THE SLOVAK government's advisor on the privatisation of electricity producer Slovenské elektrárne (SE) is warning that questions over the regulation of the country's electricity prices are complicating the privatisation process.
After SE and the Office for Regulation of Network Industry (ÚRSO) agreed on maximum electricity price rises of 18.6 per cent, the plan was met with resistance from large users and distributors, and calls for increased government control over the independent ÚRSO.
"We are convinced this uncertainty complicates the [privatisation] process," said Peter Mitka, chief of the privatisation team at PricewaterhouseCoopers (PWC), which is advising the Slovak government on the deal.
"In such a situation, it would be difficult if potential investors were not able to start a deep audit," said Mitka.
The electricity producer has said the increases, at four times the rate of headline inflation from October 2001 to September 2002, are necessary for the company to prepare for market liberalisation in January 2003.
SE remains one of the last major privatisation deals for Slovakia. Eight strategic investors submitted preliminary bids for a 49 per cent stake in the producer in an August tender, and the Slovak Economy Ministry is expected to reach a decision on a short list of candidates in the near future.
Slovakia sold 49 per cent stakes in the country's three regional power distributors - ZSE, SSE and VSE - last spring to German E.ON, Electricite de France and German RWE respectively. All three are assumed to be among the bidders for SE.
However, officials from the energy section at the Economy Ministry expressed surprise at the level of the hikes, and hinted that a redefinition of ÚRSO's role may be necessary before SE privatisation continues.
"We have no idea why the rate hikes are so high. We can only predict that they reflect the abnormal volume of investment into SE and the [three regional] electricity distributors," director of the energy section at the Economy Ministry, Jozef Urmín, told the daily Hospodárske noviny.
"Also, the level of profit reflected in the price calculation is probably higher than it should be in this transition period.
"[There is] a danger that as a result of high electricity costs, some industries could become unable to compete," he said.
Urmín also said that ÚRSO has "exceptional authority" compared to similar agencies in surrounding countries, and that a modification of the law on network industries may require the office to consult with the Finance and Economy Ministries before reaching final decisions.
The legal role of ÚRSO in regulating electricity prices is expected to play a major role in determining the final price the Economy Ministry will receive for SE's privatisation.
However, ÚRSO officials say that the current independence of the office is a good defence against the influence of state interests and lobbyists, and that reducing the office's independence would send a bad signal.
"Mr Urmín started the whole process of misunderstanding. Customers, especially large businesses, are also feeding these [attempts to reduce the office's independence]," said ÚRSO spokesperson Miroslav Lupták.
Lupták also defended the approved rate hikes and said the office was looking for ways to reach a compromise with large users of electricity and electricity distributors.
"We're not saying the tariffs are perfect, but they are not bad," he said.