Dong told wind push must see payback

Dong Energy has been put on notice by state auditors that it must start delivering financially on its big push into offshore wind.

The Danish National Audit Office, Rigsrevisionen, points out that  high levels of investment combined with falling earnings mean that Dong's key ratios are under pressure compared with its peers.

"It is therefore crucial that the company’s large investments, especially within wind, generate the expected return in coming years,” the auditors say.

Dong's equity ratio was satisfactory in  2007-2011, but with the exception of 2008 and 2011, earnings were not enough to ensure a positive direct return on capital costs.

In recent years, the state-owned utility has invested more than DKr80bn ($14.3bn) transforming itself to ensure its future revenue base, and today it is the world’s largest operator of offshore wind.

In addition to the company's overall financial performance, Rigsrevisionen looked at eight investment projects. It concludes that risk management on some of these was not fully satisfactory, and that more than half of the projects went over budget.

The biggest overspend, DKr960m  occurred during construction of the 173MW Gunfleet Sands wind farm off the coast of southeast England. Dong blames this on problems with suppliers, and says it has adjusted  its management model for  major projects based on its experience at Gunfleet Sands.

Chief executive  Henrik Poulsen acknowledges that 2012 was a "problem year", but stresses that Dong is acting to strengthen its earnings and capital structure. It will unveil a financial recovery plan on 27 February.

Rigsrevisionen also found that the company’s plans to sell assets and ownership stakes  to finance investments have not been sufficient in all cases, with the expected proceeds either being delayed or lower than expected.

Finally, the auditors looked into the utility's overall wage structure and bonus schemes. It found that payments to  management and specialists were either in line with or below those of its peers.

Rigsrevisionen says that as a state-owned company, Dong must not be leading on wages, but should be competitive.  It did not look at individual wages and bonus schemes.

Former Dong chief executive Anders Eldrup was dismissed in March 2012 amid claims of unusual employment and termination terms for four key employees. Eldrup has taken the case to the Danish  arbitration institute, where a ruling is expected this year.

The audit office prepared the report at the request of the Danish Public Accounts Committee amid allegations of excesses at Dong. It reviews the company’s conduct from 2007 to the third quarter of 2012.