Risky power relationships
One of the most significant risks which old and new investors in the state-controlled Public Power Corporation (PPC) undertake – as evaluated and registered by the coordinating banks in the prospectus for the new public offer of 15.7 percent of existing share capital at the end of the month – arises from the dangerous triangular relationship which exists between the enterprise itself, its employees’ social insurance fund and the government, representing the State. Since it was founded in the early 1960s, PPC has been solely responsible for providing its employees with good pensions and other social security benefits. The outstanding liabilities for this contractual obligation are projected to grow further and could impose a multiple burden on the enterprise in future. Coordinators are trying to be low-key on the matter, given that the chances of PPC being summoned in future to meet its pension fund deficits (due to a possible change in the institutional framework) are almost minimal. But the above prospect is neither distant nor negligible, despite the fact that when the power market was formally deregulated in February 2001, PPC proper was divested of social security liabilities. Besides, it cannot be a coincidence that the Capital Market Commission insisted that the authors of the prospectus for the new offer included a reference to a number of formal legal warnings by pensioners to PPC. Most of these warnings were filed by those who consider that the arrangements made for «endowments» to the social security fund and the relevant guarantees given by the government do not adequately vouch for their retirement income in the long run. A careful reading of the chapter «Important Notes – Investment Risks» in the prospectus shows that precisely because of the nature of the arrangement, whereby the corporation’s social security liabilities came under a separate fund (OAP PPC) and responsibility for it was transferred to the government, PPC has not fully divested itself of the burden of possible past claims. Indeed, no one seems to be in a position to accurately estimate the consequences which the settlement of such outstanding liabilities could have on the profitability of the listed corporation. Special low tariffs A wholly characteristic example of a possible source of claims are the famous special low tariffs enjoyed by PPC pensioners as electricity consumers. It may be a detail, but it was one which threatened to blow the corporation’s profitability sky-high in 2002. The reason is that under extant legislation, PPC is obliged to continue to provide electricity to its pensioners at specially reduced tariffs. In order to meet the cost, the corporation has to book provisions covering all employees still working and pensioners for all their accumulated privileges and those set to accumulate in future. This unsettled issue – one of many – seemed to overturn the corporation’s financial assumptions and prospects. Initially, PPC management, considering the matter closed as the specific benefit had been earmarked as of a «social security character,» transferred the burden to OAP PPC, entering in its accounts liabilities of a few hundred million euros. But naturally, the social security agency reacted unfavorably and asked PPC to assume its full responsibilities. On this issue, PPC did not find a sympathetic ear even on the part of the Finance Ministry, which yet again shirked from clarifying the bounds of PPC’s responsibilities arising from its guarantees. If PPC had proceeded on the basis of an actuarial study carried out in the meantime, the consequences on its profitability would have been direct and catalytic – measuring some few hundred million euros. But instead of a clean solution, the usual one of creative accounting was again adopted. The government, after all, is expecting revenue from dividends and the public offer.
