Power distributor refuses to back down on bill dispute

Officials at Poland's largest power distributor Gornośląski Zakład Energetyczny (GZE) said last week the company would not back down in its ongoing dispute with Huta Łaziska (HŁ) over the steel mill's failure to pay its electricity bills.

"We are not a charity organization," said Łukasz Zimnoch, press officer of GZE. "HŁ would like its power for free, but that is not going to happen and we will not turn its power back on until it pays at least the zł. 12 million ($2.92 million) it owes us for September."

GZE reduced HŁ's power supply in October from 95 MWh to just 5 Megawatt hours (MWhs) a day after the steel mill failed to pay its September electricity bill. The two sides started talks on Nov. 23 to resolve the issue and sources at GZE said they were expected to end this week.

GZE estimates that HŁ's bills account for half of the power distributor's total receivables of zł. 400 million ($97.5 million).

For its part, HŁ says GZE overcharged it for transmission fees, which are set annually by energy sector watchdog Urząd Regulacji Energetyki (URE). "GZE has calculated the maximum possible transmission costs for HŁ under the tariff regime since July," said Radosław Miśkiewicz, head of HŁ's supervisory board and president of Gemi, the steel mill's biggest shareholder. "We are fighting against an inflexible monopoly." He said that according to the mill's calculations, the zł. 12 million ($2.93 million) GZE is demanding is equal to HŁ's overpayments this year. Miśkiewicz said the power cuts risk hitting the mill's foreign contracts, which are worth about zł. 15 million ($3.66 million) a month. "Our very financial existence is threatened by the cuts," he said.

Not the only one

GZE is also having trouble collecting back payments from steel mill Huta Łabźdy (zł. 15 million); one of Polish State Railways' (PKP) subsidiaries in Tarnowska Góra (zł. 10 million); and coal mines. Other power distributors also report difficulty collecting payments.

HŁ, one of Poland's biggest electricity consumers using some 1% of total power purchased, was placed in the highest tariff band (A23) by the URE.

In a preliminary ruling Nov. 15, the URE said GZE was within its rights to cut power to HŁ, though a problem remains in how the tariff band should be interpretated and applied in practice, Miśkiewicz said. "The tariff is simply a benchmark ceiling against which prices can be set," he said. "The real cost (to GZE) of supplying 1 megawatt hour (MWh) of power to the mill should be zł. 7-zł. 8 net, against GZE's demands for zł. 18 per MWh." Other steel mills complain that while the wholesale cost of power in Poland has risen by 52% in the past 18 months, the price of steel has risen just 4% in the same period.

GZE says HŁ already pays lower prices than other heavy industry concerns because the mill's high consumption qualifies it for bulk rates. "This reduces the cost of its bulk purchases," Zimnoch said. He said HŁ should pay 40-50% more than it is paying now. "Our price is already super attractive," he said, adding that HŁ already pays only about 30% of the average transmission fees GZE charges other end-users and about 60% of the total average retail price for power supplied by GZE.

The problem is compounded by the deteriorating finances of many steel mills and a lack of political agreement on what to do about them. The new government has yet to announce its plans for the steel or power sectors. The Steel Industrial-Trade Chamber (HIP-H) said in October that the Polish steel sector could see a 50% year-on-year increase in losses by the end of 2001 to zł. 1.35 billion ($329 million).

Miśkiewicz said HŁ had sent a formal letter of complaint to the anti-monopoly office earlier this month in which it requested a resolution to the energy price issue. HŁ also said that if the power cuts continue for more than a week, they may cause irrepairable damage to the mill's 12 heating facilities.

Turning up the heat

But GZE's main shareholder, Sweden's Vattenfall, is pressuring the power distributor to collect its debts. Vattenfall said it wants them to be no more than 10% of GZE's monthly sales (zł. 20 million-zł. 30 million) within the next three years. In the first half of 2001, GZE noted a net profit of zł. 38 million ($9.27 million), up from zł. 20 million in the same period of 2000.

Miśkiewicz said HŁ was in talks with local power generators about buying power directly from producers. "We need to get the plant running to at least 30% of full capacity and have started talks with local generators on possible direct contracts," he said. Recent reports suggested HŁ was considering building a direct supply line with Elektrownia Łaziska for zł. 2 million-zł. 2.5 million ($487,000-$609,700) and cutting its links with GZE. Miśkiewicz refused to comment on the reports.

Joe Harper