With 80 to 90bn. cubic metres of gas carried every year, Slovakia is today one of the most important transit countries of natural gas in Europe. Would you say that Slovakia has the ideal location in Europe for gas transmission?
As it is said that all the roads lead to Rome, if you look on the map of Europe, you will find that the important gas routes lead through Slovakia. There are two gas routes from Russia to Western Europe, one is the one leading through Slovakia, the second one goes through Poland, other routes are being considered which should lead through the Baltic Sea. Slovakia transports annually 84 billion cubic metres of gas, then the pipeline is split on the western border into two lines, the northern line, which leads through the Czech Republic and Germany and in the southern one, through Austria and Italy. The transport capacity is 12 million cubic metres of gas per hour. So if you look at the position of Slovakia from this respect, you see that it is one of the most important gas carriers in the world, not only in Europe. Slovak gas industry (SPP), joint-stock company is the world's second largest gas transporter after Ukraine. Also, considering the intentions to build other transport lines in the region, this position of Slovakia will be strengthened by building the new section of Yamal gas pipeline.
What is the current situation in Jamal project?
What concerns Yamal, the final decision has not been taken yet, it is still under negotiation. There were two alternatives, for the first alternative, the route would lead across the Baltic Sea, the other through Poland and the third one was the link to the transit pipes in Slovakia. This third alternative was relatively the most suitable one because to transport gas through the Baltic Sea is financially very demanding, in Poland there were certain problems concerning the transfer through natural reservations and protected areas. The alternative offered by Slovakia represents the possibility to build about a 116 km long arm and that would be linked to the Slovak transit lines. This would mean strengthening of the position of SPP, a. s. as well as of Slovakia in gas transit, an increase of the operational reliability of the transit system.
On July 1, 2001, SPP was transformed into a joint stock company and in August was announced the tender for the sale of 49% of the company. Can you briefly remind us what are the reasons behind this operation and how would define the strategic interest of European consortiums to hold those 49%?
This question is very closely connected to what we have just been saying. It has very simple logic and very simple philosophy behind that. Exactly because of the strategic position of the Slovak gas industry on the map of Europe derives its importance for transportation routes in Europe as it creates a link between the West and the East, i.e. between the producers of gas and consumers. Whilst the gas industry is very demanding concerning the investments, mainly the long-term ones, but it is essential to invest a lot into these lines. The condition of the Slovak economy is as it is and we cannot hide anything.
The Slovak gas industry cannot be isolated from the rest of Europe, it cannot live in isolation. I think that these two aspects, the position of Slovakia in the heart of Europe and all the transport routes leading through Slovakia, give an ideal opportunity to investors to participate in the development of the gas industry in Europe and actively participate in the transport of gas from Russia to the West. So on the one side there is the producer of gas, Russia, and on the other, there are consumers. It is obvious that these players should use the opportunity and participate in the process of privatisation of Slovak gas utility. I think that this would be a guarantee of a promising development not only of Slovak gas industry but also the guarantee that the gas industry in Europe will be stable. I would dare to express my own position here and the position of the management that the most suitable strategic partner in the privatisation of the company would be a strategic partner working in the area of gas industry in Europe. Of course, this is my personal opinion, this should not be taken as an influence on the selection of the future strategic partner. From the point of view of the development of the gas industry, I think that this would be the only wise decision.
Would you consider SPP as the most valuable company in Slovakia today?
It depends on how you look at it. There are of course various criteria based on which you could evaluate a company. It could be a subjective opinion of an expert from the gas or energy industry. It could be a view of a person from the engineering industry who could compare e.g. Volkswagen and SPP. There could be many criteria. I would try to answer this question referring to the results of the poll done 2 times a year by the leading Slovak economic weekly Trend. For the year 2000 SPP, a.s. was on the third place among the non-financial companies in terms of revenues. We were the first company among non-financial companies in terms of profit before taxation. | Your net revenues for year 2000 reached about 53 billion SK. Do you have an expectation for next years?
It again depends on how you look at the company. The net revenue will be lower but we will be profitable. In 2000 our company had 120 % tax burden so I have to add here that the profit and revenues was achieved before taxation. So this would be another reason why it is advantageous to privatise the company in order to reduce this additional burden through which the state budget debited our company. It has to be said that the resources of the State company SPP were used for solving the state social policy.
Gas prices are today regulated by the Government, which forces you to sell your natural gas below its cost and reduces your capital investment possibilities. For that reason, SPP is often seen as a tool of the State social policy. To which extent do you consider the deregulation of gas prices crucial to your downstream business?
I think that mainly privatisation will cause that the company will start behaving as it should. If someone purchases for higher price than he sells so you have to understand that this is not a normal economic behaviour. The process of privatisation is closely linked to this, because the future shareholder needs to have a certain guarantee that the policy of these distorted prices will not continue. From 1st January 2003 gas sale price should reach 90 percent of the regulated level and from 1st January 2004 100 percent of the regulated price.
The setting of prices and tariffs will be based on the method of stimulative regulation in the form of restricting revenues so it means that they will include justified costs and reasonable profit. The Office for Regulation of Grid Industries (URSO), established on August 1, 2001 will implement the new price regulation starting from January 2003. There will only be the costs related to the purchase of gas, so there will be two categories of costs, those which can be influenced by SPP and those which cannot be. Those, which cannot be influenced, are the purchase costs and then there will be justified costs and the reasonable rate of profit. So it means that the regulatory body will decide about these two items, about the justified costs and the reasonable profit and SPP will be entitled to influence the justified costs by reducing them.
On a more personal level, as a recently appointed managing director SPP, what would be your greatest personal challenge over the next 6 months?
Difficult question, but I think that it would be almost ideal for Slovakia if the process of SPP privatisation is concluded according to the schedule, so that the political scene will not intervene in this process, so that the rules of the privatisation game are not challenged by considering to lower the rate of shares, to stop the process etc., so that the process of privatisation is transparent. For me, personally, the challenge would be to participate in the development of this company after the privatisation. It does not matter in what position, I would like to continue doing what I have been doing all of my life. So the basic thing is a correct and transparent sale of SPP and my secret wish is that the investor will be a strategic partner from the gas industry.
Would you like to add a final word directed to our readers?
We are a very small country in the heart of Europe, some probably even do not know where Slovakia is and they very often confuse it with Slovenia but I think that we should be understood as a part of Europe. We want to be part of Europe and I think that Slovakia offers good conditions for investments because we have hardworking, honest and modest people. These are very suitable conditions for good labour force. I think that Slovakia is currently doing its best in order to attract investors here and lower the high unemployment level. It is true that the political situation is as it is, that it could, to a certain extent, put the investors off but I do believe that the conditions will improve. It is necessary to be an optimist and I think that people in Slovakia are optimistic and the coming elections will only confirm that we want to be a part of Europe.
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