The ACA presents a comprehensive report on the TIWAG Group
In its report presented today on the "TIWAG-Tiroler Wasserkraft AG and Joint-Venture Power Plant Inn", the ACA reveals the proximity between provincial politics, provincial businesses and the economy. On average, from 2015 to 2019, the Austrian electricity provider TIWAG Group generated sales revenue of EUR 1.2 billion per year, of which 80 per cent were attributable to electricity, 17 per cent to gas and the rest to heat and other revenue. TIWAG has about 1,250 staff members. Measured by the amount of dividend distributions and capitalization, the ACA thus took a close look at the most important public company of Tyrol. TIWAG is wholly owned by the province. The audited period essentially spanned the years from 2015 to 2019.
Considerable influence by members of government, members of parliament and economic officials
At the time of the audit, the province of Tyrol held a total of 34 direct and 118 indirect equity interests – in particular in the area of public services such as health care, infrastructure, culture, housing and transport. In almost a quarter of the direct equity interests, members of the provincial government or the provincial parliament had been appointed as supervisory board members. In exercising their political responsibilities, they had to balance various interests. However, in their capacity as supervisory board members they were obliged to act only in the interest of the company.
The chairman of the TIWAG supervisory board is entrepreneur, board member of the Federation of Austrian Industries Tyrol and representative of the industry sector at the Economic Chamber Tyrol; his first deputy chairwoman is member of the provincial government of Tyrol, his second deputy chairman is vice president of the Economic Chamber Tyrol and advisory board member of the Federation of Austrian Industries Tyrol. These conflicting relations have an impact on the group as follows:
Stimulus package and lower electricity price upon the owner’s request
Pursuant to the Austrian Stock Corporation Act (Aktiengesetz), the board of directors should exercise management independently and without instructions, and the company's best interests should take priority. Nevertheless, TIWAG made an important contribution to the economic stimulus package established based on the interests of the province: for the Tyrolean incentive package and upon the owner's request, TIWAG paid a dividend of EUR 20 million in 2016 and 2018 respectively. Investments in infrastructure amounting to EUR 25 million were brought forward. At the owner's request, an electricity price reduction also turned out to be higher than planned by the board of directors and affected the annual result 2016 with EUR 18.6 million. The main beneficiaries were the trade and the industrial sectors.
Already for 2011, TIWAG paid a special dividend of EUR 230 million. The provincial governor in his capacity as the owner representative justified this with a preemptive distribution of dividends until 2017. EUR 220 million were used for the distressed HYPO TIROL BANK AG. Although, as promised, no dividends were distributed for a total of six years (with shifts), considerable sums were distributed in individual years. From 2012 to 2019, a total of EUR 62 million was paid. The payments of the years 2012 and 2016 to 2019 could not be financed by the group itself. The ACA recommends to TIWAG to distribute dividends only to such a level that allows for an adequate financing of planned investments and does not require any additional borrowing for dividends.
Executive committee: comprehensive rights, no minutes
The TIWAG supervisory board established an executive committee with comprehensive decision-making powers. It was composed of the supervisory board chair and his two deputies. From 2015 to 2019, the supervisory board was notified of 86 business transactions, which had been approved by the executive committee and totalled some EUR 334 million. The TIWAG executive committee did not hold any meetings in the period of January 2015 to June 2019. Neither did it keep any minutes to document its decisions. The committee’s activities were therefore only traceable via the minutes of the supervisory board. Decisions were taken via a circular procedure. The group supervisory board could verify the decisions’ plausibility only to a limited extent.
Possible conflict of interests
The chair of the TIWAG supervisory board held several functions as managing director and shareholder in a business group that produced construction materials and binders. The business group was also supplier to the construction contractor commissioned directly by the Gemeinschaftskraftwerk Inn GmbH (GKI GmbH) with the construction of the joint-venture power plant. In the auditors' opinion, the “apprehension of bias” pursuant to the Austrian Stock Corporation Act could not be fully invalidated. The minutes of the supervisory board did not contain any questions regarding a possible conflict of interests of the supervisory board chair. The ACA recommends to the TIWAG to ensure that also the indirect awarding of contracts to a company in which a supervisory board member hold a considerable economic interest is disclosed.
Joint-venture power plant Inn: project costs were exceeded by one third
The joint-venture power plant Inn was designed as a run-of-river power plant in the Swiss-Austrian border region. Originally, three companies were involved in the project, which was submitted in 1982 for the first time and has since seen several substantial amendments: VERBUND AG, TIWAG and Engadiner Kraftwerke AG. From a financial point of view, this large-scale project was unprofitable when the construction was approved in 2014. The ACA understands TIWAG’s reasoning that, in addition to purely economic considerations, factors such as security of supply and advantages for TIWAG's entire power plant portfolio were also taken into account. However, the auditors also criticize that the TIWAG supervisory board and the bodies of the GKI GmbH failed to discuss this lack of profitability exhaustively.
The report furthermore reveals the reasons for increases in costs and delays in the construction of the power plant, which is scheduled to become fully operational by June 2022 (instead of August 2018). The relevant stakeholders underestimated, for example, the implications of the geological conditions and potential natural disasters. In the course of the project, the approved total investment volume increased from EUR 460.9 million to EUR 604.6 million, of which EUR 41 million were incurred for environmental and health protection measures. In the period from June 2014, when the construction was approved, to October 2018, the budgeted project costs increased by overall one third.
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Report: TIWAG–Tiroler Wasserkraft AG and Join-Venture Power Plant Inn
From September to December 2019, the ACA carried out an audit of the TIWAG-Tiroler Wasserkraft AG (TIWAG) and the province of Tyrol as the sole owner of TIWAG. The audit aimed at assessing how the province of Tyrol exercised the management of the equity interests and to what extent it assumed its responsibilities as owner, in particular with regard to TIWAG. It also assessed the corporate governance of TIWAG against the benchmarks of corporate governance for public companies and the compliance management system of TIWAG. Furthermore, the ACA audited the joint-venture power plant with regard to the profitability of the investment, the reasons for cost increases and delays, the implementation of environmental and health protection requirements, and the anticipated costs.