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NATURAL-GAS UTILITY SPP SAYS RISES ARE NEEDED TO REFLECT ECONOMIC REALITY AND PREPARE FOR COMPETITION

Regulators approve gas-rate hike

GOVERNMENT regulators and Slovak gas utility SPP have agreed on steep increases in natural-gas prices for 2003, saying the hikes are necessary to cover justified costs and ensure fair profits as the country's energy market is liberalised.
In early November, the Office for Regulation of Network Industry (ÚRSO) approved a draft price plan submitted by SPP that called for average household gas prices to rise by 43.7 per cent, and all categories by an average of 32.7 per cent.
"Households using natural gas only for cooking must count on an increase in their [gas] expenses of Sk30 ($0.72) per month on average," said SPP spokesperson Dana Kršáková, explaining that this group is the largest among household consumers and will see the highest increase.


OFFICIALS at SPP say further rate hikes of up to 40 percent on household gas will be necessary next year.
photo: TASR

GOVERNMENT regulators and Slovak gas utility SPP have agreed on steep increases in natural-gas prices for 2003, saying the hikes are necessary to cover justified costs and ensure fair profits as the country's energy market is liberalised.

In early November, the Office for Regulation of Network Industry (ÚRSO) approved a draft price plan submitted by SPP that called for average household gas prices to rise by 43.7 per cent, and all categories by an average of 32.7 per cent.

"Households using natural gas only for cooking must count on an increase in their [gas] expenses of Sk30 ($0.72) per month on average," said SPP spokesperson Dana Kršáková, explaining that this group is the largest among household consumers and will see the highest increase.

"Of course there will also be households, for example in large villas, where these expenses can be in the low thousands," she said.

SPP officials have said that even with the hikes, the company will not cover more than 90 per cent of the projected costs for gas delivery in 2003, and that further rises are expected in 2004.

"In 2004, so that prices for natural gas reach 100 per cent of the real cost, we will have to repeat this rise again in the category of households, which means another increase of around 40 per cent," said Kršáková.

State regulators say gas prices have long been kept at artificially low levels and that sharp increases are needed to bring prices in line with market forces and European Union (EU) rules.

In particular, they point to the tradition of subsidising household gas prices with rates paid by wholesale industrial customers.

"We want to eliminate cross subsidies [in the natural gas sector] by the end of 2005," said ÚRSO spokesperson Miroslav Lupták.

"If we want to start this from the beginning of 2003, the price of gas for households will have to go up by 60 to 80 per cent [from current levels]," he said.

While regulators and SPP agree that the price structure for gas in Slovakia must be changed, the rate hike has been criticised by the Association of Housing Economics in Slovakia (ZBHS).

"The board of directors at ZBHS sadly states that the ÚSRO decision has not taken our suggestions into account, and the accepted decision brings further advantages to the monopoly supplier of gas," said ZBHS president Štefan Tóth in a letter to Economy Ministry officials and parliamentary leaders.

"In our view, [the price hike] creates conditions for the gradual and early liquidation of heat producers for houses and flats. It is even more significant that it is not possible to appeal the decisions of ÚRSO," the letter continues.

SPP officials, however, maintain that government regulation of gas prices since Slovakia's 1993 independence has been based on unrealistic economic foundations.

"The activities of SPP involving preparing, distributing and selling natural gas are deep in loss," said Dušan Randuška, director of SPP's division of business and marketing, pointing out that the utility estimates it will lose Sk6 billion ($145 million) on its domestic gas operation this year.

"SPP is conscious of the definite social impacts [of price hikes], mainly in the category of households. [Because of this] they decided to increase gas costs only by 43,7 per cent.

"We don't want to create a situation whereby some citizens of Slovakia have real problems paying their gas bills next year," said Randuška.

Price regulation in Slovak utilities has long been a source of EU criticism, and Slovakia's government has made deregulating prices a priority of the country's austerity programme, as well as its bid to join the EU in 2004.

However, the first government of Mikuláš Dzurinda (1998-2002) had put off liberalising utility prices before parliamentary elections in September, even though it concluded the privatisation of SPP in the spring of 2002.

In one of the biggest privatisation deals in the history of central Europe, a 49 per cent stake in SPP was sold to a consortium of Gaz de France, Germany's Ruhrgas and Russian Gazprom for $2.7 billion last March.

While a limited number of large users of gas in Slovakia have been able to select competing suppliers since July 2002, the number of such companies will rise to 50 at the start of 2003.

Officials from SPP say that, besides raising prices to reflect economic reality, the company will need to transform itself into a customer-oriented group in order to meet competition.

"If SPP wants to effectively face potential competitors, it must improve its effectiveness markedly," said Philippe Boucle, member of SPP board, nominated by Gaz de France.

"That means a significant reduction in expenses. And at the same time, besides supplies of gas it must offer other new services that will be attractive for customers," said Boucle.

SPP is the second-largest gas transporter in the world, and around 70 per cent of Russian gas delivered to the West goes through the Slovak pipeline.

Slovakia's Economy Ministry expects to see Sk4.5 billion ($110 million) in dividends from SPP for 2003, after the rate hikes have taken effect, on projected profits of Sk11.9 billion ($287 million).

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