Monday, October 29, 2012

Letter to Prime Minister and natural gas prices between the lines

It is very difficult to imagine that a private company would voluntarily subsidise the state instead of generating profit. If one is found like that, you have to ask yourself what it will get in return.

Daniel Křetínský sent a letter to Prime Minister Robert Fico in which he “politely” reacted to the publicised price proposal of SPP and the issue of natural gas prices in the context of the government’s social policy. Yet the chairman of the Board of Directors of EHP wrote more between the lines of the letter than in the lines themselves.

First of all, the letter to the PM declares that during the course of 2013 the prices of gas for households will not be increased. We have to remember, though, that the price caps for next year will be decided on in November or December of this year. This means at a time when EPH will still not have a direct managerial influence in Slovensky plynárensky priemysel. A good or bad position for 2013 from the perspective of price caps is therefore being negotiated by a Board of Directors that will realistically not even run the company next year.

Two explanations

From the recently adopted new Act on Regulation we find that price proposals will no longer have to be submitted regularly every year, but only at the beginning of the regulatory period, or rather the last “obligatory” price proposal in the current regulatory period (2012 – 2016) will be the one that is presented at the end of October 2012. The regulatory authority will then fix the price ceiling, which will only change if there is a change to the objective parameters. Assuming that the values of external parameters will not change throughout the whole regulatory period, theoretically this could mean that prices remain unchanged until the end of 2016. But the market doesn’t quite work like that.

The second point is that in his letter Daniel Křetínský states that he noticed the prepared price proposal by which SPP will request a hike in prices next year by 18 to 25 percent. He does not write, however, whether such an adjustment of the price caps would be positive or negative before the sale of Slovak Gas Holding, which owns 49 percent of the shares in SPP. This regardless of whether it is from the perspective of the economic interests of Slovensky plynárensky priemysel or from the perspective of the social preferences of the government. He does not speak directly about whether he is against the Regulatory Office for Network Industries (RONI) approving such a price proposal or not.

Thirdly, in the letter Křetínský assures the Prime Minister that “EPH will give up any claims that it or SPP a.s. would be able to apply in the end against the Slovak Republic on grounds of price regulation in respective arbitration or other proceedings”.

This declaration could be interpreted, for example, in a way that no matter how RONI decides at the end of this year on prices for 2013, EPH will respect them. This formulation can also be understood in a way that EPH is also taking account of the claim against the current French and German shareholders to compensation of losses in the purchase price for the indirect share in the gas company, about which the management of SPP has been talking in recent years and which are supposed to be as a direct consequence of price regulation.

Most important sentence

Fourthly, possibly the most important sentence in the letter is as follows: “This all despite the fact that these steps will necessarily require the absorption of losses (…)”. This fundamental sentence should not be overlooked or underestimated in this discussion. It is extremely difficult to imagine that a private company in which the state holds no interest would change the goal of its business from generating profit to anything else, such as the voluntarily subsidising of the state or its social policy.

The question therefore arises as to whether an agreement, and what kind of agreement, was reached in the triangle of “government – EPH – departing German and French shareholder”. It is possible to read between the lines of the letter to the Prime Minister that the aim of such an agreement could be to satisfy the interests of all involved. The German and French shareholder will sell Slovak Gas Holding at such a price that they will leave from SPP also with compensation of losses caused by price regulation in recent years.

EPH enters the company as an indirect shareholder with the intention that it wants to generate profit despite soaking up losses, this also based on the prices that the outgoing shareholders “battle out” on its behalf and the regulatory authority will either completely or mostly approve them in the end. On the third part, the Prime Minister received a letter that he can interpret as a victory. This regardless of whether RONI decides even before the entry of Křetínsky’s company to SPP to increase prices by five, twenty or more percent.

That is why it is the price decision of the regulatory authority itself that will confirm or disprove the existence of this or some similar agreement. If the new prices for 2013 do not take into account all actual costs and a reasonable margin, EPH will represent an exception to the claim that the primary goal of a private company is to make profit. Furthermore, it will be an example of how a private company subordinates its own economic interests to the political interests of the government, thereby provoking speculations about its motives.

If gas prices were to jump up next year, or more substantially than in recent years, Prime Minister Fico will escort the “insatiable” German and French shareholder from SPP with the situation that a completely different party will profit from the prices that their managers negotiated in negotiations with the regulatory authority. The one that will no longer have to adjust them in 2013 and so keep its publicly declared promise.

