In full year 2017, following up the preparatory works of strategic synchronization and gas market integration projects, EPSO-G, a group of companies of energy transmission and exchange, has been increasing a volume of services provided, has been providing the services at a lower price and has been purposefully implementing a good governance practice that helps ensuring sustainable, accountable and socially responsible performance of the group.
Reduction of prices of electricity and gas transmission services for Lithuanian consumers since the beginning of the year (by 2.75% and 7.8%, respectively) resulted in a 4.1 percent lower income of EPSO-G group in 2017 year-on-year. Return on Equity (ROE), excluding a one-off effect of revaluation of the assets of subsidiary “Amber Grid” on the company’s result, accounted for 11.2 percent. The liability for the shares of “Litgrid” has been reduced by 35.4 million Euros, seven times more than provided for in the loan agreement with “Lietuvos energija”.
“2017 is another year of successful and targeted action. The increase in quantity of electricity transferred and gas transported after a break helped us use the infrastructure of energy transmission in a more efficient manner. Therefore, the price of energy transmission services for Lithuania's residents and businesses are falling for the second year running. Reliability of cross-border connections allowing import of cheaper electricity from the Nordic countries aiding the competitiveness of domestic producers continued to improve. The planned replacement of couplings of grid with Sweden will help reduce a risk of supply disruptions and fluctuations in electricity prices in the long run perspective. The model of indirect cross-border capacity allocation that has been introduced together with other operators of the Baltic countries encouraged creation of a regional natural gas market. We are proud of the fact that an advantage of biofuel trading platform has been recognized not only by Lithuanian and Latvian but also by Danish participants of the bio-fuel market. This year we will institute the exchange system that is based on the same principles of transparency in the state round timber trade market making it possible for all market participants to acquire timber under conditions of competition thus ensuring the maximum return for the state”, says Rolandas Zukas, the Director General of EPSO-G.
Accountable activities and revaluation of assets
The year 2017 in EPSO-G group was the year of improvement of sustainable and responsible business culture. In order to increase transparency and accountability of activities, the uniform rules – the policies of accounting, dividends, reward, prevention of corruption, risk management, disclosure or financial and non-financial information - have been introduced in all companies of the group. This increased the ability of stakeholders to assess the behaviour of companies in the market, environmental impact, relations with workers and society.
In line with the uniform principles of accounting of non-current assets applied in EPSO-G group of companies, valuation of the fixed assets of “Amber Grid”, AB has been carried out by ensuring, as required by the International Financial Reporting Standards, its accounting at the fair value and that it meets the regulatory accounting as much as possible.
This assets valuation, as has been anticipated, revealed decrease in value by 35.5 million Euros. It has been recorded in the consolidated profit and loss account of the company and EPSO-G group of 2017 by reducing the values of the units of the assets recorded in the balance sheet with a respective amount. This had the greatest influence on the consolidated pre-tax and net profit of the company and EPSO-G group and the cost amount in the accounting.
Services and reliability
The trend of sustainable growth of the country's economy continued in 2017. This had a positive impact on the demand for energy transmission services. 9 992 million kilowatt hours (kWh) of electric power or 2.7 percent more compared to the same period in 2016 have been transmitted in 2017 for the needs of the country’s residents and undertakings via high voltage transmission networks. This is the biggest transmitted quantity of electric power since 1992.
Electricity consumption has been growing in all sectors: 4.4 percent bigger quantity of electricity compared to 2016 has been consumed in the agricultural sector, 3.9 percent move have been consumed by industry, 2.3% bigger by the residents and 1.8% bigger by the service sector. The consumption of the transport sector maintained almost a stable curve (0.1% less electric power has been consumed).
Cross-border connections allowing importing a cheaper electric power from the Nordic countries operated more reliably: market accessibility of “NordBalt” in 2017 represented 84 percent (78 percent in 2016). “LitPol Link” connection with Poland operated almost without interruption – accessibility accounted for 99 percent (96 percet in 2016).
There were also positive tendencies in the natural gas sector: gas consumption has stabilized after several years of falling, and the quantity of natural gas transmitted to consumers in 2017 has increased by 4.1 percent up to 24.3TWh. A bigger quantity of services provided mainly resulted from the growth in demand for a natural gas in the sector of fertiliser production.
Volume of trade of GET Baltic exchange accounted for 442 GWh, i.e. 47.5 percent more compared to 2016. After becoming a regional gas trading platform volumes of trade have grown up significantly: 95.7 percent of the entire turnover of the natural gas exchange of 2017 has been achieved during the second half of 2017 alone.
394 thousand tonnes of oil equivalent (toe) of bio-fuel, i.e. 5.5 percent more compared to 2016 have been acquired in 2017 by district heating companies and the regulated independent heat producers in Baltpool Energy Exchange. 97 percentof all bio-fuel consumed for the country's heat generation in a centralized system
Income and operational costs
The reduced rates for electricity and gas transmission services have had an effect on the amount of income of EPSO-G group: in 2017 income accounted for 224.8 million Euros compared to 234.5 million Euros in 2016. Compared to 2016, income from transmission of electric power has increased by 0.4 percent up to 68.3 million Euros. It accounted for 30.4 percent of total income of EPSO-G group. Income from transmission of a natural gas during 2017 accounted for 56.2 million Euros. Compared to 2016, it has decreased by 5.9 percent and accounted for 25.0 percent of total income of the group.
Decrease in rates of the main services is ongoing: since 1 January 2018 an average price of electric power transmission has decreased by 7.9 percent, an average price of natural gas transmission has decreased by 36.5 percent, and a bio-fuel trading fee for the participants of the energy exchange has decreased by 12.9 percent. For this reason, the consumers of Lithuanian energy transmission and exchange systems will spend approx. 15 million less in 2018.
The costs of EPSO-G group accounted for 225.4 million Euros in 2017. Compared to 2016, they have been reflected as higher by 18.9 percent in the accounting. This is due to revaluation of non-current tangible assets of “Amber Grid” of 35.5 million Euros. Besides the one-off effect of revaluation of the assets, the consolidated operational costs of EPSO-G remained in the same level compared to 2016.
As result of change in the principles of accounting of “Amber Grid” non-current tangible assets a net loss of 3.6 million Euros represented the operating result of EPSO-G group in 2017. Besides a one-off effect of assets revaluation in accounting, a net profit of 26.6 million Euros represented a normalized EPSO-G operational result. A normalized indicator of return on equity (ROE) was 11.2 percent, i.e. it was 2.4 percent higher compared to the target of 8.8 percent that is set out for state-owned enterprises by the Government of the Republic of Lithuania.
Liabilities went down
EPSO-G has reduced its financial liabilities for acquisition of shares of the group‘s company “Litgrid” within 2017 significantly more than set in the debt repayment schedule: from the beginning of the year the debt to the state-owned company “Lietuvos energija” went down by 35.4 million Euros to 170.4 million Euros.