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Bills for utilities have a new boss

As the new head of the regulatory authority Ľubomír Jahnátek is already facing criticism for increased water bills in central and eastern Slovakia

Ľubomír Jahnátek (Source: TASR )

Just a few days after his appointment as the head of the Regulatory Authority for Network Industries (ÚRSO), Ľubomír Jahnátek has faced the first accusations by the opposition. This is due to the rapid increases in water and sewer prices in central and eastern Slovakia, considered to be in contract with the promises of Prime Minister Robert Fico pledging to keep utility prices stable.

Karol Galek and Martin Klus, both from the opposition Freedom and Solidarity (SaS) party, pointed out on July 27 that the water and sewer bills of people living in regions serviced by the utility companies Stredoslovenská Vodárenská Prevádzková Spoločnosť and Severoslovenské Vodárne a Kanalizácie increased as of July 1. The new prices affect almost one million citizens. For an average family in central Slovakia the annual bill will increase by almost €14 while in the case of a family in northern Slovakia by almost €10.

Galek sees the increases as a direct consequence of the government’s interference, especially PM Fico, into the independence of the regulation.

Read also: Read also:Committee recommends Jahnátek as head of energy regulator

“If the government decides to interfere with electricity or water prices and install a puppet as a ÚRSO head as it happened in the case of [Ľubomír] Jahnátek, then we cannot wonder that companies subject to regulation would try to interfere with this regulation, too,” said Galek.

ÚRSO explained that the respective pricing decisions for the utility companies were issued on June 20 and when the regulator was chaired by its vice-chairman Miroslav Čelinský, i.e. before Jahnátek was appointed, said Radoslav Igaz, ÚRSO spokesperson.

Čelinský took over ÚRSO’s helm when ÚRSO head Jozef Holjenčík stepped down in early February.

Nevertheless, Jahnátek promised to look into these pricing decisions while it was the utility companies themselves that had asked for the increase in prices. After checks the regulator said that the new prices are fine and that they reflect higher depreciations or a drop in demand. Moreover, prices for these utility companies have not changed since 2014.

New head

Former economy and agriculture minister as well as current Smer MP Ľubomír Jahnátek, 62, took over ÚRSO’s helm after Prime Minister Robert Fico officially appointed him to the post on July 25. Jahnátek replaced Jozef Holjenčík. The latter resigned in early February after being publicly slapped down by PM Fico for approving steep increases in bills for utilities.

In the new position Jahnátek faces several challenges. Firstly he has to disperse concerns that his appointment was a political nomination based on a ruling coalition agreement and show he is leading the office independently.

“I can’t have any requirements on the Chairman because this is an independent authority, but I would like to ask for something: that the office uses to the maximum extent the possibilities provided by the regulatory framework,” said Fico when inaugurating Jahnátek to the post. He added that Jahnátek belongs to a stream of politicians and experts who have always stood for a strong regulatory framework.

Fico sees the strong regulatory framework as a way of keeping utility prices in Slovakia stable.

“It’s no secret that stable energy prices always suited my governments well,” said Fico.

Jahnátek, 62, served as minister in two of three of Fico’s governments. Firstly, as the economic minister between 2006 and 2010 and afterwards as the agriculture minister between 2012 and 2016. In the parliamentary election in 2016 he was elected a member of parliament in Fico’s Smer party. He considers himself independent as he has never been a member of Smer and has acted either in the government or parliament only as its nominee.

“I feel completely independent,” said Jahnátek. “I served as minister for eight years and in eight years the prime minister did not tell me a single time to do something this way or that way. I don’t see any reason why he should tell me this now.”

However, the opposition disagrees and sees the appointment of Jahnátek as a political one while also failing to meet official requirements for this post.

“In the wake of previous political interference from PM Fico in the independence of its regulation, the Slovak energy sector has been standing on the brink of the abyss of political influence, non-transparency, cronyism and corruption,” said Galek as cited by TASR. “Today, it has plunged head first into that abyss.”

SaS claims the direct consequence of having ÚRSO run by political nominee Jahnátek is that energy charges “will be stable, but stably high”. It pointed out that utility bills already comprise 15-20 percent of average Slovak household expenditures - the highest figure in the EU.

OĽaNO considers the appointment of Jahnátek to be a display of arrogance on the part of the governing coalition and a mockery of all honest people. Veronika Remišová, PM for OĽaNO, cast doubt on Jahnátek’s qualifications and competence as well as the fact that the government has not even published his CV.

Lenka Ferenčáková, the editor-in-chief of the Energia.sk website dedicated to the energy sector pointed out that there is a political order to keep end prices of electricity at least at the current level, while economic indicators hint the opposite.

“Mr Jahnátek has a long political career in the rankings of the ruling Smer party thus the doubts whether he will be independent are understandable,” said Ferenčáková, adding that the regulatory authority, based on either Slovak or European legislation, should be independent of the orders of any political, state, public or private subject.

