Posted by on 3 Jun 2011. Filed under Business, Top news. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

Business Blog: Slovak Gas Populism

Slovak Gas Populism: or why the state doesn’t set gas prices and why does Fico misleads again

Kristian Takac, State Secretary for the Ministry of Economy

Recently SPP submitted a proposal to increase regulated prices of natural gas for households. If the regulatory authority URSO were to approve the proposed price hike, households would have to pay roughly 8% more for gas than they did last year. The initiative of SPP infuriated leader of the opposition Robert Fico as he called a press conference almost immediately on the exploiting practices of big capital.

At the press briefing he announced that under the former coalition such a scandalous hike in prices would have been unthinkable. SPP even reduced its prices, in fact. He ended his fiery address by attacking the current management of the Ministry of Economy, whom he referred to as incompetent and incapable of dealing with the bloody imperialists from SPP like a man. Fico, faithful to his populism, somehow “forgot” to mention one fundamental thing; that neither the government nor the Ministry is responsible for deciding on gas prices. It is not possible, because this goes against the law. Energy prices are decided on by the independent regulator, or rather its chairman, Mr. Holjenčík. Mr. Fico also tactically “forgot” to mention that the chairman of the regulator URSO is a nominee of his SMER party. It was economy minister Juraj Miškov who had to set things straight and add in the missing information, after he himself called a short press briefing e following Fico’s hysterical outburst.

No question about it. Fico’s performance could be referred to as the obligatory excursion of the opposition and as part of the verbal battle for the rights (and above all the votes) of the voters. If it wasn’t for the fact that Fico and his government are in fact directly responsible for the current potential hike in prices. If it wasn’t for the ‘Jánošik’ (editor: akin to Slovak Robin Hood) government and the law that since 2008 has de facto blocked SPP from being able to file price proposals to URSO, then households today would not have to be facing an 8% hike in gas prices, and in the near future possibly an even more dramatic hike. This law, which is directed against energy companies and adopted under the former government so as to “protect” consumers against increases in prices, prevented SPP from adjusting gas prices adequately to the development of the commodity on the world markets. Based on this law, the Board of Directors of SPP lost the possibility to file price proposals as this fell to the General Meeting, where representatives of the state (meaning SMER) blocked any proposal to increase prices.

From the short-term and political perspective of Fico’s populist government, this law was a genius solution. Prices did not go up and so together with Fico the voters of SMER could live in the dream of a return to the good old days when a ‘treska’ fish salad and a roll cost just 3.5 old Czechoslovak koruna, everywhere and always. The problem lies in the fact that gas does not come free and that its price is set according to the market and the contracts with suppliers. Ignoring this fact leads only to the accumulation of losses of the half state-owned SPP and an overall undermining of the independence and position of regulator URSO. That is precisely why the Ministry of Economy proposed, and the Slovak government approved, the abolition of this harmful law. This is why it is only now that SPP is realistically able to come forward with a new price proposal.

The ball is now on URSO’s side of the court and it will definitely be interesting to watch how the regulator wrestles with the proposal. Not even SPP is entirely innocent in the game, though. Everything points to the fact that the prices that SPP negotiated with Gazprom in the contract from 2008 are, over the long-term, above the level of prices at which natural gas is commonly sold on the so-called spot markets. At the time when SPP signed the contract on long-term gas supplies, the prices of gas started to fall as a consequence of the economic crisis. From the perspective of SPP it is entirely legitimate that it is now trying to compensate partially for the not-so-optimally set prices in the contract by increasing prices for households.

For regulator URSO, now is the time for it to shine and show its ability to balance the interests of the energy business with those of citizens in a competent way. To date the regulator could comfortably hide behind the law of the former government and not even have to provide a stance to gas prices. Now it will have to fulfil its function and make a decision. All we can do now is hope that in his considerations Mr. Holjenčík will not only apply healthy common sense, but also sufficient political courage and responsibility. The practice of URSO to date, unfortunately, does not exactly provide many reasons for optimism.

Translation of e-Trend blog entry by State Secretary of the Ministry of Economy, Kristian Takac

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