Written by Michal Hudec (publisher and analyst at energia.sk)
Notice: The opinion was published by SME daily (29/10/2012).

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Friday, October 26, 2012

Holjenčík was nominated for chairman of the Regulatory Office for Network Industries by the government

Week in Slovakia (October 22 - October 28, 2012)


Monday - 22nd October 2012


Heat manufacturers announce the need of increase of the fixed component of heat due to annual price decrease of heat consumption. (more information - automatic translatiov via Google Translate)

Tuesday - 23rd October 2012


According to the chairman of party SaS Richard Sulík the current actions of Prime Minister Robert Fico on this issue in the sale of SPP to Czech company EPH is just theater for his constituents. (more information - automatic translation via Google Translate)

Thursday - 25th October 2012


Holjenčík was nominated for chairman of the Regulatory Office for Network Industries by the government. (more information - automatic translation via Google Translate)

The Minister of Economy received from the government mandate to lead negotiation of specific conditions with the Czech company EPH. The sale of 49 % stake of the comapny SPP will be discussed again in late November. (more information - automatic translation via Google Translate)

Friday - 26th October 2012


Private investor plans to build in Dolná Lehota small hydroelectric power plant which will annually produce 4.000 - 5.000 MWh of electricity. (more information - automatic translation via Google Translate)

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Friday, October 19, 2012

Bohunice might be in operation until 2046



The operator of power plant Bohunice V2 informed state authorities about the intention to operate both nuclear units for further three decades. 

Their original lifespan was designed for 30 years, i.e. until 2014 for the Unit III and 2015 for the Unit IV. If it is prolonged until 2046 as intended, they will generate electric power for 60 years.

Slovenske elektrarne are referring to the investment project of long-term operation of NPP V2 which started in 2010.

“The aim of this project is to prove that the NPP facilities will be able to fulfill their functions during the whole anticipated operation period while preserving all requirements of nuclear, radiation and technical security,” says the company communication submitted to the authorities. 

Modernization underway

The operator is convinced that owing to the executed refurbishments the operation could be prolonged.  Since 2002 a modernization program amounting to 500 million euro was implemented at both V2 units, and was completed in 2010 by power increase up to 505 MWe (gross) per unit.

 “The project was focused particularly on solving security problems, but also dealt with increase of the operation reliability of the facilities,” the company states. They added that all these tasks were designed and implemented with the prospect of prolonged lifespan until 2046. 

Bohunice NPP is located near the city of Trnava. Electricity is generated in two units with VVER 440/V-213 pressurized water reactors, which were commissioned in 1984 and 1985 respectively.

The V2 power plant changed to combined generation of electricity and heat after building up the centralized heat supply system from Bohunice NPP to Trnava in 1987. Until 1996 more than 300 facility modifications were made.

On October 17th and 18th an extensive nuclear safety drill was executed in the premises and neighboring districts. (See older post)

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The practise Havran took place in the nuclear power plant Bohunice V2

Week in Slovakia (October 15 - October 21, 2012)


Monday - 15th October 2012


The Czech company Energeticky a prumyslovy holding (Energy and Industrial Holding, EPH) will most probably become the new owner of 49 % shares in Slovak Gas Enterprise (SPP). The Ministry of Economy has not recommended Slovak government to use its pre-emptive right in their purchase. (more information)

Ministry of Economy of the Slovak Republic believes that the company Slovenské elektrárne has no right to claim the damage in the amount of 94,5 million euro for price regulation of electricity supply to households and small businesses in 2009 and 2010. (more information - automatic translation via Google Translate)

Tuesday - 16th October 2012


Under the guidance of the Ministry of Interior extensive safety drill will be executed in the area of Bohunice Nuclear Power Plant. The exercise has been named Havran (Corvus) and will take place on October 17th and 18th.The goal of the simulated accident is to practice and review response times, the state of preparedness and the reactions of crisis committees at all levels, including selected ministries, other state administration authorities, the regional state administration and self-government authorities. (more information)


Wednesday - 17th October 2012

 

The emergency oil stocks will help to cover in the next year the company Transpetrol. (more information - automatic translation via Google Translate)

The company Slovenské elektrárne has already announced to the national authorities that the two nuclear units at Bohunice will operate until 2046. (more information - automatic transaltion via Google Translate)