She recalled that the European Commission has repeatedly criticised the non-transparency of regulation in Slovakia in the energy sector. It has even hinted at having some doubts about possible political interventions into the operation of ÚRSO.

“But the EC has not taken any active steps and I do not think that it would plan to get more engaged in this field,” said Ferenčáková.

Brussel is scrutinising the recently adopted revision to the law on regulation which moved the responsibility to appoint the new head of ÚRSO from president to the prime minister. But Ferenčáková points out that the government or a ministry also appoints representatives of the regulatory authorities in other countries, for example, in the Czech Republic, Austria or the UK.

Jozef Badida, an analyst at the website energieprevas.sk dedicated to the energy sector points out that after the change to the law on regulation, the position of the new head of ÚRSO would not be the same as during the previous ÚRSO management.

“This is because based on the new rules, the ÚRSO head will co-sign price regulations with his vice chairs appointed by the government,” said Badida, adding that this way the responsibility and powers will be spread out among more persons.

Fico and Economy Minister Peter Žiga (Smer) have rejected the criticism from the opposition, stating that Jahnátek is an expert nominated by the Federation of Employers’ Associations (AZZZ) and approved by the Economy Ministry’s selection committee as the best candidate.

Three tasks

“My vision is to open the office to the public,” said Jahnátek during his inauguration speech. “We should communicate more with the public and listen to the advice of entrepreneurs who want to have predictable prices. They cannot be surprised by how these prices change every year.”

Jahnátek listed the three tasks he wants to fulfil at first.

The first one will be the withdrawal of draft regulations based on which electricity, water, and heat prices will be calculated next year. He argues that when elaborating them ÚRSO did not follow the law revised after the steep increase in prices under the baton of Holjenčík and did not elaborate impact studies on different groups of consumers.

“New ones will be issued that will be in keeping with the law, or another solution will be found,” said Jahnátek. “There’s no way I’ll give my blessing to somebody else’s slipshod piece of work.”

As the deadline for issuing these regulations is September 30 it may happen that ÚRSO will fail to arrive with new ones by this deadline. In such a case the 2016 regulations will be valid also in 2018, said Jahnátek.

As the second task Jahnátek wants to look into checking the assets of utility companies factored into the calculations of regulated prices. The state allocated €1.8 million to ÚRSO for this purpose.

“Nobody even knows how this analysis turned out,” said Jahnátek. “As it happens, the analysis, which was supposed to cut energy prices, produced a rise in prices for some consumer groups. We need to address this quickly.”

As for the third task, Jahnátek wants to make the setting of regulated utility prices more transparent and involve businesses into this process as well.

“Price-setting shouldn’t be a Pandora’s box from which something flows out,” said Jahnátek, adding that entrepreneurs need to know the future direction of the development of energy prices. “Prices must be subject to a prior discussion. Everybody should know what is going to come out.”

What energy experts say

Energy experts point out several challenges in front of the new head of ÚRSO.

“One of the main tasks will be to solve the improperly managed support of production of electricity from renewable energy sources and combined production of electricity and heat,” Badida told The Slovak Spectator. “The ÚRSO itself should open up its decision-making operation to public supervision as currently it is not known at all what assets and costs of regulated subjects are entering the price.”

ÚRSO may also contribute to lifting the ban and setting conditions for connecting new renewable energy sources to the national grid. It may also contribute to making the short-term market with electricity functional and secure a bigger flexibility on the side of electricity supplies, according to Badida.

Ferenčáková pointed out that with regards to the former autocratic leadership of ÚRSO and departure of several long-term employees of the regulatory authority during the last few months it would be necessary at first to strengthen the expert personnel at this entity.

“Professionalisation of the state administration is traditionally a weak point of Slovakia,” Ferenčáková told The Slovak Spectator.

In terms of topics related to energy, Ferenčáková sees as a challenge the fact that the price of electricity as commodity that is entering the scheme for calculation of end electricity prices has increased compared with the last year.

“If other compounds of the regulated price for households and small companies, i.e. various fees, remain unchanged, the end price should increase,” said Ferenčáková. “But the political and social order is pushing to keep these prices at least unchanged. Thus the new leadership will have to solve the question of whom to detract and whom to add.”

This is closely related to the acute need to reform the special tariff for operation of the system, according to Ferenčáková. Within this tariff, electricity consumers support the generation of electricity from renewable energy sources and highly effective combined production of electricity and heat, as well as support for mining brown coal used for the generation of electricity at the power plant in Nováky. Three regional distribution companies already register claims totalling €380 million within this scheme. To cover this, the tariff should increase by as much as €11/MWh.

Another problem could be the ongoing appeals processes wherein regulated subjects challenged older decisions by ÚRSO, or ongoing lawsuits, according to Ferenčáková.

Topic: Energy


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