August 31, 2016 / 5:21 PM / a year ago

UPDATE 1-Serbia hikes electricity prices after IMF demand

(Details, context, quotes)

BELGRADE, Aug 31 (Reuters) - Serbia will increase retail electricity prices by 3.8 percent, Energy Minister Aleksandar Antic said on Wednesday, announcing a rise of about half the level demanded by the International Monetary Fund in return for a loan.

Antic told reporters the price hike was the "smallest possible". Last year's 12 percent increase was also short of the level demanded by the international lender.

Serbia's government is under pressure to bring public debt of around 74 percent of GDP under control even as growth in the Balkan country of 7 million remains sluggish at a time when living standards are under pressure.

In return for the 1.2 billion euro ($1.34 billion) loan last year, Serbia promised to prune bloated state enterprises with a view to making them profitable. The price increases will come into effect on Oct. 1.

"We will try to make (power company) EPS profitable by other means," Antic added, including by cutting expenditure, reducing power transmission losses and by cracking down on late payments.

The IMF executive board is expected to approve Serbia's current loan programme at a quarterly review meeting at its Washington headquarters later on Wednesday.

Successive Serbian governments, determined to keep electricity prices low to avoid social discontent, have heavily subsidised EPS through banking guarantees. But low prices and huge losses in transmission have crippled investment. Its newest power plant was built 25 years ago.

Pressure on EPS, which employs more than 30,000 people, has grown since Serbia opened its energy market to foreign competition in 2015. It posted a profit of 7 billion dinars ($63.33 million) last year.

EPS still produces all of Serbia's annual consumption of 38 gigawatt hours, more than two-thirds of it in coal-fired plants. Some 30 percent comes from hydro power pants. ($1 = 0.8961 euros) (Reporting by Ivana Sekularac, Editing by Thomas Escritt and Alison Williams)

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