At the 35th General Meeting of Petrol d.d. Ljubljana, the shareholders discussed the effect of energy commodity price regulation on the Petrol Group s operations and the managed risks of Geoplin d.o.o. Ljubljana
The regulation of fuel and other energy commodity prices has significantly affected the Petrol Group’s operations in 2022 and will continue to do so in 2023. A call to compensate the damage.
The General Meeting of Shareholders of Petrol d.d., Ljubljana, which was convened based on the requisition of the shareholders Vizija Holding, d.o.o. and Vizija Holding Ena, d.o.o., was held today, on 27 December 2022. At the General Meeting, the shareholders have taken note of:
- the report of the Supervisory Board and the Management Board about the damage resulting from energy commodity price regulation in 2022 and the compensation for the damage by the Republic of Slovenia and the Republic of Croatia and the effect thereof on the operations and credit rating of the Company/Group in 2023;
- the report of the Supervisory Board and the Management Board about the operations of the subsidiary Geoplin d.o.o. Ljubljana in 2022; and
- the report of the Supervisory Board and the Management Board about the effects of the petroleum product, gas, and electricity price regulation on the operations of the Company/Group in 2022 and the assessment of the effect on the operations of the Company/Group in 2023.
Damage as a result of the petroleum product price regulation
Initially, the shareholders were presented the way in which Petrol d.d., Ljubljana and the Petrol Group have suffered damage, and the extent of such damage, as a result of the petroleum product price regulation in Slovenia and Croatia and the activities carried out by the company thus far to receive compensation for such damage. In both countries, the price regulation measures are unlawful and disproportionate because petroleum product sellers are the ones bearing the entire burden of regulation and this represents the legal basis for enforcing claims for damages.
In Slovenia, the Government adopted two Decrees in 2022 (in March and May, the Official Gazette of the Republic of Slovenia, Nos. 36/2022 with changes and amendments, and 64/2022), determining the maximum permitted retail and wholesale prices of petroleum products and, from 1 April 2022 onwards, imposing an obligation on companies to continue selling the commodities. By both Decrees, the Government set such low prices of the 95-octane unleaded petrol and diesel fuel that Petrol d.d., Ljubljana, by selling fuel at regulated prices, was not even able to cover the purchase cost of fuel. By subsequently adopting a Decree in June, the Government determined the maximum permitted margin and the mechanism for calculating fuel price. Petrol d.d., Ljubljana’s damage for the period from 15 March 2022 to 20 June 2022 calculated based on the „Form for determination of damage resulting from regulation“ methodology received from the Ministry of Economic Development and Technology equals EUR 106,931,045. PriceWaterhouse Coopers verified the calculation and confirmed its mathematical correctness.
In communication with the Slovenian state authorities via numerous meetings, letters and sent claims, the Management Board of Petrol d.d., Ljubljana has endeavoured to establish a dialogue and reach solutions with regard to the inappropriate price regulation and damage compensation.
Petrol d.d., Ljubljana has obtained legal opinions from Prof. Dr. Miha Juhart and attorney Tomaž Ilešič from Law Firm Rojs, Peljhan, Prelesnik & Partnerji on the topic of petroleum product price regulation and entitlement to the compensation for damage. The obtained legal opinions support Petrol d.d., Ljubljana’s position, which is that the adopted Government measures are unlawful and unconstitutional, since they are disproportionate and not urgent. By having been imposed the obligation to continue selling petroleum products without an appropriate amount of compensation determined for the time of regulation, Petrol d.d., Ljubljana has suffered a considerable property damage which represents such strong interference with the right to free economic initiative referred to in Article 74 and the right to private property referred to in Article 33 of the Constitution of the Republic of Slovenia that the qualifying element of unlawfulness has been fulfilled. Given that the conditions of the state’s liability for damages have been met, Petrol d.d., Ljubljana is entitled to compensation for damage.
In Croatia, which is the Petrol Group’s second most important market and where the retail prices of petroleum products have been regulated since 7 February 2022, Petrol d.o.o. has faced periods of negative margin. According on the company’s own estimate, the damage resulting from fuel price regulation in Croatia has amounted to EUR 45.6 million. A court expert for finance and accounting and certified auditor is currently preparing damage calculation. Despite numerous activities aiming to put an end to the disproportionate and unsustainable regulation, no solution has yet been reached. In Croatia, claims for damages are supported by the legal opinion obtained from Prof. Dr. Siniša Petrović about the legal options to secure the legal and financial position and the entitlement to the claim for damages and the legal opinion obtained from attorney Belinda Čačić from Law Firm Čačić & partneri regarding the liability for damages.
