of -51.657.280€, it was carried out in 2019 and on that basis EPCG earned income 0 (NULL) EVRA. Aware of the fact that this issue will also be completed like the previous one, in discussions with the then Government, it was agreed that the Government, based on its own actions, would transfer to EPCG the amount of 14.999.999 €, and that EPCG can exclusively use these funds for the purchase of Željezara property. An active discussion and analysis began about the expediency of the purchase of Željezara property by EPCG. Regardless of social and sociological reasons, the interests of EPCG were taken into account when making decisions. Toščelik was ready to sell the entire property for 20.000.000€, minus the amount, which Toščelik was ready to accept, for the elimination of hazardous waste from the Željezara area. Any insistence on an increase in the price for the elimination of hazardous waste meant an increase in the price of the total property. Before making the decision, EPCG hired authorized appraisers. Appraisers valued the entire property, movable and immovable, at 52.461.469€.
We also had in mind the assessment through - Report on real estate valuation from 15.03.2022. year, made by authorized appraisers Nemanja Dragović and Ivan Bulatović and for the needs of DOO TOSCELIK ALLOYED ENGINEERING STEEL Nikšić, value real estate amounts 48.700.000€.
In order to complete the story about the value of the property, we will also present the assessments that were made here in 2023 and 2024. This estimate also includes certain supplies that were not included in the sales contract, but the contract defines that everything that was not recorded at the time of purchase and is located within the factory belongs to EPCG.
Only these estimates show the complete justification of the purchase of Željezar property. However, even these figures were not enough to make a final decision and EPCG set aside an additional €5.000.000 for the purchase of the property of the Ironworks. The decisive reason for us to enter into the purchase of this property is the existence of two substations 110/35kV power at 63MVA. This energy infrastructure enables, with relatively small investments, the connection of a new solar power plant, which would be built on roofs and earthen surfaces within the Željezara circle or in the immediate vicinity, of power 60MW. Analyzing similar projects of VE Krnovo and VE Gvozd, we come to the conclusion that just for the connection (construction of substations, transmission lines, purchase of property,...) multi-million funds must be allocated. One example, for VE Gvozd power 54,4MW, for connection (substations, transmission lines) EPCG will allocate, 15.699.994€ without VAT, or 18.996.992€ with VAT. Also, EPCG will pay Ivicom, upon the purchase of its share in the project, another €250.000 to €300.000 based on the land purchase. These costs during the construction of SE Željezara will not exist, or will be negligible compared to the amounts shown so far. In Željezara, we have almost two such or similar energy systems. Ideal for connecting SE and BESS. This was the decisive factor for us to decide to buy the property of Željezara. We will talk about other advantages of this transaction in the rest of the text. We will also try to give an answer to certain criticisms, which are partly justified and partly unargued.
We will note here that the Government sold this property to Toščelić for 15.100.000 €, and before that, bank guarantees were paid from the budget to Credit Suisse Bank for the previous owner of the Ironworks in the amount of 32.922.888€(explained in the DRI report).
When we made this decision to purchase the property, we were aware that we were also taking on the obligation to hire 200 employees. That was a package, an agreement between the workers, the Government and EPCG. A business plan was also drawn up, which basically provided for the engagement of employees in the construction of solar power plants, construction of substructures, PVC locksmithing, construction construction, provision of property and equipment and as a potential process, but in the end, putting the Forge into operation. For several months, the Agency for the Protection of Competition (AZK) did not make a decision on whether EPCG-Željezara-Nikšić can engage in metal processing and processing, because such activities are considered illegal state aid. As founding capital, EPCG paid to EPCG-ŽELJEZARI-NIKŠIĆ (EŽNK) the amount of 2.155.000€. We have to admit that from the moment of the appointment of the management structures of ЕЖНК, and this was especially manifested by the management of ЕЖНК, normal business communication with EPCG is lost. The management of EZNK does not inform EPCG about important business activities, or informs when certain work has already been completed (employment, leases, labor-legal relations,...). Although the Agency for the Protection of Competition has not yet received an Opinion on the possibility of steel processing, the management is trying to start the Forge on its own. The basic elements of a business plan are ignored. In August, the number of employees reaches 400. Losses are piling up, money is being spent. At the meeting of the Board of Directors in August 2022, the request of the management of EJNK to be paid from 6.500.000€ to start the production and processing of steel, i.e. to start commissioning the Steel Works and the Forge. The request was very poorly explained and caused justified doubts about the ability of the current personnel potential to start this activity. After a stormy discussion, where there was an opinion that the money should be paid unconditionally, the position still prevailed, with