"Eco Heating Plants": Citizens Pay a High Price for Poor Heating, Millions to Private Owners from the City Budget
Photo: The city of Banja Luka
Banja Luka's "Eco Heating Plants" Ltd, a company that is mostly privately owned, has received at least 7 million KM in subsidies from the city of Banja Luka over the past two years. Experts claim that for less than half of that money, the city could have become the majority owner of the company. Meanwhile, the company's ownership structure is changing without any consultation with the city. For instance, "IEE Technology", as the majority private owner, has transferred part of its share to its "daughter company".
Written by: Milkica Milojević
Despite the substantial subsidies, citizens have received nothing in return except high bills for poor heating. Meanwhile, the profits of the private majority owner of "Eco Heating Plants" Ltd have significantly increased.
The city, which owns nearly 49% of "Eco Heating Plants", has acquired a new "bottomless pit" that constantly demands new subsidies. The private partner, the company "IEE Technology", is the only one assured of a profit.
Last year, "Eco Heating Plants" finished with a revenue of 7,290,280 KM. Despite the high expenses, the company's profit was slightly over a million KM.
It is important to note that the total capital of the company is estimated at 7,119,578 KM, approximately the same amount as the subsidies paid by the city to "Eco Heating Plants". Economists say it is easy to calculate that for around three million KM, the city could have acquired a majority stake in the heating plant and stopped pouring money into the pockets of private owners.
Instead, the city now faces another challenge. A third partner has appeared in the ownership structure of "Eco Heating Plants". This is the company "IEE Energy Plus", founded by the majority owners of "IEE Technology". The parent company transferred ownership of 12.76% of the shares of "Eco Heating Plants" to the newly established firm.
In practice, this means that although the city of Banja Luka holds the largest share, it still will not have a controlling stake in "Eco Heating Plants". Instead, it will face additional pressure to provide new subsidies, based on the logic that the largest partner should invest the most. However, the city authorities seem uninterested, as they are considering new subsidy requests for "Eco Heating Plants".
How (Not) to Do It
After the collapse of the "old" heating plant, which still exists today although it does not heat the city and owes more than 80 million KM, the Banja Luka city government decided in 2017 to establish a new company with the help of a strategic partner: "Eco Heating Plants".
The goal was to ensure that the city would no longer pay high subsidies to the over-indebted city heating plant. The result is that Banja Luka now has two heating plants, expensive and unstable district heating, and a heating system that consumes millions of KM from the city budget. These millions end up partly in banks to repay accumulated debts and partly in a company that is mostly privately owned.
The majority owner of this "new heating plant" is the private firm "IEE Technology Ltd"., a member of the powerful Elnos group. Some sources link the Elnos group, an international power company owned by the Torbica family, to Dodik's SNSD.
The decisive motive for establishing "Eco Heating Plants" was to make the company economically sustainable. Although the debt of the old heating plant, which the city regularly services, did not "disappear" with its establishment, it was expected that at least the new heating plant would not drain the city's budget. However, this calculation turned out to be flawed.
In the past two years, "Eco Heating Plants" has received 7 million KM in subsidies and grants from the Banja Luka city budget. In addition, heating prices increased by 23% last season, and users considered themselves "lucky" because the initial request from "Eco Heating Plants" was to raise prices by as much as 60%.
And that’s not all. Recently, a new request was sent to the city: either another 4 million KM in budget aid or a new price increase.
Since the city allocates 4 million KM annually to repay the old heating plant's debts, the calculation shows that this year, with the already requested subsidies, the city will spend at least 8 million KM on heating.
Exorbitant Prices for Unreliable Heating
This wouldn't be a problem if citizens were satisfied. However, it seems that they are not. Banja Luka residents pay for heating all year round at a rate of nearly two KM per square meter, making it, along with Prijedor, the most expensive city heating in the Republic of Srpska.
The exorbitant price and the fact that due to an outdated heating system built 50 years ago, entire neighbourhoods are left without heating for days in the middle of winter, have led many Banja Luka residents to disconnect from the heating plant. With heating for a 60-square-meter apartment costing over 1400 KM annually, it's cheaper to use electric heating.
"Eko Heating Plants" reports that by the end of May this year, 140 users had requested disconnection, compared to 202 users in the same period last year. They state that 20,365 users are connected to city heating, meaning the heating plant serves over 60,000 Banja Luka residents.
In response to questions from the Impuls portal, "Eko Heating Plants" warns that buildings using district heating are not electrically designed for electric heating. Therefore, using space heaters and electric radiators can lead to fires, which they claim "has already happened in previous years".
While funds are scarce, profits have increased 58 times.
Despite rising heating costs and increasing budget allocations for this purpose, "Eko Heating Plants" reports a rapid decline in profit. In 2019, "Eko Heating Plants" had a profit of over a million KM, but by the end of 2022, it had dropped to just 127,763 KM. Without the millions injected by Banja Luka citizens through the budget, "Eko Heating Plants" would have ended the year deep in the red, continuing the "glorious" tradition of the old heating plant.
Meanwhile, the profit of the majority owner, the private company "IEE Technology", has increased 58 times. According to APIF data, "IEE Technology" had a modest profit of 12,937 KM in 2019, but ended 2022 with a profit of 761,848 KM.
