Slovnaft protests against the new tax. I would not be surprised if they sued Slovakia, says the analyst – Energy – Economics
The company Slovnaft, which belongs to the Hungarian Mol group, is against the tax, which was recently approved by the Slovak government. From the so-called of the solidarity contribution, refining and gas companies are supposed to reimburse part of the invoices for expensive energy for households. In total, the state wants to collect more than half a billion euros. The law temporarily introduces an extra tax at a rate of 70 percent exceeding 120% of the maximum profit in the last four years.
photo: TASR, Jaroslav Novák
In the picture, from the left, the Executive Director of SLOVNAFT, as Chairman Marek Senkovič and the CEO and Board of Directors of SLOVNAFT, as Oszkár Világi during the meeting of the management of Slovnaft with the media in Bratislava on December 6, 2022.
However, the amount is more than twice as proposed by the European Commission, claims the disgruntled Slovnaft. At Tuesday’s meeting with journalists, CEO Oszkár Világi pointed out that the taxation of this year’s profits will be even more significant, as it will not be possible to include a solidarity contribution in the tax base this year. Which in translation means that they have to tax the current profit in full and can only deduct the contribution in the next year. Slovnaft should thus lose 91 percent of its profit.
“The proposed solidarity is not even a fair contribution,” says Világi. He reminded that they already have to spend a lot of money to switch from Russian oil to other oil mixtures. “We have to invest in order to be able to supply the Slovak and Czech markets, and then the surrounding countries,” pointed out Világi. According to him, the solution to the solidarity contribution was its amount at the level of the proposed European Union, between 34 and 40 percent.
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Slovnaft fundamentally disagrees
He takes note of the government’s decision, but sees the more than double price increase compared to the recommendation of the European Commission, which is at the level of 33%, as discriminatory and highly disadvantageous in a competitive environment. “Ensuring the energy security of Slovakia and the Central European region requires investments in the order of hundreds of millions of euros, while the proposed solidarity contribution can significantly affect the company’s investment,” the company emphasized.
Slovnaft also says that none of the government representatives took the time to negotiate with one of the largest contributors to the state budget and consult on such a fundamental matter.
In the near future, the company anticipates investments in the production and storage of oil in the amount of several million euros, which require an embargo on Russian oil and its replacement by other suppliers.
In addition to the current investment intentions caused by the ban on the export of products made from Russian oil, the refinery also has to cope with the EU’s plans to reduce emissions. According to its executive director Marek Senkovič, Slovnaft is planning, for example, to switch to the production of green hydrogen needed for technology. Replacing the current hydrogen from natural gas production in electrolyzers powered by photovoltaic power plants should require a total of approximately one billion euros.
According to Világi, the solution to the solidarity contribution was its level at the level of the proposed European Union, namely between 34 and 40 percent. “We are willing to supplement the solidarity contribution with the commitment that we will invest,” he added, adding that they did not receive the originally promised state aid with investments due to the embargo.
Nationalization of profit
Is the rate imposed on Slovnaft fair? In the surrounding states, the amounts move in rapidly lower numbers. Finlord analyst Boris Tomčia says that it is cruel and unfair. “If the MOL concern sues Slovakia in international arbitration, it will not be surprising,” he said. He explains that the refinery equipment must also invest in modernization in order to be able to process oil other than from Russia. When the government gets a profit for the tax profit, the company may not have enough money.
Jozef Badida, analyst of the portal energieprevas.sk, agrees with a similar opinion. “On one side of the imaginary scales, we have the profit associated with the processing of Russian oil, and on the other side, there is a need for investments in refining refinery technologies for efficient processing of alternative types of oil,” he said. With the fact that it was really convenient to know more data and also the purpose of using the selected funds. According to him, it should also make sense to purposefully increase profits to increase Slovakia’s security, for example, the necessary modification of the refinery or the provision of sufficient capacity needed to store at least 90 days’ worth of crude oil and petroleum products.”
“We consider it a nationalization of a part of the company’s profit,” said Ondrej Matej from the Institute for Transport and Economy. With the fact that, according to him, a precedent is being created for the future government, which can just as often, in case of emergency, nationalize the profit of a trading company. The profit should primarily be used by the trading company for investments, amortization of past losses or reserves. “In the case of Slovnaft, it is primarily about the need to invest profit in new renewable technologies. Otherwise, we are threatened with the departure of this company from Slovakia, or its bankruptcy,” Matej assumes.
At the institute, I understand that the government is looking for resources, but at the same time they refuse to implement profit taxation, which according to nothing is a non-systemic solution from several financial sources. They listed three. The first is double taxation, the second reduces the competitiveness of Slovakia and, last but not least, it motivates companies to optimize the base in the future with the goal of using the tax base to reduce profits.
However, according to analyst Andrej Lednár from Prva energeticka, the introduced tax is on the one hand high, on the other hand it is necessary to take into account the way in which the taxed profits were achieved. “It is a shame that the Ministry of Finance did not intervene earlier against the excessive revenues of Slovnaft. Already with the economic results of the Mol group, which also owns Slovnaft, it was clear that the market situation suits them,” added Lednár.
Hirman stands behind it
The situation does not look as bad for Slovnaft as I have stated. The amount of the solidarity contribution rate, which is to be transferred to the state budget of the profit of the Slovna refinery, takes into account the exception for the import of Russian oil, which was announced by the government, on Tuesday, by Minister of Economy Karl Hirman.
“I understand the rate that this government, the member of which is proposing, and since countries do not have exemptions from importing Russian oil,” Hirman said. The proposal is based on a Council regulation (EU), but the proposed amount of levy is one of the highest within the EU and twice the recommended amount.
Thus, according to Hirman, Slovnaft takes Russian oil, the price of which is significantly lower than the price of reference oil, on the basis of an exception granted by the government. The minister added that it is therefore fair for the refinery to share the windfall.