Energy Sector in Slovakia

The Slovak Republic ratified the United Nations Framework Convention on Climate Change (UNFCCC) on 25^th August, 1994. It’s goal under UNFCCC was to stabilize greenhouse gas (GHG) emissions at 1990 levels. As a result of economic restructuring, this goal was not difficult to achieve for Chemosvit Group a.s. The company was already 20%

-3 0 3 6 9

12 3-year average at end of period 3-year average at beginning of period

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below the levels of the year 1990. Under the Kyoto Protocol of 1997 (signed by Slovakia on 26^th of February of 1999), Slovakia is expected to keep its GHG emissions at 8.0% below its 1990 levels in the period of 2008-2012. The other commitment made by Slovakia is the so called “Toronto Target” identified in the first NC as the national target. This target requires Slovakia to reduce its energy related CO2 emissions by 20% from the 1988 level.

The need to comply with the above mentioned targets, along with the environmental requirements of EU, introduces additional challenges to the requirement of Slovakia`s overall energy sector restructuring. In the process of the liberalization of the domestic energy sector and scheduled opening up to competition with foreign power suppliers, Slovakia is facing the need to balance the goals of market competitiveness with environmental considerations.

The presence of independent cogeneration projects is a healthy trend which ultimately contributes to the competitiveness of the whole electric energy sector. Yet, creating an independent power production sector usually faces significant start up problems. The traditional barriers to cogeneration worldwide lie in the willingness of monopolistic power suppliers to accept and encourage independent power production. The most frequent manifestation of the barriers are unwillingness to purchase outputs above owner usage, punitive charges or requirements for back up and maintenance power, as well as unwillingness to pay the full avoided costs that are legimately due the project. The degree to which these common barriers are present in Slovakia needs to be clarified.

The national power generation and transmission company Slovenské Elektrárme (SE) has an installed capacity of 6,118 MWe, or 88% of Slovakia’s total. The remaining capacity resides with three regional electric companies and other electricity producers. There are many industrial sites which cogenerate electricity and industrial process heat. Some of these

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utilize coal and are either obsolete or otherwise uneconomic, or do not meet emissions regulations. These and other industrial sites that do not presently cogenerate are possible targets of opportunity for independent power developers. The largest example of such and opportunity that is being pursued is the 85 MWe combined cycle power plant under construction at the East Slovakia Steelworks (that had been acquired by U.S Steel Corp.=

that will utilize blast furnace gas as fuel.)

Slovakia is currently planning to restructure its power system and privatize some assets, including those of SE. It is expected that generation will be separated from transmission, and sold to private owners. In the process of restructuring, the three regional electric companies are expected to become distribution companies, with their power plants also offered for sale. It is expected that local governments will be given 49% of the shares of the power plants in their districts. Shares of the eastern regional company, Východoslovenské Elektrárne (VSE), are expected to be offered for sale first, then the other two companies will follow. VSE is supplying power to the company Chemosvit Group a.s.

Along with the planned privatizations, price liberalizations is central to the market transformation in Slovakia’s energy sector in line with EU policy. The artificially low prices (stemming from cross-subsidized retail prices, which do not allow the distribution companies to operate profitability) have been a serious deterrent to private investments in Slovakia’s electric sector. The new legislation on price control will abandon price gaps³⁸. In favor of establishing a regulatory authority to approve price increases (following the approach adopted in Poland and the Czech Republic), the 1998 Law on Energy was amended in July 2001 to set up such a regulatory body, which started discharging its duties since 1^st January, 2003. This body, called the Office for Regulation of Networks Industries,

38 Rousek J. (2001) “Energy Economy of the Slovak Republic: Current Situation and Future Outlook”, International Journal of Global Energy Issues, 2001.

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took over the energy control functions of the Ministry of the Economy as well as the price-setting functions of the Ministry of Finance for electricity, natural gas, and district heating. It is expected that the funding for the Office will come from fees assessed on the companies being regulated. Slovakia plans to harmonize its energy laws with the EU and to eventually eliminate cross-subsidization.

47 operations of Chemosvit Energochem a.s. is the production of electric energy and heat, as well as subsequent supply and distribution of the energetic services.

Chemosvit Group a.s., with its headquarters in Slovakia, is a group of 6 subsidiaries and 6 joint ventures operating in several countries and exporting to more than 150 countries.

Chemosvit Group a.s. consists of a various companies involved in the production, converting and sales of flexible films intended for packaging and for the electro-technical industry, production and sales of plastics, polypropylene yarn and machinery.³⁹ The core business of Chemosvit Group a.s. is shown in the Figure 5.1.

Figure 5.1: Overview of Core Business of Chemosvit Group a.s.

Source: Chemosvit Group a.s, Annual Report 2009