State-controlled gas giant SPP has justified its plans to hike gas prices saying it has to cover its costs. Some analysts have said that there is a real fear that if there are no rises the company could turn into a loss-maker
photo Ján Svrček
However, SPP warned that the climb down would cost the company 700 million crowns ($14.13 million) by the end of 2000.
The decision, which pushed back a planned 30% rise in gas tariffs for companies to January 1, brought to an abrupt end what had been an uncomfortable situation for the government and particularly Economy Minister Ĺubomír Harach, after SPP declared November 23 that it would unilaterally raise prices in spite of government resistance.
Government and business leaders had been left stunned by the state controlled firm's decision to up the gas prices. While the firm had already submitted a hotly-contested proposal for the hike to be made as of January 1 next year, it then abruptly declared the rises would take effect at the beginning of December.
But in announcing its decision to respect the government's request for a delay, SPP reiterated its justification of the price rises: falling gas prices on the world market and the strength of the US dollar, a currency used in most of its transactions.
The company has said it envisages a loss of 16 billion crowns ($320 million) on gas sales at the end of this year, a deficit that will have to be made up by revenues from its lucrative gas transit trade. SPP's gas purchasing costs rose 71% in the first six months of 2000 compared to the same period last year, while its revenues from gas sales and transit climbed only 18%, leaving a gross profit of 5.77 billion crowns ($123 million) for the first half of the year, a fall of 40% on the 1H99 figure.
The company is also required to plough three billion crowns back into the state budget in the year 2000, and another five billion in 2001. Economic analysts have said that unless gas hikes are approved, there is a real danger that SPP will become a loss-maker next year after recording a gross profit of 12.36 billion crowns in 1999 ($247 million).
SPP spokeswoman Helena Polaková said that prices had been kept low for many years through a reluctance on the part of Slovak governments to allow the rises. She added that the rises were now more necessary than ever in view of the government's plans to privatise a 49% stake in the firm next year.
A tight spot
While the delay to January 1 grants industry a reprieve, it is a temporary one, and the anger sparked by the earlier November 23 decision remains fresh among business leaders.
Chairman of the Association of Slovak Employers' Unions and Confederations business alliance Jozef Kollár cast doubt on the validity of SPP's arguments for imposing the rises. He said that the price hikes may push some companies struggling to remain cost-competitive to closure.
"After these rises the competitiveness of Slovak companies will be worse, and as a consequence some production facilities could close down," he said.
Another of the main arguments heard from the business sector has been that SPP has not proven the economic need for the rises, and thus is unjustified in imposing them.
"The business sector is not enthusiastic about the rises, that's clear from our discussions with firms. If SPP wants to raise prices because of world [sector] trends then they have to show proof for it," said Anton Bonko of the Slovak Chamber of Commerce.
"Rising gas prices are a worldwide trend and connected to the development of various nations. But we have to make sure everything is done objectively and structurally. It's not enough to say that the price will increase by a given amount, a justification has to be given," he added.
But Pavol Ondriška, analyst at Bratislava brokerage house Slávia Capital, said that if it was "logical" that the corporate sector was protesting, it was just as understandable that SPP was seeking to cover its increased costs. "The economic arguments are there for price rises," he said. "The cost of production is rising for SPP, and the company has to cover its costs. It's not a social benefits provider, it's a business which has to follow business principles."
The other main critricism of SPP has been its apparent defiance of the government, but here again, Ondriška pointed out that SPP is entitled under law to raise gas prices for industry without consulting the government.
Critics of the original move, on the other hand, claimed it had gone against both previous agreements brokered between government, labour and employers, as well as government-approved plans for liberalisation of the gas market, under which there would be a rise of only 10% for the corporate sector in January 2001.
Finance Minister Brigita Schmögnerová was also unhappy with the decision, calling it "arbitrary" and saying that the rises would not go ahead without cabinet's consent. She rounded on Economy Minister Ľubomír Harach, whom she said should have informed cabinet that the December 1 rises were on the cards.
Not over yet
SPP has also proposed another controversial price rise - 25% for households - for January 1 as well. The proposal is again above that stipulated by the cabinet-approved sector liberalisation plan, which envisages a 15% rise, and has already been rejected by the Finance Ministry once this year.
The proposed hikes come after an increase in natural gas prices for households of 50% in July 1999, and a further 30% in February this year. Gas for wholesale consumers rose 5% and for retail customers 17% as of January this year.
Additional reporting by Zuzana Habšudová
1. Jan 1970 at 1:00 | Ed Holt