Slovenia Economy Briefing: Replacement of the Management Board in Petrol Energy Company Helena Motoh

ISSN: 2560-1601

Vol. 22, No. 2 (SI)

Oct 2019

Slovenia economy briefing: Replacement of the management board in Petrol energy company Helena Motoh

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Replacement of the management board in Petrol energy company

Summary

On October 24th the entire management board of Petrol, the leading energy company in Slovenia, resigned. Although allegedly the resignation was made in mutual agreement with the supervisory board, many doubts have arisen on what were the reasons behind this unexpected decision, since the resigned management was extremely successful and there were no credible reasons given for this replacement. Since one third of the company is state-owned, the government demanded an explanation on the recent events from the Slovene Sovereign Holding.

History and background

Petrol company has a long history, it was established in the first days after World War II as Jugopetrol, a national petroleum company based in Belgrade. Soon branches of the company opened in each federal republic, which developed into independent company, the Slovenian one being named Jugopetrol Ljubljana and renamed Petrol Ljubljana in 1953. It started opening a network of petrol service stations, 31 by the beginning of the 1960s, when it also started expanding into catering activities. The development of personal transport and aviation both contributed to a rapid growth of the company, which also started producing its own brands of fuels, lubricants etc. In the following decade, the network of service stations expanded even faster, reaching the numbers of 230 service stations, 13 warehouses, 6 catering establishments, 5 car care centres, 2 shops and 2 motels in 1974. In the 1980s along with many adjustments to the demanding economic situation of the time, Petrol also transformed from a trading company into an energy company, being the main guarantee for the supply of oil, oil derivatives and natural gas in Slovenia. The oil crisis in the early 1980s forced Petrol to expand its offer of goods and services even further. Self-service stations were also introduced in that decade, in 1986. The late 1980s saw a change in the ownership structure in Yugoslavia, with the Companies Act of 1989. This also started the ownership transformation of Petrol in 1990, being restructured into a composite company in 1991. It became a joint stock company in December 1996 and its stocks entered the Ljubljana Stock Exchange in May 1997. The CEO during this transformation was Franc Premk, who passed away in a road accident in 1998 and was replaced by Janez Lotrič. In the 1990s the company also decided to offer service stations for rent. In

1997 its own new chemical laboratory allowed Petrol to better check and standardize the conformity of fuel on its own. After 2000 Petrol started its expansion into foreign markets, focusing mostly on four priorities: petroleum trade, catering and hotels, gas and electricity. By becoming an electricity provider in 2001, Petrol finalized its transformation process o becoming an energy group, while in 2010 it also started to sell electricity to households. In 2017, Petrol also entered the market of sustainable energy.

The ownership structure of Petrol is characterized by concentrated ownership, with top ten largest shareholders own 57 percent of the company's shares. The state is the largest shareholder with Slovene Sovereign Holding owning 12.7%, Kapitalska družba with 8.8% and the state with 10.1%. Currently, according to statistics, Petrol is the largest Slovenian energy company, the largest Slovenian importer, the largest the largest Slovenian company by revenue and one of the largest Slovenian trading companies. Last year Petrol Group recorded 91.8 million Euros profit and 40.7 million euros in the first half of 2019.

Replacement of the management board

The successful restructuring and consistent growth of the company in the past decade was mostly done under the leadership of the management board, which was led by Tomaž Berločnik since February 2011. The management board of Berločnik achieved two important changes: transforming the oil-based company into a company where oil and oil derivatives contribute less than a half of profit; and overcoming the large debt that the company had in the beginning of the decade. For the two achievements and other successful management decisions, Berločnik was awarded with the prestigious »Manager of the year« award in September this year. Only a month later, the management board of Tomaž Berločnik, Rok Vodnik and Igor Stebrnak resigned, following the demand to do so by the supervisory board led by Nada Drobne Popovič, who subsequently became a temporary head of the management board.

The decision to replace the management board was initially not on the agenda of the supervisory board meeting. Even the management board itself obviously was not informed about the agenda, since they issued a press release just shortly before the meeting on the current status of Petrol Group and the results of stress tests that were made to test the preparedness of the company for potentially lowering economic growth. Standard &Poor's confirmed the long- term credit assessment of BBB and short-term assessment A-3.

Reactions in media and politics

Media and experts started speculating about the possible reasons for the replacement, one of the perhaps being the plan to buy three energy companies in the Balkans and the related financial timetable, which allegedly was not correctly calculated. Many have mentioned the possibility of a political pressure exerted upon the supervisory board to replace the management board, since some rumours about the intentions of one or more government parties attempting to do that were circulating in the months before the supervisory board meeting in October. Criticism also followed from other institutions and organisations. Association of small shareholders of Slovenia expressed their worries about the replacement of a successful management board without an evident and justifiable reason. They were surprised that the replacement happened in the time when Petrol had record profit and paid record dividends. They also expect open and clear communication about the developments in the company. Association Manager (which awards the »Manager of the Year awards) warned against such a decision. They see the danger of this replacement to provide a negative precedent in how far the political circles of influence dare to interfere with business decisions, even when such politically motivated decisions are evidently against the best interests of the company and its shareholders, in this case including the state itself. Former Ministers for Economic Development Mecinger and Tajnikar also publicly expressed their doubts. Both pointed at possibility of somebody having the political support for getting the Berločnik position and the supervisory board being used for this purpose. Another former Minister for Economic development, Matej Lahovnik, warned against the role of Nada Drobne Popovič, who allegedly has a background of similarly nontransparent decisions. The opposition parties also responded, most prominently the New Slovenia Party (NSi), who demanded an urgent meeting of the National Assembly Comittee for the supervision of Public Finances to discuss the issue of managing state-owned companies and political interventions.

Prime Minister Marjan Šarec quickly responded to the allegations that the political influence in this case came from his political party (Marjan Šarec List, LMŠ). He rejected these criticisms, claiming that a new political party with a considerably small representation in the parliament cannot play such a deciding role. The government subsequently had a correspondence meeting on the issue on October 25th, where they officially demanded the Slovene Sovereign Holding to check the details of the replacement. The initial response of the Slovene Sovereign Holding before they received the official appeal, was that the Holding is only one of the shareholders in Petrol and is therefore only entitled to pursue its interests in the

3 shareholders meetings of the share holding company Petrol. They stressed that in the system of corporate management the managements are responsible for the operation of the company, while the supervisory boards are responsible for the supervision of that. As only a shareholder, Slovene Sovereign Holding can therefore not interfere in the decisions of either the supervisory board or the management board, while these two are obliged to perform their function in an independent, careful and responsible way.

Summary

With the official response of the Slovene Sovereign Holding still pending, it still seems unlikely that the supervisory board will revert its decision to replace the management board of the company. The critical responses from different sides and institutions, however, point at a serious problem of the extent to which political spheres of influence overlap with the management of the state-owned companies, which negatively influence the success of these companies and therefore the public interest as well.