®ilina, June 2004

Interview with Mr. Jaroslav Hanzel, SSE General Director

After privatizing 49% of the SSE shares by the French Electricité de France (EDF), Mr. Jaroslav Hanzel became the General Director of the company. The General Director is persuaded that the contribution of the general shareholder is, was and will be very positive for SSE. Mr. Hanzel is sharing his ideas in the following interview.

You are the General Director of SSE, a company in which management leadership was taken over by the French EDF. What is the cooperation with the French like?
It is excellent and yet very difficult. It is excellent because, considering its experience from the European and world market; EDF is one of the most experienced partners we could ever get through privatization, which is also reflected in the work of the EDF managers and advisors. They are total professionals and they know exactly what to do and how. It is difficult because the work we have done in the company over the last one and a half year was very difficult and arduous. On the other hand, there are undeniable results, so the amount of work was really worth it. I think that the inclusion of SSE into the EDF worldwide family has moved our company into Europe and the European Union even before the official entry of Slovakia as a country.

What do the management positions in the company look like?
EFD has three participants in the 5-member board, and these are Mr. Patrit Lucconi and two more board members. The state has two members from the National Property Fund in the board; one of the members is vice-president. The board of trustees has one EDF vice-president. The state has five members in the Board of trustees, including Mr. Peter Huňor, the Board´s President. The employees have three representatives in the Board of trustees.

What makes SSE different after the entry of the strategic partner?
I would like to begin a little bit sooner in time. SSE was founded as an incorporated company transforming the former state-run Stredoslovenské energetické závody ą.p. even before the entry of the investor and it was back then when we started to make the company ready for the coming of an investor. This means we had to change many typical and customary procedures and to restructuralize the company. We learned a lot from our colleagues from Severomoravska energetika a.s. where EDF was already present and I think we did a great job since then. After the entry of EDF into SSE, this was manifested by direct cooperation of Slovak managers with the EDF representatives. Direct contact and property participation had and have material effect on SSE. The restructuralization which initiated last year is still in progress. Our position is improving in all the indicators and so are our services to customers.

What do you mean in particular? Surely there are lots of things...
Yes, your are right, there are lots of them. Right after signing the shareholder contract when the state sold off 49% of the SSE shares, a  contract on technical cooperation and help was signed between EDF and SSE, which gave way to the project of SSE inclusion into the EDF group and was tagged Project for Competitiveness and Integration" (PCI), which is "Projekt konkurencieschopnosti a začlenenia SSE do skupiny EdF" in Slovak. This project was initiated on November 1, 2002, i.e. on the second day after the EDF entry into SSE and it became a backbone of SSE restructuralization and modernizing. Back in May 2003, the project was already finished and its implementation into the company has started - you see we did not doubt and we acted quickly. Half way through 2003, we could start off the overall change of the SSE organizational structure. We cooperated and coacted with the EDF professionals in all we did. All workgroups in charge of the individual project stages were made up from French and Slovak professionals, which sped up the whole process.

Let´s get more practical, what does the PCI take and what has actually changed?
To make long story short - everything. This was not only about the changes triggered by the entry of the strategic investor but also about the changes caused by the actual business environment we are in. It is not only the shareholder structure that has changed, it is even the market - it got liberalized, the Network Regulation Body (URSO) was founded, Slovakia entered the European Union etc. So the changes had to copy all the above factors.

For example?
For example, PCI has defined priority action with respect to the efficiency in SSE business and improved customer approach. It is important to realize that as of January 1, 2003, our customers are free to choose the provider - it is impossible not to react on this. This, however, does not touch all market segments yet, but within the outlined liberalization tendencies, everyone will eventually have the freedom of choice. This is why we talk about the efficiency, followed by improved and better services to the customers for reasonable prices, so they don´t select an alternative provider. We managed this because so far we have lost not a single valid customer.

In order to improve the efficiency of the business, we had to optimize the organization structure of the company, the management of primary activities, and we had to construct new premises and buy new material. We had to be able to evaluate our investment plans, introduce new policies in network upkeep, to diversify the electricity sources, to improve the count-off processes, debt claiming, controlling, bookkeeping and tax issues. All this happened only within one PCI subgroup - efficiency improvements.

What is it that had to be done with respect to customer satisfaction and the customers themselves, who, like you´ve said, need to be won over almost on a daily basis?
Above all, we had to implement marketing strategies, i.e. to identify the customer needs and to measure their satisfaction, to transfer the data immediately into practice and to generate those services that the customers demand. Customer satisfaction is also related to outages and faults. We initiated a wide scale data collection on faults and outages, the data were thoroughly analyzed and adequate measures were identified in order to determine their effects on customers. This also goes with the optimization of our network management and restructuralization of our emergency service and the new system of electricity measurement, which must reflect the needs of the open market and lead to automatic data collection necessary for major customers who need to be told exact numbers and optimize their costs. Each of our major clients has got his own SSE sales representative who provides all necessary data on payments, saving measures, recommendation on the most suitable tariffs and, of course, to solve any outstanding problems. Maybe I repeat myself, but we have not lost any single customer.

And what about minor clients - households and small businesses?
Our attitude is practically the same as with major customers - it only differs in style. All our clients - households, anybody we sell electricity to - has a 24/7 call center access to solve problems, place questions and receive information. Our call center has received tens of thousands of customer calls. Such customer feedback is priceless to us and it shows us the way to go and improve our services.