The Management Boards of Petrol d.d., Ljubljana and Petrol d.o.o. have sent many letters to the competent ministries and the Government of the Republic of Croatia, calling on them to change the disproportionate measures and announcing a claim for damages and other measures necessary to secure the legal and financial position of Petrol d.o.o. Furthermore, it emphasised to the Croatian Government that if the current regulation continues, the Petrol Group will no longer be able to supply petroleum products to the Croatian market. The Petrol Group has been left with no other choice but to take further measures to protect its interests. To this end, it will close its service stations in Croatia (except those by motorways and at ports) for one hour from noon to 13:00 on Wednesday, 28 December 2022, as a warning, that is, to highlight the gravity of the situation and prevent any future supply disruptions and petroleum product shortage in Croatia.
In Slovenia and Croatia, Petrol d.d., Ljubljana will be forced to lodge a petition for amicable resolution of dispute before the State Attorney’s Offices in Slovenia and Croatia if decision-makers stay irresponsive as regards the compensation for damage. If such amicable dispute resolution fails, it will be forced to bring an action for damages to secure its legal and financial position.
Business risks of Geoplin d.o.o. Ljubljana have been managed
Geoplin d.o.o. Ljubljana’s operations in 2022 have been marked by events on the natural gas market such as Russian gas supply reductions and high volatility of prices due to the war in Ukraine.
Owners and management of Geoplin d.o.o. Ljubljana have started tackling the situation in due time. After the initially identified need for EUR 250 million in additional capital, Petrol d.d., Ljubljana has carried out the activities necessary to ensure Geoplin d.o.o. Ljubljana’s liquidity and manage its business risks. As at 30 November 2022, the estimated damage resulting from the halted supplies under the Russian contract amounted to EUR 117 million. Damage has also been incurring in December 2022. A part of it has been set off, while the rest is subject to recovery from Gazprom Export.
By having carried out all of the activities, Petrol d.d., Ljubljana has ensured liquidity for Geoplin d.o.o. Ljubljana, prevented further negative consequences from the concluded gas supply contract with Gazprom Export, secured gas supply from alternative sources and put an end to the need for capital increase, thereby securing the equity position of the existing stakeholders and, indirectly, Petrol d.d., Ljubljana’s shareholders. The management of Geoplin d.o.o. Ljubljana continues to carry out all activities as necessary to ensure a secure supply of natural gas to Slovenian consumers.
Effect of fuel and other energy commodity price regulation on the operations in 2022 and 2023
In 2022, fuel price regulation in all markets has negatively affected the Petrol Group’s EBITDA in the total amount of EUR 194.1 million, and the regulation of other energy commodity prices in Slovenia and Croatia in the amount of EUR 16 million. The major negative effect has been recorded from fuel price regulation in Slovenia in the period until 20 June 2022 (EUR 106 million) and fuel price regulation in Croatia (EUR 45.6 million).
The continuation of fuel price regulation, deteriorated purchasing conditions, higher costs due to inflation and more expensive energy commodities will have a strong effect on the operations in 2023. If no compensation for damage resulting from electricity and natural gas price regulation in Slovenia is received (the relevant act is currently in harmonisation), the expected total negative effect in the regulated segments will amount to EUR 248.1 million in the coming year. This will also affect the Petrol Group’s investments and the dynamic of its green transition. In 2022 and by the end of 2023, the Petrol Group will have reduced its investments by EUR 100 million, including share of investments for the energy transition, in line with the available resources.
The Petrol Group has announced that it will submit a request to initiate a procedure for the review of the constitutionality of the Price Control Act. The current regulatory measures in the field of fuel sales are disproportionate. The circumstances justifying the petroleum product price regulation no longer exist and oil prices have returned to pre-war level. The price regulation is inappropriate because it has been destroying the market. The Petrol Group expects the Governments of the Republic of Slovenia and the Republic of Croatia to establish a legal framework in order to set up a business environment which will enable market competition and investments and, hence, development which is urgently needed in the energy sector. A potential lack of appropriate market conditions for specific energy commodities on specific markets will require business restructuring which may result in the sales of these energy commodities being temporarily stopped until appropriate market conditions are restored. Since the interventions in the market are so significant that the market does not function, the issue concerning the effects of price regulation and state aids will also be addressed to the European Commission.