BUSINESS FOCUS - ENERGY - SLOVNAFT REFINERY AND THE SLOVAK GOVERNMENT ARE ARGUING OVER WHO IS TO BLAME FOR THE HIGH COST OF FUEL

Fuel duel

CORPORATIONS say the high cost of fuel in Slovakia discourages business and they blame it on Slovnaft and excise taxes imposed on fuel.
The government argues that Slovnaft, the country’s dominant fuel producer, is guilty of unscrupulous profiteering and should be prevented from inflating prices at the pump.
Slovnaft claims that rising international oil prices are the cause of recent price spikes. The result is much finger-pointing and an audit.

CORPORATIONS say the high cost of fuel in Slovakia discourages business and they blame it on Slovnaft and excise taxes imposed on fuel.

The government argues that Slovnaft, the country’s dominant fuel producer, is guilty of unscrupulous profiteering and should be prevented from inflating prices at the pump.

Slovnaft claims that rising international oil prices are the cause of recent price spikes. The result is much finger-pointing and an audit.

The Labour Ministry has accused Slovnaft of profiteering - misusing its dominant position on the market as a seller and supplier of fuels.

Club 500, which unites businesses that have more than 500 employees, has been protesting against fuel prices since March, blaming the rising costs on Slovnaft’s unfair pricing policies and high excise taxes.

“Slovakia has one of the highest excise fuel tax rates in Central and Eastern Europe. It is higher than what the European Union recommends. We see ample room for decreasing [the taxes],” Tibor Gregor, the executive director of Club 500, told The Slovak Spectator.

The Finance Ministry acknowledges that fuel prices seem high in Slovakia, but it maintains that the matter has nothing to do with excise tax levels.

According to Finance Ministry advisor Peter Papanek, excise taxes are not the reason for the high cost of fuel.

“Cutting excise taxes would not guarantee lower fuel prices for customers. The recent situation in Hungary proved that. Reduced taxes had no impact on the price per litre but it definitely hurt the state budget,” he told the press.

The excise tax on one litre of gasoline in Slovakia is Sk18.50 (€0.46); it is slightly lower on diesel, at Sk17.30 (€0.43). One litre of Slovnaft gasoline currently costs between Sk34.80 (€0.87) and Sk37.80 (€0.90), depending on the octane content. One litre of diesel costs Sk35.90 (€0.90).

Papanek explained that taxes alone do not determine the end price a customer pays for fuel. “It is the producer and distributor who establish the end price,” he said.

The Finance Ministry advisor also told the press that Slovakia, along with other EU countries, promised not to unilaterally lower excise fuel taxes because of growing oil prices. Too much disparity between national fuel prices would create imbalances.

The European Commissioner for exchange rates, Joaquin Almunia, insists that cutting excise fuel taxes is a matter that requires consultation with other EU ministers.

In its allegations against Slovnaft, the Finance Ministry pointed out that Slovnaft was the only fuel producer in Slovakia to profit from a market stricken with rising oil prices. The Labour Ministry called Slovnaft’s profit margin “shocking”.

“The Labour Minister [Ľudovít Kaník] considers Slovnaft’s ability to increase profits by 350 percent year-on-year in times of record oil price hikes shocking. Inflated fuel prices reduce labour mobility and impact everyone’s cost of living.

The Labour Minister will ask the government to use its authority to prevent Slovnaft from abusing its dominant market position,” Labour Ministry spokesman Martin Danko told the press.

In light of broad-based disapproval of Slovnaft’s fuel prices, the Finance Ministry decided to audit Slovnaft’s pricing policies. State auditors will investigate whether Slovnaft’s costs were economically justified to roll them into fuel prices in 2002, 2003, and 2004.

If state authorities prove that Slovnaft abused its market position, the Finance Ministry could fine Slovnaft the difference between the price that was set and the price it should have been multiplied by how much fuel was sold. Fuel price regulation is another possible penalty.

“As the audit is currently underway and members of the commission are bound by an oath of secrecy, it is not possible to give or publish any other detailed information related to the audit and its preliminary findings,” Papanek told The Slovak Spectator.

Slovnaft objects to its label as the dominant player on the domestic market. Kristína Félová, spokeswoman for Slovnaft, said that Slovnaft has about 36- to 37-percent of the Slovak retail market, operating 300 filling stations out of 800 countrywide.

Félová says that Slovnaft’s performance should be judged against producers outside Slovakia since the country is now part of the European Union.

At a recent press conference, Vratko Kaššovic, the general director of Slovnaft, said, “Higher fuel prices are caused mainly by hikes in oil prices. While in the past hikes were caused by a lower offer, now it is a matter of increased demand. China plays a great role in this process.”

According to Kaššovic, Slovnaft processes low-quality Russian oil, which pushes up production costs. Additionally, Slovnaft has increased fuel prices to offset the costs of modernisation.

“If we want to compete with players like OMV or Shell, we have to upgrade our filling stations,” Kaššovic said.

Analysts agree that the government has a right to investigate pricing policies put in place by dominant private companies, according to antitrust laws. However, some analysts are sceptical about the results of exercising such control.

“I think that if the government had regulated fuel prices this year, prices would be very similar to what we are experiencing now,” Robert Prega, analyst with Tatra banka, told The Slovak Spectator.

Says Juraj Kotian, analyst with Slovenská sporiteľna bank, “It is in the Finance Ministry’s best interest to determine what is behind the high cost of fuel - excise taxes, rising oil prices or ruthless profit margins. If the state authorities prove that profit margins are to blame, they will definitely bury the voices calling for reduced excise taxes.”

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