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FINANCE MINISTER MAKES STRATEGIC DECISION TO HELP STRENGTHEN CASE AGAINST DOMINANT OIL REFINERY

Mikloš withdraws Slovnaft fine

SLOVNAFT will not yet have to pay the hefty fine that the Finance Ministry imposed on it last year for allegedly abusing its dominant position on the market and breaking pricing discipline.

SLOVNAFT will not yet have to pay the hefty fine that the Finance Ministry imposed on it last year for allegedly abusing its dominant position on the market and breaking pricing discipline.

Finance Minister Ivan Mikloš withdrew the ministry's decision to fine Slovakia's largest oil refinery Sk1.3 billion (€33 million) and said he would return the case to the initial controlling body.

"I still consider most of Slovnaft's objections [to the fine] unjustified. However, to have the final decision based on precise and firm arguments, I have returned the case to the [original] controlling body," Mikloš told a press conference May 19.

While local media reported that Mikloš agreed that four of the dozens of objections that Slovnaft provided against the fine were reasonable, the Finance Ministry's adviser, Peter Papanek, told The Slovak Spectator that this was not the case.

"It is not true that the minister acknowledged Slovnaft's objections. The minister returns the decision to the first instance, which should be able to prepare more precise arguments to back the ministry's decision. All of this is being done to increase the probability of the ministry's success in the case of a court trial," Papanek told the Spectator.

Slovnaft has already signalled that it would take the case to court.

"Judging the statements made by Slovnaft representatives, I assume that the case will end in court. [Withdrawing the fine and returning the case to the initial controlling body] is our way of minimizing the potential of failure," the Finance Minister said. A court would not decide innocence or guilt but simply uphold or cancel the ministry's fine.

The controlling body now has 90 days to deliver a new decision against Slovnaft, either maintaining the fine or changing the sum.

"The fine could be lower, but also higher," said the minister, who expects the body to deliver a decision in 30 days.

The Finance Ministry's controlling body needs to give more grounds to its claim that the profit of the company for 2004 was unusually high.

"The profit for 2004 was compared only with the development of profits for 2002 and 2003. The ministry has to either compare more years or bring arguments that it is enough to compare the 2004 profit with the two previous years," Papanek said.

The ministry will scrutinize the Slovnaft's objection that the cost of research and development should be built into its prices. The oil refinery argued that if, for example, it spent money on testing the quality of the products, and these are justified costs.

"The ministry will inspect and select items that are not linked to research," said Papanek.

The minister also wants to create a stronger case that Slovnaft was unjustified in including commission for the sale of fuels into its costs.

"Slovnaft should prove that it was unable to secure these activities from its own resources for lower costs," Papanek added.

The oil refinery's comments are cautious.

"Currently we are analyzing the decision that has been delivered to us. We will decide over further proceedings as soon as possible," the spokesperson for Slovnaft, Kristína Félová, told The Slovak Spectator.

A ministry inspection initiated by the Antitrust Office in November 2004 concluded that in 2002 to 2003, Slovnaft illegally inflated its prices, resulting in unjustified high profits.

According to the ministry, Slovnaft's unjustified prices resulted in additional profits of Sk252 million (€6.5 million) in 2002, Sk276 million (€7.1 million) in 2003 and Sk824 million (€21.3 million) in the first nine months.

Late January, Mikloš said the ministry could reach for price regulation as a tool to discipline Slovnaft for its price policies, putting the cost of fuel directly into state hands.

Slovnaft claims that the ministry's decision disregarded market trade principles.

The fine was the result of an audit that investigated the company's financial records between 2002 and September 2004.

Currently, Slovnaft is the target of another audit, which is looking at the company's figures from October 2004.

The Finance Ministry says that the oil refinery continues to abuse its dominant position on the market, a gambit that critics say has spiked prices at the pump.

While fuel consumers in the Czech Republic have seen the cost of fuel drop by 2.9 percent since the beginning of 2005, Slovaks have watched fuel prices climb 4.9 percent, the ministry argues.

"If the audit proves the ministry's suspicions about the abuse of a dominant position on the market, the ministry will consider its option to regulate fuel prices," the Finance Ministry told the press.

The Finance Ministry also played with the idea of renting reservoirs of oil, which are currently administered by Slovnaft, to other competitors on the market.

Slovnaft said it hopes that the new audit will be objective.

Mikloš has repeatedly turned down allegations that the state is taking steps against Slovnaft to increase its tax revenues.

Last year, Slovnaft reached a record net profit at Sk10.1 billion. This means an increase of more than three times, from Sk3.148 billion (€80.7 million) earned a year ago. Total net sales of Sk85.174 billion (€2.1 billion) were higher by 26.6 percent year on year.

Slovnaft also reached a taxed profit of Sk2.383 billion (€61 million) during the first quarter of 2005. Compared with the previous year's period, this means a 28.5 percent increase. Net sales of the group rose by almost 17 percent year-on-year to Sk17.74 billion (€455 million).

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