Fico buys cheaper energy for voters

THE BATTLE for next year's electricity prices is over, and Slovak households will profit from the peace. Although the country's power distribution companies originally asked the market regulator to authorize an electricity rate hike, prices in 2007 will not change after all.

THE BATTLE for next year's electricity prices is over, and Slovak households will profit from the peace. Although the country's power distribution companies originally asked the market regulator to authorize an electricity rate hike, prices in 2007 will not change after all.

However, the victory for residential clients may come at the expense of commercial customers, and was only achieved after Prime Minister Robert Fico gave up a claim on dividends from Slovakia's stake in the energy SE utility until 2010.

Based on a recent agreement between the shareholders of dominant power producer Slovenské Elektrárne (SE) - the Slovak Economy Ministry and the Italian firm Enel - SE will sell 5.4 terrawatthours of electricity to power distribution companies for a sub-market price. This volume of energy represents the country's entire residential power consumption.

Slovakia's left-leaning government, led by PM Robert Fico, has been trying to prevent residential energy price increases for the last several months in line with its pre-election promises.

"The office's approved price regulations mean a zero increase in prices for electricity from 2006 to 2007," said Miroslav Ľupták, the spokesman of the Regulatory Office for Network Industries (ÚRSO).

However, some of the three power distributors - Západoslovenská Energetika (ZSE), Stredoslovenská Energetika (SSE), and Východoslovenská Energetika (VSE) - have already announced that some companies will be receiving a higher electricity bill next year.

How the prices stayed the same

The retail price of residential electricity is made up of a basic or wholesale electricity price and distribution fees. The basic electricity price (silová elektrina) is the price SE charges distribution companies, and is set by auction. This makes up about 40 percent of the final price; the rest is distribution fees charged by the distribution companies.

In September, the distributors proposed to ÚRSO to the final electricity price for households be increased by about 13 percent.

ZSE spokesman Ján Orlovský told The Slovak Spectator that the increase had been based largely on a price hike by SE.

"The distribution companies asked for an increase in distribution fees of only 1.7 percent, equivalent to the core inflation rate, and demanded that the 18 to 20 percent increase in the purchase price of basic electricity be factored into the final price for households," he said. "It was proposed that the final price be increased by 13 percent."

In the weeks that followed, everyone was looking for someone to blame for the proposed increase in prices.

The ÚRSO was accused of kowtowing to the energy companies. The power distributors were criticized for charging exorbitant distribution fees, and SE was blamed for charging too much for basic electricity.

At the end of November, however, the cabinet finally reached an agreement with SE on the price of basic electricity.

According to Enel, the market increased next year's basic electricity price by about 0.30 crowns (21 percent) to Sk1.7 for 1 kilowatthour. Based on the new deal, SE will sell basic electricity intended for households to the distributors for slightly over Sk1.5 for 1 kilowatthour.

Keeping residential electricity prices the same next year will cut Sk400 million from SE's revenues next year, SE Director Fulvio Conti told journalists. "These are extra costs that we are taking upon ourselves," he said.

No free lunches

According to Conti, Enel made a concession to the cabinet by agreeing to cap prices, which it regarded as "an expression of good will". In return, it expects the government to give up its plan to ask to receive dividends from SE until 2010, which would leave around Sk20 billion in the company.

Although the privatization contract signed with Enel by the former Dzurinda government called for the state to reinvest its dividends in the company until 2010, Fico had called such steps "energy treason", and planned to ask that the agreement be changed.

"Fico will not ask for the dividends because he understands that without them, SE would not be able to invest in its further development," Conti said.

The distribution companies are also content with the solution. "This agreement among all parts of the distribution chain created space for both a return on capital investments [to Enel] and the further development of distribution companies," Orlovský said.

However, Orlovský admitted that some corporate customers could see their electricity prices rise, although he did not related this to the residential price freeze.

Prices for corporate customers will depend on their electricity supplier and the tariff under which the firms purchase their electricity. "Those entrepreneurs and organisations that were buying electricity primarily at the low tariff that the SE stopped offering in 2007 will be the main ones who will feel the increase," Orlovský said.

The ÚRSO has yet to decide on the final price of electricity for companies.

State considers itself the winner

Fico greeted the decision of the ÚRSO with apparent satisfaction. "We have applied pressure and, along with the Economy Minister, we will continue to pressure monopolies and the ÚRSO to take into account the financial situation of our citizens, the huge profits reaped by monopolies, the development of the price of crude oil, and the exchange rate of the US dollar against the Slovak crown, when setting energy prices," Fico said.

ÚRSO Director Karol Dvorák told a news conference on December 4 that electricity prices would probably have gone up by about four percent from next year if the government had not held talks with SE, the national electrical network operator Slovenská Elektrizačná Prenosová Sústava, and regional power distributors.

"I see it as a result of the government's agreement with the firms concerned, and not as a result of government pressure," Dvorák said. He added that the regulatory body does not have the power to negotiate with these companies on its own.

"These negotiations were beyond the ÚRSO's competence, since basic electricity prices are not subject to regulation anywhere in the world," Dvorák said.

Based on the ÚRSO's recent decision, ZSE will keep electricity prices on hold for next year.

SSE will lower the prices of standard electricity supplies and accumulation heating, which will affect about 80 percent of its customers. "The average price for these customers will go down by about three percent," Dvorák said. However, SSE will increase electricity prices for direct heating by about 9.5 percent, which will impact around seven percent of SSE's customers. Prices for other kinds of electricity will remain unchanged.

VSE will reduce the fixed flat monthly rate for all tariffs from next year. The average price for standard household electricity should thus go down by 0.5 percent. "The final average price for residential electricity from VSE in 2007 will remain the same as this year," the ÚRSO stated.

A more regulated market?

Economy Minister Ľubomír Jahnátek did not hide the fact that if parliament had managed to use accelerated legislative proceedings to approve a further amendment to the Act on the Regulation of Network Industries, electricity prices might have been cut even more.

The most serious objection to the proposed amendment regarded the fact that it would have allowed the Economy Ministry to interfere with the ÚRSO and threaten its independence in regulating prices.

The Economy Ministry claims the amendment is necessary because the current prices of electricity, gas, and water on the Slovak energy market are too high for end-users.

Economy Ministry spokesman Branislav Zvara said the amendment would also permit a return to regulated electricity prices for corporations, which at the moment are set by the market alone.

The legislation is currently waiting to be addressed by parliament under the normal rules of debate.

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