UPDATE 1-Serbia tells state power monopoly to restructure or go bust

Thu Feb 7, 2013 12:44pm EST

* Government says no financial aid unless for development

* EPS forced to absorb cost of government power subsidies

* Utility says uncollected bills amount to $1.46 bln (Adds quotes by EPS acting general manager)

By Aleksandar Vasovic

BELGRADE, Feb 7 (Reuters) - Serbia's finance minister told state-run power monopoly EPS on Thursday to restructure or face bankruptcy, refusing it any financial help and offering only "moral support".

EPS is owed 120 billion dinars ($1.46 bln) by customers and losses last year were 33 billion dinars, mainly because the company is forced to absorb the cost of subsidised tariffs, Acting General Manager Aleksandar Obradovic said on Thursday.

The government appointed Obradovic in September and tasked him with restructuring and cost-cutting at EPS, which employs about 30,000 people. The managing board was appointed by the previous government which lost elections in May 2012.

"The government can offer EPS only an indirect moral support... EPS must first help itself as it has capabilities to be stable with its own resources and activities on restructuring," finance minister Mladjan Dinkic said.

"EPS could get rescued if, by some magic, citizens and industry decide to pay their bills but such a scenario is quite unlikely," he told reporters.

On Wednesday, Veselin Pjescic, central bank vice-governor told Reuters that EPS (Elektroprivreda Srbije) was too important to Serbia's economy for the government to let it fail.

Serbia urgently needs to upgrade its energy infrastructure, which was damaged and mismanaged during the Balkan wars in the 1990s, to meet growing demand and cut reliance on imports.

The government uses energy prices as a welfare policy tool, but when it said it may approve a 10-12 percent power price hike in the first quarter of 2013, the central bank warned that the price rise might boost inflation to unacceptable levels.

The International Monetary Fund froze loan talks last year because of spending overruns and has since been at odds with Serbia over central bank independence. Dinkic said on Thursday concessions on policy have reopened the way for new talks.

The European Union candidate's economy shrank about 1.9 percent in 2012 and the budget deficit was 6.2 percent of gross domestic product, with public debt at about 61 percent of GDP. Unemployment stands at 22 percent.

Dinkic told Tanjug state news agency that the government would not approve guarantees for a 300 million euros ($406 million) loan to help EPS avert bankruptcy.

"The government will not approve loan guarantees for any state-run company, unless the borrowing is needed for development or new investments," Dinkic said.

His statement came a day after EPS officials warned the utility could face bankruptcy in March or April unless it secures an emergency loan by the end of next month to meet immediate funding needs and extend debt maturities. ($1=0.7387 euros) (Additional reporting by Maja Zuvela; Editing by Louise Ireland)

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