This year, after issuing the URSO decisions on electricity prices for 2004 which was connected with the removal of the cross-subsidies principle, it seemed that SSE was raising prices much more than ZSE or VSE?
Yes, in one single instance, when price adjustments were compared only form the viewpoint of percentages, it seemed so. In reality, SSE has no higher prices than in the east or the west, the only difference was that they were substantially lower. And they were lower because we applied the cross-subsidy principle, i.e. we were covering the losses with minor clients from gains from major ones. In Central Slovakia, thanks to the widest usage of electricity for household eating, the consumption from minor clients is the highest and this is the reason why the removal of cross-subsidy principle affected them most. Besides that, when talking to SE on the 2003 prices, we agreed on a rather favorable price for power energy (1 206,-Sk/MWh), what is more, within the "Tariff for system upkeep", we eventually agreed on 105,-Sk/MWh, whereas ZSE and VSE agreed on 241,-Sk, and 207,-Sk respectively. For 2004, URSO has defined a unified tariff for system upkeep reaching 151,- Sk, which meant a  46,- Sk increase in our case, but a 90,-Sk and 60,- Sk increase in case of ZSE and VSE.

What does your final price compared to your competitors´ prices look like?
Absolutely competitive. On average, our prices are 3 464,-Sk/MWh, which is for example 31,- Sk less than ZSE. On top of that, in 2203, ZSE and VSE had 3 495,-Sk/MWh and 3 443,-Sk/MWh respectively, whereas we had 2 909,-Sk/MWh. There is one more thing I would like to add - our prices for 2004 could be even higher, if we fully applied the price adjustment formula introduced by URSO. We have not fully taken the advantage of the right to raise the prices, we raised them only to the extent necessary for covering our costs. There is nothing else we could possibly do for our customers from Central Slovakia, I am positively sure about this.

It is quite unusual for businesses and companies not to raise their profit to the maximum possible extent, isn´t it?
That is a matter of differing viewpoints. I would like to emphasize that even in this particular issue, the company culture values introduced by EDF were fully demonstrated. Our goal is not to push the customers arrogantly to the corner just because we have, these days only theoretically, a kind of monopoly. We have a duty to take care of our customers and to create the best possible conditions. On the other hand, showing this approach, we want our customers to stick to the contract terms and, due to our approach, I suppose we can fully claim the right. When this kind of mutual partnership of the provider and the customer works seamlessly, we are even willing to give up a part of our profits for the benefit of the customer. It is a long-term issue and I am persuaded that attaining this goal, we have taken the best route. We want to keep on improving and I subdue practically everything to attain this goal - even the investments which are being made are a proof that we are not primarily focused on profits, but also on the quality of the services we provide and on our responsibility.

You have opened the investment issue. How and what will SSE invest into in the close future?
Before touching the investments issue, I´d like to explain about how things are mutually bound. The whole procedure, which started off in 2002, continued in 2003 and today and which will continue tomorrow, is primarily steered in one direction, but with multiple aims. Our general direction is to keep on improving our services. To achieve this, we have set a couple of partial goals. To take care about the company effectiveness, to think about the customer and the region we are active in. These aims cover it all: Measures to improve efficiency, measures to improve customer support, thoughtful investments, support to the impaired, sponsoring, charity etc. So investments, as important as they may seem, are only part of the whole process, or means to its achievement.

So, the investments..?
I am glad to announce that our company plans to invest 1, 005 billion Sk in 2004, which is, compared to 2003, a 20% increase, and that is undoubtedly much. Above all, we invest into the distribution network and corresponding information technologies in order to improve the quality of our services and do away with certain shortcomings and weak spots, which we still have. We will invest to further improve our call center, we do not forget about the ecology, we will build underground networks inside towns and villages in line with current legislation, etc.

Inhabitants of Central Slovakia will surely be interested in your personal involvement to support other activities not directly connected to electricity.

That would be a very long count. SSE has played a key role in the region even before the entry of EDF, and we were not hiding the fact. The EDF entry has not decreased these efforts, on contrary, things have been reinforced. We still cooperate with the ®ilina City hall, we support and  guarantee numerous interesting projects at the University of ®ilina and many other activities - either through sponsorship in health, culture, sports, the impaired  or professional and technological in science, technologies etc. To measure things in percentages, the sponsorship package at our disposal is divided in the following way: Health care 30%, charity 25%, education 20%, culture 15% and sports 10%. The total amount is around 5 million Sk.

You evaluated your first one and a half year after the investor entry. What is the next one and a half year going to look like?
I´ve already mentioned the PCI project. The implementation of the project has been scheduled for 2003-2005. We are still not even half way through 2004, that means a lot is still ahead not only in the PCi project and its parts, but in general. The market will keep on evolving, Slovakia has entered the European Union, new challenges, opportunities and pressures will appear, forcing us to keep on fighting for the customer, to communicate with him and to improve our services.

Last but not least, there is something else that needs to be said. We were watching closely the process which resulted in KIA settling in our region and we are glad that our region and Slovakia in general managed to finish it successfully. On the background of this major investment, we feel this is a huge challenge and responsibility even for our company.