Gas Prices Could Increase from New Year

Today economic daily Hospodarske Noviny looks at how the main gas supplier SPP is expected to request a hike in gas prices from the New Year. Here The Daily provides a translation of the article written by Miroslav Pejko. Translation by Language Sense.

Gas company to request hike in gas prices from the New Year

photo (c) James Riden

Energy. The current price is allegedly lower than expenses. Gas bills of households should therefore go up, but later they should come down again.

Gas utility Slovenský plynárenský priemysel will likely request an increase in gas prices for households from January. It has not yet officially confirmed this, but it has said that the current price is not sufficient. “At present the price of gas for households is below the level of expenses of SPP,” says head of the Gas Trade Division of SPP, Dušan Randuška, adding that further development will depend on the development of the euro/dollar exchange rate. “A certain increase would be justified” sais executive of competitor ČEZ Slovensko, Igor Nagy.

SPP will submit the price proposal to the regulator URSO by the end of this month. It is the regulator that has not acknowledged the efforts of the gas company to increase prices several times already. A similar scenario looks likely also now. “At the present time we do not see a reason for a change of prices. Next year it should stay on the same level as this year” said spokesman for the regulator Miroslav Lupták.

The crisis could change everything

The price of gas depends on the prices of oil and development of the exchange rate of the euro against the dollar. SPP claims that the main value of black gold has risen over the past year. “The annual average price of Brent increased in 2011 by 40 percent over 2010 and in the same period the euro firmed by six percent” argues SPP.

According to analyst Milan Hudák, it is only logical that the gas company will try to include this trend into its proposal for a price hike. Next year, however, it is expected that the price of oil could drop. Whereas at present the price is in the range of EUR 110 a barrel, with the projected slowdown of economic growth could change it greatly. “Some estimates are that the drop will be to a level around USD 90 a barrel. SPP will be looking backwards, though, and will request the highest possible price” assessed Hudák from the company Virtuse Group.

More losses

The gas company claims that as a consequence of regulation on the side of the regulator, it registers substantial losses in the segment of households. Last year the loss was allegedly EUR 70 million and this year it should once again be on a similar level. Saying that, the regulatory authority has allowed SPP to increase prices twice in the past ten months. In January the price increased by approximately 4.5%, and in July by almost an additional seven percent.

The reasons for the loses is the disadvantageous long-term contract of the gas company with Russian giant Gazprom. SPP therefore purchases gas far more expensively than the competition on the market. This is because other companies buy on the short-term markets, where since the spring of this year the price of gas is far cheaper than in the long-term contracts. Traders took advantage of this option, purchased the commodity and so customers can make good savings by changing their supplier. Alternative suppliers offer discounts even by more than ten percent.

SPP itself admits that competition is good for the market. In future it wants to expand its portfolio also to trading with electricity.

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