AMO SR terminated its investigation in the field of the production of electricity from brown coal

27.03.2018
During recent months the Antimonopoly Office of the Slovak Republic (hereafter "the Office") was assessing the complaint of the company Kúpele Bojnice, a.s., (a spa) due to the possible abuse of dominant position by the company Hornonitrianske bane Prievidza, a.s., (a mine, hereafter "HBP"). The subject of the complaint was the suspicion of charging disproportionately high price for brown coal purchased by the company Slovenské elektrárne, a.s., (power station) from HBP for the purpose of producing electricity from the so-called domestic coal.

Pursuant to the Article 22 Paragraph 1 Letter b) of the Act on Protection of Competition, the Office began the investigation aimed at finding out if the conduct concerned in the complaint could be the violation of the Act and, therefore, whether there is a reason to initiate the administrative proceedings or not. The facts presented in the complaint, the responses of the addressed entities and publicly available information were analyzed.
 
Brown coal is deep mined. During the investigation, the Office found that extracting coal from depth is several times more expensive than surface extraction, which results in a higher price of coal thus extracted.
 
Nevertheless, the Government of the Slovak Republic by its resolution of No. 356/2005 of 4 May 2005 decided on the production of electricity from domestic coal in general economic interest (hereafter "GEI"). Thus, the price of electricity produced from domestic coal has been over recent years more than the double of the market price of electricity, wich is determined as the annual average of the spot price of electricity on the market and without support, respectivelly subsidy mechanisms it would not be marketable. In order to compensate the difference between the revenues, costs and reasonable profit for the producer of electricity from domestic coal, the Regulatory Office for Network Industries (hereafter "RONI") in its decrees establishes the method of calculating the so-called surcharge. It is currently in the provision of the Article 11 of RONI´s decree of No. 18/2017 Coll., which establishes price regulation in the electricity sector (hereafter "the decree"). Pursuant to the Article 11 Paragraph 4 of the decree, RONI annually, on the basis of predetermined formula calculates the exact amount of the surcharge. For the purpose, RONI controls and approves various factors relevant to this calculation, including economically justified variable costs for the production of electricity from coal.

In the course of the investigation, the Office found out that the purchase price of brown coal is agreed after the approval process takes place at RONI and is therefore based only on the assumption of the eligibility of the costs approved by RONI within the surcharge.
 
The Office also states that the assessment of the production of electricity from indigenous coal sources in Slovakia has been currently carried out by the relevant services of the European Commission, namely in the view of the compatibility of the relevant aid measure with internal market under the Article 107 of TFEU. According to the Article 107 Paragraph 1 of the TFEU, unless otherwise provided for in treaties, aid granted to Member States or in whatever form from state resources and which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods is incompatible with internal market if it affects the business between Member States. Regarding the European Commission's procedure and the competence of RONI, it is questionable, whether the Office is entitled to assess this case under the Act on Protection of Competition.
 
Nevertheless, the Office also proceeded to assess the facts found in the investigation as well as the facts in the complaint concerning the alleged high prices. The Office sent more detailed assessment of the facts to the parties concerned and it concluded that there were not sufficient grounds for the Office to continue the investigation. Therefore, the Office stopped the investigation. To conclude, the Office states that the high price of brown coal extracted in the Slovak Republic from the depth in comparison to the prices of brown coal that is surface-extracted in other countries is a consequence of the decision of the Government of the SR which pursues certain social goals through the GEI, as maintaining employment, and so on. The Office will not assess the merits of the existence of brown coal deep mining in the Slovak Republic, given that this decision is fully within the competence of the Government of the Slovak Republic.
 
Last update:27.03.2018