Alagić: New investments in KJKP Toplane-Sarajevo infrastructure with EBRD support

Berin Alagić, director of KJKP Toplane-Sarajevo, at the end of the heating season, talks in an interview with Patria about the company's operations, future projects, preparations for the next heating season, but also about cooperation with the EBRD in improving the company's infrastructure. 

We are nearing the end of this heating season. Although the Toplane facilities will be ready for heating until May 15, how would you assess this heating season?

Alagić: Considering that due to weather conditions, the heating season that is ending began even before October 15, 2019, that heating is still being carried out to the extent necessary in accordance with the Decree on general conditions for the production, distribution, and use of thermal energy, that we have achieved over 190 days of active heating to date, that despite the age of the existing infrastructure of the heating system through which over 160,000 citizens are heated during the heating season, not a single long-term systemic interruption in the supply of thermal energy has been recorded, that we have successfully intervened in the facilities and the distribution network over 540 times, we can conclude that the heating season that is ending has been successful.

This conclusion is supported by the fact that throughout the period since the declaration of a state of natural disaster due to the coronavirus pandemic, which we encountered during the heating season, we ensured the successful performance of the Company's primary function, namely the production and distribution of thermal energy, while respecting all orders, implementing measures, and following recommendations issued by the competent authorities, and that to date, not a single employee has been identified as having contracted coronavirus, while 4 employees are in self-isolation due to direct contact with their relatives. The danger of the occurrence and spread of coronavirus in KJKP „Toplane - Sarajevo“ d.o.o. was identified in time, and through timely reaction, we initiated certain activities to combat the virus even before the official declaration of a state of natural disaster. Maximum care has been taken throughout this period for the health and protection of the Company's employees and users visiting the Customer Centers.

We remind you that during this heating season, due to the favorable weather conditions in October 2019 and the reduced supply of thermal energy in that month, based on previously conducted expert analyses and business consolidation, we reduced the October bills by 10% for all users who pay a flat rate, which we consider a justified and fair approach towards our fellow citizens and a practice that should be applied in the future.

The operational readiness of Toplane, according to the aforementioned Decree, remains until May 15, 2020, after which we will begin activities on the overhaul and reconstruction of the system, i.e., activities to prepare for the next heating season.

At the end of last year, Toplane claimed over 90 million KM from users, with over 80 million from individuals and 10 million from legal entities. You had disconnections, did that achieve a certain effect?

Alagić: Due outstanding and uncollected receivables are a significant burden for Toplane's operations, especially in terms of meeting its own obligations in a short period, as well as necessary investment in order for the system to function successfully in the long term. From the very beginning of the Management's tenure, we have committed to a zero-tolerance policy towards users who are debtors beyond the deadlines according to legal and internal regulations, which is a first after many years of what I consider incomprehensible tolerance towards them, thereby fulfilling the conclusion of the Assembly and one of the
measures of the Government of Sarajevo Canton to increase the collection rate of public utility companies.

The initial results of disconnecting debtors beyond the payment deadline have yielded significant effects, amounting to over 600,000 KM in a short period. Furthermore, we have initiated a series of additional activities and new models aimed at strengthening collection, which will certainly yield millions in effects within 12 months or more, which is one of the Management's strategic goals.

There was an idea to connect as many new buildings as possible to Toplane, you invited investors to cooperate, and in the past few months, more newly built buildings have been connected to the Toplane system. This would reduce the number of individual heating units, which would also lead to a reduction in air pollution in KS. Are you satisfied with the response?

Alagić: The Management is focused on development projects for Toplane, which primarily means establishing cooperation with investors, which has been almost non-existent until now. For the first time, we have publicly invited all investors who are investing in the construction of residential and commercial buildings and spaces to establish direct cooperation in which we have a win-win situation for investors, future apartment buyers, and other citizens of Sarajevo.

In Sarajevo Canton, we currently have tens of thousands of individual heating units, many of which are direct air polluters. The advantages of central heating with a boiler room over individual apartment heating with combi boilers in buildings with a larger number of apartments are numerous and concern all participants in the process, as well as other citizens not connected to the building in question. The advantage for the investor relates to the cost of the boiler room, whose construction costs are more than 50% lower compared to the costs of installing combi boilers and gas sets for buildings and facilities with 50-100 apartments/spaces.

