The effect of motor fuel price regulation on the Petrol Group s operations in 2022 and the energy market situation
Ljubljana, 20 June 2022 – At its 13th extraordinary meeting, the Supervisory Board of Petrol d.d., Ljubljana, took note of the Management Board’s report on the effect of motor fuel price regulation on the Petrol Group’s operations. The Management Board of Petrol has estimated that compared to the plan, the Petrol Group’s gross profit will be lower by EUR 53 million, EBITDA by EUR 79 million, and net profit by EUR 54 million in the first half of 2022 because of the effect of the previous and new regulation of motor fuels in Slovenia and Croatia.
On the basis of the foregoing, the Supervisory Board has instructed the Management Board to carry out all activities necessary to receive compensation for the loss resulting from the disproportionate measure of the petroleum product retail price regulation.
The current events in the business and wider social environment in the EU and globally are strongly affected by the war in Ukraine, the energy market crisis (the high prices and unstable supply of fuels and energy products) and the resulting different national approaches to motor fuel price regulation aimed to mitigate the effect of the energy crisis on the population and companies. All these factors have had a strong effect on the operations of the Petrol Group in all five markets where it operates (Slovenia, Croatia, Bosnia and Herzegovina, Serbia and Montenegro).
In the first three months of 2022, the Petrol Group achieved good business results despite the extremely difficult and volatile business situation in which the negative effects of the regulation of retail prices of petroleum products, especially motor fuels, were already seen in all markets where the Petrol Group is present, especially in Slovenia and Croatia, the two largest Petrol Group’s sales markets. In the second quarter of 2022, the difficult situation on the market and the negative effects of regulation have become even more acute. Namely, as regards sales of motor fuels in Slovenia, the Petrol Group found itself in a situation where the volumes sold exceeded the planned sales due to the significantly lower prices compared to those in the neighbouring countries, whereas it was forced to sell fuel below the cost, hence it generated a loss with each litre of fuel sold (more than 90% of the period of regulation, Petrol sold fuel below the cost). As a result, the Petrol Group will not be able to achieve the business results set in its plan for 2022.
The Management Board of Petrol has estimated the effect of the previous and new motor fuel price regulation in Slovenia and Croatia on the operations of the Petrol Group and found that these measures will cause a significant drop in the key performance indicators. According to the Management Board’s estimate, the Petrol Group’s gross profit in the first half of 2022 will be EUR 53 million lower compared to the plan because of the effect of regulation in the Slovenian and Croatian markets.
Petrol d.d. has addressed a loss compensation claim to the Government of the Republic of Slovenia for the loss resulting from the regulation of the prices of certain petroleum products in the amount of EUR 51.3 million for the period from 15 March to 30 April 2022. The Management Board of Petrol expects the government to fully meet its obligation in the shortest possible period. A comparable economic loss and loss of profit is being incurred in the period from 11 May 2022 onwards until the enforcement of the current Decree determining the prices of certain petroleum products in Slovenia, for which Petrol will address a claim to the Government of the Republic of Slovenia as soon as loss can be calculated.
The new, third Decree determining the prices of certain petroleum products in Slovenia, which is currently in effect, caps traders’ margins at service stations outside motorways in the period from 21 June 2022 until 16 August 2022, inclusive: for diesel, the cap is set at EUR 0.0591 per litre and for petrol (NMB 95) at EUR 0.0607 per litre, whereas from 17 August 2022 onwards (for the duration of the Decree), the maximum permitted margin for diesel is EUR 0.0983 per litre and for petrol (NMB 95) EUR 0.0994 per litre.
The Petrol Group’s operating conditions in Croatia will be made difficult by the measure adopted by the Government of the Republic of Croatia on 20 June 2022 for a period of 14 days, capping motor fuel prices at service stations outside motorways, effective from 21 June 2022; petrol will cost HRK 13.50 per litre (EUR 1.80 per litre), diesel HRK 13.08 per litre (EUR 1.74 per litre) and blue-dyed diesel HRK 9.45 per litre (EUR 1.26 per litre). The regulated retail price outside motorways is not sufficient to cover the operating costs of these units.
Moreover, the Government of the Republic of Slovenia has announced changes in the regulation of the electricity and natural gas selling prices in Slovenia in the continuation of 2022, which will additionally affect the Petrol Group’s operating conditions and business results.
In response to the materially changed external effects on its operations, the Petrol Group will prepare a revised plan for 2022 and accordingly notify the public once the calculations are prepared, presumably upon the announcement of the semi-annual results for 2022.
The Petrol Group is aware of its responsibility to all stakeholders: buyers, owners, employees, and the wider social and natural environment. The only way it can fully implement its mission is under the condition of financial stability. Regardless of the difficult business conditions, the Petrol Group still meets its financial commitments to banks and the criteria arising from the investment rating awarded by Standard & Poor's Rating Services.
At the Petrol Group, we are keeping a close eye on events in the business environment and will take the necessary measures to protect the interests of the Company in the future. We will continue to make every effort to ensure an uninterrupted supply of motor fuels in the future.