the strong insistence of the EPCG management and the chairman of the EPCG Board, to wait for the opinion of the AZK. At the beginning of May, two 1.800 kWp SEs were installed on the roofs, which were not put into operation due to the destroyed equipment in the smaller substations. A plant for the production of PVC locks was started, which stopped working due to a lack of raw materials. A restaurant also started operating, but it also stopped working. Magacin ESG was moved to EŽNK. In the middle of October, the Board of Directors of EJNK dismissed the executive director. In the middle of November, the constructions for SE on the ground with a power of 1.000kWp were installed. Only with the arrival of the new executive director of EJNK at the beginning of 2024, business processes are started, but they are also slowed down due to various administrative and technical problems. First of all, this refers to the slowness in defining the specification for the energy and metal part related to the rehabilitation of substations and material for construction. Nevertheless, in this period, constructions for almost 2.000kWp were installed for SE at the Vrtac dam and almost 2.500kWp for SE on the ground in the area of the Željezara. Unfortunately, for these jobs EPCG had to hire over 30 workers per work contract, because EJNK could not provide it from its own staff. This primarily refers to the work of making concrete blocks for the installation of structures and the work of welding metal elements. The installation of solar panels on structures of 1.000kWp has been completed. The construction of structures and fixing of roofs continues intensively. In mid-October, ESG is expected to move to the old EJNK Administrative Building.
Final negotiations are underway with the consortium led by the Swiss company 8B Capital for the lease of property in the area of the Ironworks in order to start the production and processing of steel. Monthly rent €31.000, hiring 150 workers. This lease does not include land outside the Željezara area, as well as energy potential (construction of solar panels, batteries, windmills...).
In cooperation with the Municipality of Nikšić, a competition was announced for the development of a Conceptual urban-architectural solution for the construction of the residential-business complex Sunčani grad, in the area outside the Željezara area, which is owned by the Municipality and EPCG. 15 works were submitted to the competition. The works were ranked and an exhibition of them was opened at Slobode Square in Nikšić. Sunny City was included in the Spatial Plan of Nikšić, and the realization of this project would give a completely new dimension to the development of the city. During all, so far, assessments of the assets of the Ironworks, immovable assets outside the circle have been assessed 7 € / m2. Today 145.539 m2 outside the circle it becomes a city building plot, the real price of which is 80 € / m2. This means that the value of the property increases even more 10.624.347€.
In the chapter that talks about the Ironworks and its assets, we have to remind once again that EPCG in its development will largely devote itself to the construction of large battery-electric storage systems (BESS). The steel mill with its energy potential, apart from new sources of electricity, is also ideal for installation of BESS, whose capacity could be several hundred MWh. I will not translate this potential into a financial statement, but all previous figures would be small compared to this potential.
In spite of all the current problems that EJNK is facing in its operations, this must not call into question the Decision on the purchase of the property itself. On the contrary, these facts irrefutably show that the Decision was good. We're not always talking about history. Panic reactions of a part of the public, in the event of certain problems in functioning in the face of these facts, seem insignificant, and are essentially insignificant. The peak of that demagoguery is reflected in the explicit attitude that the purchase of property was wrong, and then great concern is expressed for the status of workers. It is a contradictory thesis. If Željezara had not been bought, the workers would probably still be on the roofs today. A more correct thesis is that the property should not have been bought, and that the workers should not have been taken over, because EPCG should not be interested in that. Only here, it must also be taken into account that EPCG cannot conduct business policy outside of the views of the Government, and that the value of the property is many times higher than the value for which it was purchased. In order to make good business decisions, for some, profitability cannot be expected to show immediately or in a short period of time, but one must have patience for time to verify it. There were problems with Željezara for the previous 40 years, and there was no solution. Maybe our approach and way of thinking will lead to a solution.
If they decided to sell that property now, we are convinced that they would cover all the costs so far and that we would have a significant sum of money left over, but we think it is worth trying to valorize the full potential of the Željezara property. That the steel mill and the blacksmith shop should work, that the reinforcing mesh should be made again, that SE and BESS should be built, that a large shopping center should begin to be built in Sunny City, that apartments should be built, that some more plants should be started in the Ironworks. The option of selling is always open to us.
In the next text, the eighth in this series, there will be more words about electricity prices.