We are trying to explain that the investor also has more usable apartment space available because there are no numerous chimneys passing through the building, while the safety of citizens and property is significantly higher because there is no gas distribution throughout the building. Also, the advantage for future tenants is that they are not responsible for the maintenance, servicing, and management of the heating system because the boiler room is operated by a professional operator, while the tenants are simply satisfied users. 

New heating systems also enable the preparation of hot domestic water and year-round heating as it suits the users, with the consumption of thermal energy being paid for according to its actual consumption. The benefits for all citizens relate to significantly lower emissions of harmful substances from one controlled boiler room compared to 50-100 separate heating units that operate more or less uncontrollably, thus Toplane Sarajevo directly contributes to reducing air pollution. 

To the satisfaction of all parties, we can point out that in this year alone, we have established direct cooperation with a significant number of investors, where we have ultimately taken over or are in the process of taking over boiler rooms for management. For example, based on the request of the investor “Ans Drive” d.o.o. Sarajevo for connecting the newly built facility Sarajevo Tower, at Kolodvorska street, to the Toplane heating system. Toplane has carried out all necessary works so that Sarajevo – Tower will be heated by the boiler room system Živko Jošilo from the next heating season, which means we will be heating over 450 new apartments.

All activities carried out within the realization of this significant project of constructing the connecting pipeline for the Sarajevo Tower facility, such as engineering and design work, supervision of construction, and procurement of equipment and execution of mechanical works, have been successfully completed with Toplane's own capacities.

Similarly, based on the request of the investor CEMAL-ŠPED d.o.o. for connecting the newly built residential and commercial building „NINA STAN“ to the central heating system, Toplane Sarajevo has carried out activities to take over the already built rooftop gas boiler room with an installed thermal power of 762 kW. Simply by realizing such or similar projects in cooperation with the Canton, local municipalities, investors, and end-users, our intention is to contribute to establishing a system in Sarajevo Canton where professional operators like Toplane manage the heating system, thereby drastically and long-term reducing air pollution. This is only possible if we work together.

Negotiations are underway regarding the takeover of boiler rooms in the residential complexes Miljacka, Izvor, as well as others, which is also one of the Management's strategic goals.

What is the infrastructure of KJKP „Toplane - Sarajevo“ d.o.o. like when we talk about facilities, what are the plans in that regard?
 
Alagić: First of all, I want to say that we have established direct communication and cooperation with the European Bank for Reconstruction and Development and its office in Sarajevo, to whom I must express my gratitude for the excellent experience during our talks so far, as well as for the expressed desire to support our projects. Colleagues from the Sarajevo office of the EBRD have spoken with the Prime Minister of the Canton Government as well as the relevant Minister of Communal Economy and Infrastructure and informed us that they have expressed support for the development projects that this Management is working on.

We expect that through the implementation of credit lines and grants in the coming period, with the support and guarantees of the Government of Sarajevo Canton, we will invest significant amounts in replacing amortized infrastructure and thus prevent the collapse of the energy sector in Sarajevo Canton.
 
The infrastructure itself is very poor, as the average age of the infrastructure is over 30 years, and almost 90 percent of it is amortized. For a long time, no investments have been made in the infrastructure, except in emergency cases, which is not sufficient in any way. It is important to note that key suppliers guarantee spare parts for up to 10 years, which, compared to the age of our equipment, is a truly worrying fact that carries a significant risk in the functioning of the entire system.
 
From day one, the Management has resolutely embarked on consolidating processes within Toplane, as well as planning a serious investment cycle that will encompass the necessary entire system, based on internal analyses as well as the „Feasibility Study on the Expansion and Improvement of the District Heating System in Sarajevo Canton“ which was adopted by the Government of Sarajevo Canton. More precisely, this is a project for which Toplane will seek financial resources from foreign creditors, primarily the European Bank for Reconstruction and Development, with adequate guarantees from the Government of Sarajevo Canton.
 
Unfortunately, the newly emerged situation caused by the coronavirus could significantly disrupt the planned investment cycle, however, the Management will make key preparations through alternative activities that will enable the realization of planned activities as soon as conditions are met, i.e., the state of emergency declared in FBiH is lifted.

The Director of Toplane also thanked the employees, especially the production, distribution, and service departments, for their contribution to maintaining the continuity of thermal energy supply to our users under all weather and newly emerged circumstances.