Milko Grmuša, a PDP councillor in the Banja Luka City Assembly, highlighted these inconsistencies. He argues that the city, when injecting money into "Eko Heating Plants", should have sought an increase in its ownership stake in the company.
Photo: PDP
To recall, "Eko Heating Plants" was established in 2017 as an LLC, with "IEE Technology", then called "IEE Ltd"., holding 52.7% and the city of Banja Luka, as the minority partner, holding 47.3%. The city invested around 15.6 million KM in this venture, while "IEE Ltd". invested about 16.3 million KM.
"If the city had invested the 7 million KM it has given to 'Eko Heating Plants' as its share in the basic capital, it would now own 58% of the company. But the city did not increase its capital in 'Eko Heating Plants,' instead it 'gave away' citizens' money to a private company", Grmuša believes.
Additionally, Grmuša points out that "IEE Technology", according to publicly available data, won four tenders issued by the city of Banja Luka and received contracts for the construction and renovation of heating pipelines worth more than 1.8 million KM.
All According to Law and Contract
On April 5, Milko Grmuša requested an extraordinary thematic session of the City Assembly to scrutinise the operations of "Eko Heating Plants". Nearly two months have passed since then, and neither the mayor nor the assembly leadership has responded to his request.
Both the City Administration and "Eko Heating Plants" maintain that none of the allegations suggests the diversion of public funds into private pockets. Subsidies for heating are inevitable, the City Administration asserts, to avoid an enormous increase in prices.
"Electricity costs have increased by over 200%, amounting to 2 million KM annually. The price of wood chips, which the city uses for heating, has risen from 100 to 150 KM per ton, totalling 5 million KM annually. The city does not have the legal ability to demand that the founder provide capital to cover losses. This means that the subsidy is given for operations, not to be used as founding capital", the City Administration explains.
They add that the recent change in ownership structure was conducted according to the law and did not affect the city's share in "Eko Heating Plants", so there is no need for the city to comment on it.
"Eko Heating Plants" claims that the 2 million KM subsidies were paid to cover the difference between the economic cost of heating and the price paid by citizens, preventing a larger price increase for users. Regarding the 5 million KM grant, "Eko Heating Plants" states that this money has already been invested in the reconstruction of the heating network, which is "in a catastrophic state".
The distribution network, they add, is exclusively owned by the city, making such investments the city's responsibility.
The Strategic Partnership Agreement, which established "Eko Heating Plants", includes provisions for subsidies and grants the private partner the right to unilaterally terminate the contract if the city fails to fulfil its obligations under this basis.
What Igor Radojičić Say’s, and Economists Say
Seven years ago, former mayor Igor Radojičić warned that city heating was a "nightmare for Banja Luka". As soon as he assumed office, he was greeted by cold radiators and dissatisfied, freezing citizens.
Photo: Igor Radojičić
In November 2016, the city heating plant entered the heating season with 85 million KM in debt and not a single mark for purchasing fuel oil, and the tanks were empty. At that time, it was estimated that the city heating system was unsustainable: around 10 million KM was needed annually for purchasing fuel oil, plus about 5 million for necessary repairs.
The solution was to establish a new company, "Eko Heating Plants", based on the principle of a public-private partnership, which would heat Banja Luka with a new energy source: biomass, specifically wood chips. The private partner chosen was the company "IEE Ltd". from the Elnos group, the only one that "submitted complete documentation" for the tender.
Mayor Radojičić was then the vice president of SNSD and is now the leader of the Independent Movement "On His Way". Radojičić today says that "Eko Heating Plants" was established to be self-sustainable and that it was during his mandate.
"The city, as a co-owner of 'Eko Heating Plants,' made a profit, and that money flowed into the budget", says Radojičić. He adds that he cannot comment on what happened later and why money is now being allocated from the budget for "Eko Heating Plants", because he says, "he has no insight into the operations".
The leaders of "IEE Technology", an incredibly successful and profitable company that is the majority owner of "Eko Heating Plants", certainly have insight into the operations. However, they did not respond to questions from the Impuls portal. Economists are also silent. We contacted several experts, but none of them were willing to speak publicly on this topic.
Nor did the City Administration respond to the question of why the current mayor, Draško Stanivuković, sought documentation on the operations of "Eko Heating Plants" through the court in 2019 and what his Audit Team established when it investigated the work of this company at that time.
Today We Are Paying for Fuel Oil from 2010
The old heating plant has been deeply in debt for years but still exists. It employs 18 people, although, according to officials, it has not been engaged in its primary activity—heating apartments and commercial buildings—since 2017.
The City Administration states that the company "Heating Plant" Ltd. was inherited from the previous administration with debts of around 80 million KM. Every year, about 4 million KM is allocated from the city budget to repay these debts, for which the city was the guarantor.
"It is impossible to liquidate this company until the debts are settled because bankruptcy and liquidation of this company would jeopardize the heating system. Additionally, 'Eko Heating Plants' rents two boiler rooms from the old 'Heating Plant,' which are vital parts of the district heating system", the City Administration says.
Former mayor Igor Radojičić mentions another reason that keeps the old heating plant operational.
"In case of extreme cold, of minus 20 or more, the city would be heated with fuel oil, through the old heating plant. This hasn’t happened in recent years, but you never know", says Radojičić.
He adds that the city is, in fact, currently paying off the fuel oil used for heating in 2010.