According to Prime Minister Robert Fico the Government sees absolutely no reason for an gas prices increase for households in 2013, in an average of 18.56%, perhaps as much as 25.43%. (more information - automatic translation via Google Translate)

The National Nuclear Fund will lose the levy on the transmission system operators and regional distribution systems. The method of payment will change ond it will come to the state budget chapter of the Ministry of Economy. (more information - automatic translation via Google Translate)

Thursday - 18th October 2012


According to the Minister of Economy Tomáš Malatinský the material about the outcome of the economic and legal assessment of changes in ownership structure of Slovak Gas Holding B.V. through which foreign shareholders hold 49% of the comapy Slovenský plynárenský priemysel was supplemented as required the government. (more information - automatic translation via Google Translate)

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Tuesday, October 16, 2012

Big nuclear safety drill scheduled for this week



Under the guidance of the Ministry of Interior extensive safety drill will be executed in the area of Bohunice Nuclear Power Plant. The exercise has been named Havran (Corvus) and will take place on October 17th and 18th.

The goal of the simulated accident is to practice and review response times, the state of preparedness and the reactions of crisis committees at all levels, including selected ministries, other state administration authorities, the regional state administration and self-government authorities of the Trnava, Nitra and Trencin regions. Various institutions, rescue forces of the integrated rescue system and Slovenske elektrarne, a. s., the operator of the nuclear facility will be involved when managing an emergency event.

Special focus will be on the information flow from the nuclear facility up to the ministries.

Around 1,100 employees of the Bohunice power plant and contracting companies as well as further 1,500 people from institutions involved will participate.

The drill is held pursuant to resolution No. 320/2011 of the Slovak government concerning the process and results of the Fiftth assessment of the National Report of the Slovak Republic under the Nuclear Safety Agreement.

Earthquake reactions

Earthquake with epicenter in the vicinity of Bohunice NPP is to be the initiating event for the simulated accident resulting in rupture of the main pipes. Due to fast progress a state of emergency will be announced in the area of nuclear facility.

On Wednesday morning approximately a 2-minute varied tone siren and "Radiation danger alert" warning will sound in the NPP site. In the area of 21 km around the power plant the sirens will be tested in a silent mode.

The accident will be identified as Level III without radiation consequences and with expected shift to a phase of severe accident in 5 hours. Central crisis committee will hold a meeting and recommend the government to announce state of emergency in the whole territory of Slovakia.

Neighboring countries, International Atomic Energy Agency and the European Commission will be informed. An announcement for the public TV and radio station will also be created, but not aired.
On Thursday morning inhabitants of some villages will be evacuated. They will undergo a simulated decontamination and purification process.

Costs: € 6000

Last similar drill has been executed at the end of 1990´s. Observers from Austria, Czech Republic, Poland, Ukraine and Hungary have been invited. Follow-up assessment and recommendations will be submitted to government for discussion. 

The total costs of 6000 euro have been earmarked from the budget of the interior ministry and will be paid by the NPP operator and bodies of the integrated rescue system.

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Study: Unconventional Sources of Natural Gas - Development and Possible Consequences for the Central Eastern Europe

The International Institute of Political Science (IIPS) at Masaryk University in Brno (Czech Republic) has recently released a new study which was prepared by the researchers from both IIPS and the Department of International Relations and European Studies and which focuses on potential impacts of unconventional gas development in Poland.

The English study titled "Unconventional Sources of Natural Gas: Development and Possible Consequences for the Central Eastern European Region" responds to the highly topical issue of use of unconventional gas resources that can fundamentally change energy situation in the Central and Eastern Europe, just as in the recent case of the United States. The aim of the study is to analyze the current situation of unconventional gas development in Poland, possible limits of shale gas extraction, the legislative framework for mining and position of the key players operating within the Polish gas market. Attention is also drawn to the European Union and role of Russia due to its current dominant position in providing gas supplies for Europe.In case of the EU, the study focuses primarily on relevant actors in legislative process and related legislation concerning regulation of mining and environmental protection.

The qualitative part of the research is derived from a series of interviews with the key actors and represented by results of the Dynamic Actors Network Analysis model. The potential impact of unconventional gas development has been analyzed by original mathematical model called MEOS, which developed the team of authors in cooperation with researchers from the Faculty of Informatics of Masaryk University. This model represents the quantitative part of the research and is used for evaluation of different scenarios that reflect various possibilities of shale gas production, utilization of infrastructure and impact on the Central European gas market.

