Fico Shows Why State Cannot Be Good Manager

With the announcement of redundancies in the transmission system operator Eustream, a subsidiary of gas utility SPP, on the portal energia.sk yesterday Michal Hudec presented his comments on Robert Fico’s stance to the situation. Here The Daily provides you with its own unofficial translation of the article.

Michal Hudec: Robert Fico showed why the state cannot be a good manager

Source: Energia.sk, Date: 11 January 2012

Opposition leader and probably the future head of government, Robert Fico, called a press conference on 10 January regarding the redundancy of 120 employees of the SPP group. His address is a good example of why the state cannot be a good manager.

Politicising the theme of the energy sector is only natural in the run-up to the elections. The average household in Slovakia spends almost 9% of total income on paying gas and electricity bills. This is no negligible percentage and so it is possible to expect voters to react to just about any appeal in connection with this item in their family budget. That is why we can expect issues surrounding the energy sector will be discussed more often leading up to March than at other times.

Another fact is that the energy sector and the interests of the state cannot be separated from each other. Striking a balance between them is possible, though, which reflects the priorities of the state (including social policy) and the priorities of energy companies and all their shareholders.

At the press conference, former prime minister Fico openly said that if the half state-owned company generates profit in millions of euro at a time of economic crisis, it has a kind of moral obligation to artificially maintain jobs in regions that are hit by higher unemployment rates.

It is legitimate to create a social policy to an appropriate extent also via the energy sector. The tools of the social policy, depending on the preferences and ideological foundations of the specific government, could comprise foremost: setting regulation, the deregulation of certain activities of a competitive nature, targeted social tariffs, or measures aimed at the battle with energy poverty and so on.

Thirdly, even half or fully state-owned companies have to operate economically and experience from other sectors has shown that if a company is overemploying then sooner or later it will start generating a debt, even though it may have been making profit in the first years of overemployment. This is linked also to other problems and its revival is an expensive and lengthy process.

One hundred and twenty employees of the compressor stations of the company “eustream” will definitely have their living and family situation complicated by the loss of their job. In reference to the words of Robert Fico about who can they rely on if not the state, it is possible to say that it is the state that has failed first and foremost. This because it was not capable of applying the kind of labour policy that would generate sufficient new sustainable jobs that could be taken up by the affected employees whose jobs at the compressor stations ceased. The state gets substantial funds to finance such a policy also from the business operations of the SPP group: firstly, by VAT payments, secondly in the shape of corporate profit tax, and thirdly in the form of dividends paid to shareholders, i.e. the state.

The declaration of Robert Fico constitutes a good argument as to why the state cannot be a good manager. There is no problem in it being the only or partial owner of an energy company, but its operation clearly benefits if the management does not treat political orders preferentially over the “ABC” of economically sustainable business. By the way, at a time when automated information systems are being introduced as part of process optimization, the demand for human labour is more inclined to drop than grow if the business activity is not expanded.

On the subject of the “big” profits of the SPP group during the crisis. Regulation in the energy sector should be set in such a way that there is a crossover between the justified prices for consumers and reasonable margin for the company. Based on the fact that, for the above reasons, the profit of the SPP group is also in the interests of the state budget, there is always the possibility of requesting the regulatory authority RONI whether the final real margin of all the companies of the SPP group, including transmission and distribution, are reasonable. If not, regulation clearly has some gaps in it, and so it is necessary either to fine tune it or change it. In such an event, this would not only provide systematic help to 140 employees, but also to 1.4 million households that consume natural gas and who, in addition to the price of the commodity, have to pay also fees for other services related to the supply of gas in the final price.