Slovak Gas Company 4 billion Sk short for planned investments despite huge profit

The largest profit maker in Slovakia over the last four years, Slovenský Plynárenský Priemysel (Slovak Gas Company - SPP), almost doubled the profit (13.3 billion Sk in 1995, $460 million) of the next closest firm, Slovenské Elektrárne (7.4 billion Sk, $246 million).
Times look even better, as the Slovak gas giant signed a deal guaranteeing its receipt for the next five years from its long-time source, Russia. The pact penned during the April 24-25 visit by Russian Prime Minister Victor Chernomyrdin, whose career rose through the Russian gas company Gazprom, SPP seems set on continuing its steady rise in profit. Gazprom provides Slovakia with 98 percent of its domestic natural gas needs, six billion cubic meters in 1995.

The largest profit maker in Slovakia over the last four years, Slovenský Plynárenský Priemysel (Slovak Gas Company - SPP), almost doubled the profit (13.3 billion Sk in 1995, $460 million) of the next closest firm, Slovenské Elektrárne (7.4 billion Sk, $246 million).

Times look even better, as the Slovak gas giant signed a deal guaranteeing its receipt for the next five years from its long-time source, Russia. The pact penned during the April 24-25 visit by Russian Prime Minister Victor Chernomyrdin, whose career rose through the Russian gas company Gazprom, SPP seems set on continuing its steady rise in profit. Gazprom provides Slovakia with 98 percent of its domestic natural gas needs, six billion cubic meters in 1995.

But it hasn't been all smiles for SPP according to the company's spokesman Ľubomír Rabay. SPP's 13.8 billion Sk profit in 1996 was four billion Sk short of expectations, thus forcing it to borrow two billion Sk from domestic banks in order to complete their planned renovation and expansion of the pipeline.

"The problem is that we have little control over the price," said Rabay. "The Finance Ministry sets the domestic price, international prices are already set, and our deal with Gazprom...let's just say that it must be satisfactory for us."

Kerametal Bratislava, a.s. arranges SPP's natural gas link with Gazprom. Under the current agreement, 75 percent of SPP's revenue comes from fees for transit use with the other 25 percent going to Gazprom.

In 1995, 72 percent of sales of natural gas were to the heavy industrial sector. SPP's largest customer is Duslo Šaľa, which uses natural gas not only for heating but for chemical production.

Slovakia's geographic position puts the pipeline in touch with the Czech Republic and Austria. SPP services European gas companies such as VNG, Wintershall, Ruhrgas, Gaz de France, SNAM and ÖMV.

Economic suicide

The Czech Republic's recent decision to rid itself of its dependency on natural gas from Russia and instead reach out to sources from Norway was motivated purely by politics, according to Rabay. "It was a political decision," he said. "If Slovakia did that, it would be economic suicide."

SPP sees that they have little choice. Rabay intimated that the recent appointment of former Minister of Economy Ján Ducky to be general director was motivated by his contacts in the Slovak cabinet and with Russia. "Our lobby in Moscow has been effective," said Rabay, who added SPP has worked with Russia for 30 years.

Rabay said SPP's management is looking at the situation in Europe realistically. "Russia is a great power," he said. "They can't be ignored in Europe. They have eight times more natural gas reserves than the rest of Europe combined." SPP wants to cash in on its close ties with Gazprom to provide a third of the EU's natural gas needs.

Though Russia is constructing a pipeline across Poland to reach Germany, Rabay thinks there will be more than enough future demand to secure SPP's security. "The position of Slovakia is not in danger," he said, pointing out the fact that it is costing Russia $40 billion to construct the pipeline and that there have been delays. "Europe's added needs will go through the Polish pipeline. Slovakia is at the cross-roads of what is already needed in Europe."

SPP is constructing a fifth pipeline that will altogether have the capacity to transport 90 billion cubic meters of gas by the year 2000 - enough to secure SPP's ranking at the top of the profit list for Slovak companies for quite a while.

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