The study is based on research conducted on behalf of the Ministry of Foreign Affairs of the Czech Republic within the grant entitled "Unconventional natural gas resources - the potential and the possible consequences for the region of Central Europe." Data collection phase took place in Poland and Brussels between April 2011 and January 2012.

The study is available here.

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Konstantin Jacoby: Comment on the results of nuclear stress tests

The result of the tests give a remarkable good picture regarding the safety standards in Europe. In particular, all over Europe, with internationally staffed expert teams and in good and open cooperation with the management of utilities and NPP the results were achieved in relatively short time and allowing comparison between the plants.

This transparency, openness and readiness for comparison and insight is a major factor of safety, the necessary safety culture. The findings and recommendations for improvements induce respective action plans with time tables, and communicating openly and clearly explaining to the public is a necessary dialog to accompany all these actions and to deepened with these actions. This is exactly the way to go for.

Further, the stress tests showed that the design requirements for reactors of generation III / III+ already fulfill requirements concluded from the Fukushima accident.

I would like to see such comprehensive and cooperative action and self-control also for other areas of dangerous industries. E.g., chemical and oil industries, waste management, etc.

Konstantin E. Jacoby
(author acts as energy technical-institutional consultant)

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Monday, October 15, 2012

Ministries do not recommend state purchase of SPP shares



The Czech company Energeticky a prumyslovy holding (Energy and Industrial Holding, EPH) will most probably become the new owner of 49 % shares in Slovak Gas Enterprise (SPP). The Ministry of Economy has not recommended Slovak government to use its pre-emptive right in their purchase. 

„The use of pre-emptive right for reversal purchase of 49 % of SPP is possible in principle, however from the view of time schedule, state of the public finance, effort to strengthen control over the deficit development and decrease of debt of the Slovak Republic it is not an optimum solution,” reads a document submitted by the ministry of economy. 

Foreign investors GDF Suez and E.ON Ruhrgas have previously announced the intent to sell their shares and have started negotiations with Czech EPH since then. 

Discussion of Slovak government on the assessment results is scheduled for this week. 

Neither the finance ministry recommends state purchase of the shares.  Their main argument is the lack of possible financial resources in state financial assets and negative impact on public budget. 

The ministry of economy elaborated two options how to acquire the minority shares. Slovakia would either have to use public finance, which the finance ministry preferred, or to obtain acquisition credit from private sources. Both options were assessed as negative. 

“We suppose that the position of SPP majority owner, i.e. the state, might be improved through negotiating of more advantageous conditions in the framework of new shareholders´ agreement,” ministry of economy argued. 

According to proposal of basic principles of the new agreement Slovak state should re-gain its decision powers in the board of directors. Currently the state has only 3 board members out of 7. 

See also: After "immoral proposal" Fico wants a quick sale ...

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Friday, October 12, 2012

Two new cogeneration plants launched



New cogeneration units were launched this week in the capital of Bratislava and Sturovo. Both were built by private investors and will produce electricity and heat from natural gas. 

The plant named Bratislava WEST which started its testing period has installed electric capacity of 8.6 MW and heat capacity of 9.4 MWt. The annual gas consumption is estimated at 18.7 million cubic metres.

 “The new modern technology can produce heat and electricity in a significantly more effective way, which might have a positive impact on the price of heat for the inhabitants,” said Anton Bielik, the director general of the investing company.

The produced heat will be distributed through central heating system in the city districts of Karlova Ves and Dubravka. Electricity will be streamed into the distribution network.

Eco and efficient

The units in Sturovo have installed capacity 800kW of electricity and 1000kW of heat per hour. For the first time in Slovakia the investor combined cogeneration units with heat pumps.

“The produced electricity will be sold into distribution network and help to decrease the operating costs. For the first time ever in Slovakia the residual heat will be used in the low-temperature circuit – cooler of the filling mixture,” explained the investor. Further 52kW of heat may be generated from these residues.

“The increase of production efficiency and fuel consumption is inevitable as the energy prices are rising,” director for marketing Miriam Oravkinova added. 

Last year 70 different cogeneration plants were registered all over Slovakia.

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