IN DECEMBER the Finance Ministry initiated a price audit against Slovnaft for allegedly misusing its dominant position on the market and spiking fuel prices. Michel-Marc Delcommune argues that having a dominant position within a single European market, let alone abusing it, is nearly impossible.
Delcommune sits on the Board of Directors of the MOL Group, a major Slovnaft shareholder. In an interview with The Slovak Spectator, the MOL director of strategy defends Slovnaft's pricing policies and expresses surprise in Slovakia's way of handling the situation compared to Hungary and Croatia.
The Slovak Spectator (TSS): How do you, as the main shareholder in Slovnaft, perceive the audit initiated by the Slovak Finance Ministry? How does the audit impact Slovnaft's operations or even the MOL group as a whole?
Michel-Marc Delcommune (MMD): First, I would like to say that I appreciate the steps of the current government during the last five years in terms of improving the business environment in Slovakia. However, we think this decision [the methods used to analyze Slovnaft's pricing and finances] was not in line with the free-market approach.
We have to realize one important thing. Slovakia is now a part of a single European market. The conception that Slovnaft's market stops at Slovakia's borders is past. If Slovnaft had misused its position and overpriced its products, any other company within the single market in a radius of 600 kilometres could have come and taken advantage of the situation at the expense of Slovnaft. But this did not happen.
TSS: Under what conditions, in your opinion, does the state have a right to interfere with the operation of a private company?
MMD:Control mechanisms are a standard part of every functioning system. We are open to any enquiries made by the authorities regarding prices and our activities. We have nothing to hide. We are for transparent pricing. We have been reporting our prices to the state authorities every year since 1996. We have never heard the data is incorrect or any other objections. We are surprised, to put it mildly.
We accept an audit but it has to be based on the law and should not focus on just one company on the market. The state has a right to look after free competition. But in the EU and in every country, it is the antitrust bodies that are responsible for competition issues, not the Finance Ministry. The rules of competition within the EU are strict. We know the rules and we are not afraid to keep them.
TSS: In your opinion, has Slovnaft abused its monopoly position in Slovakia? Slovnaft is the only refinery and fuel producer in Slovakia.
MMD: It is true that Slovnaft is the only fuel producer in Slovakia. But this position is not unusual. Let's look at the neighbouring countries - Austria, Hungary, the Czech Republic. The situation is pretty much the same: there is only one fuel producer.
I would like to point out once more that Slovnaft operates on a larger playing field than Slovakia. Just as Slovnaft operates abroad, Slovnaft's competitors operate in Slovakia as well. Slovnaft exports 70 to 75 percent of its production. Its retail market share in Slovakia is about 37 percent.
Our pricing is transparent. Oil and oil products are commodities with one of the most transparent systems of pricing. The market behaves according to transparent reference prices. You can't find too many products where prices can be checked every minute through the news wire agencies.
TSS: Some analysts suggest that the Finance Ministry is interested in finding someone to blame for high fuel prices mainly because certain business circles are complaining that Slovakia's excise taxes on fuel are too high. Why does Slovakia have such high prices - and are they high compared to other V4 countries?
MMD: First of all, it is necessary to say that fuel prices are different in different countries, even within the EU. Countries apply different excise duty rates. Slovak fuel excise duties are not the highest in the EU but they are high, especially compared to its neighbouring countries. It is especially true for diesel, used mainly by the industry.
Fuel prices in Hungary are usually a bit higher than in Slovakia. In the Czech Republic, prices are a bit lower. The reason is that the market structure in the Czech Republic is different. The companies selling fuel - ČEPRO and Unipetrol for example - are controlled by the state. Fuel prices are somehow indirectly subsidized from the state budget.
I would like to point out that fuel prices are now a sensitive issue in all of Europe. They are based on high crude oil consumption. The current oil consumption stands at 82 million barrels per day, which is 12 million tonnes per day. Europe will have to get used to the situation.
I cannot even think what the situation would be if the dollar was strong as well and the crude oil as expensive as now. What would the prices be in this case? It is a wake-up call for Europe to conserve energy.
TSS: What steps will MOL take regarding the audit? Will Slovnaft accept having to pay a fine?
MMD: For the time being, this is between Slovnaft and the Slovak government. But MOL, as Slovnaft's main shareholder, is carefully watching the situation and supports the company.
Currently, an administrative procedure has started. If needed, we will use all the legal tools at our disposal to prove our arguments, that Slovnaft did not misuse its market position. We are prepared to appeal the verdict in European courts as well.
As I was informed, based on Slovak law, it might be necessary to first pay the fine to keep an administrative process going and then to ask for the amount to be returned in a court of appeals.
TSS: Does the audit impact MOL's relations with Slovak officials and any current or future investments in both Slovnaft and Slovakia? In other words, are there any specific projects that have decided to stop or postpone?
MMD: MOL Group considers Slovakia to be its domestic market. Therefore, we want to have good relationships with the authorities.
We believe that we are not in conflict with the law. We kept and keep all the regulations in Slovakia. We hope that during the official procedure we can confirm that we did not misuse the legislation, and we believe that we will not get the fine.
If the results of the administrative procedure turn out negatively, that will be another situation. All of our investments are based on the fact that we function in a liberalized market.
TSS: Have you experienced an audit like this in other countries? If so, what happened?
MMD: We have had several antitrust office inspections of MOL pricing policy in Hungary and Croatia. Every time MOL has been cleared. The result is that our pricing policy was proved to be totally in line with the regulations of the antitrust bodies. In Slovakia, we are surprised by the inspection methods. They are not what we are used to.
In Hungary, the investigation was a long procedure. The accounting of an oil company is so complicated that even renowned audit firms have a special staff dealing with oil companies. If somebody wants to investigate whether a company keeps the regulations, it takes time. The Finance Ministry's [first] audit was not like that.
31. Jan 2005 at 0:00 | Marta Durianová