Report from the 36th General Meeting of Shareholders of Petrol d.d., Ljubljana

The continuation of inappropriate regulation of motor fuel prices is hampering development and the energy transition.

The 36th General Meeting of Petrol d.d., Ljubljana was held today, on 23 January 2023. The shareholders voted on the removal of a member of the Supervisory Board and were informed about the preliminary unaudited estimate of Geoplin d.o.o. Ljubljana’s results for 2022 and the business scenario for 2023. The Supervisory Board and the Management Board also reported about the activities taken in order to receive compensation for the damage resulting from the regulated energy prices in 2022, the estimate of the Petrol Group’s results for 2022 and the business scenarios for 2023.

No changes in the Supervisory Board

As proposed by the shareholder SDH, d.d. (Slovenian Sovereign Holding), the shareholders voted on the removal of Aleksander Zupančič, a member of the Supervisory Board of Petrol d.d., Ljubljana. The proposed resolution about the removal was not passed.

Performance of Geoplin d.o.o. Ljubljana

In 2022, Geoplin d.o.o. Ljubljana was faced with the cut off supplies of natural gas under the long-term contract with the Russian company Gazprom which resulted in damage realised in the amount of EUR 140.3 million. In order to prevent further damage, Geoplin d.o.o. Ljubljana terminated the unsustainable contract with Gazprom at the end of 2022 and reduced the negative effect of damage by offsetting the claims to Gazprom.

According to the preliminary and unaudited estimate, Geoplin d.o.o. Ljubljana’s sales revenue amounted to EUR 1.4 billion in 2022, up by 80 percent year-on-year; nevertheless, for the aforementioned reasons, it recorded a gross loss of EUR 118.9 million and a net loss of EUR 28 million. Geoplin d.o.o. Ljubljana plans to generate positive results in 2023. According to the current estimate, Geoplin d.o.o. Ljubljana’s sales revenue will amount to EUR 1.1 billion, gross profit to EUR 33.8 million, and net profit to EUR 14.9 million in 2023.

The business plan for 2023 will be endorsed in the context of the Petrol Group’s business plan.

The Petrol Group’s business scenario for 2023

The estimated effect of price regulation in Slovenia and Croatia on the Petrol Group’s EBITDA has been prepared by taking into account the current situation. Based on the currently effective Decrees and Regulations, the negative effect of regulated prices on the Group’s EBITDA would amount to EUR 82.4 million, of which the majority, EUR 62.5 million, on account of the motor fuel price regulation in Croatia.

The Management Board also informed the shareholders about the comparison of average motor fuel margins between Slovenia and other EU Member States in the period between 2020 and 2022 where Slovenia is at the bottom end among EU Member States and strongly behind the EU average in terms of both diesel and petrol margins. A key challenge presented by such low margins is that they do not enable making investments in the green transformation.

Between 2018 and 2022, the Petrol Group invested a total of EUR 276.2 million in the energy transition. In 2022, the originally planned investments in the amount of EUR 100 million were reduced to the most urgent ones in line with the available funds, that is, to EUR 60 million, of which only EUR 24.4 million for the energy transition. For 2023, the originally planned investments of EUR 135 million were reduced to EUR 70 million, of which only 30 percent of the total can be earmarked for the energy transition.

At the General Meeting, the Management Board provided a detailed presentation of the structure of the retail price of regulated fuels in Slovenia and Croatia. Margin per litre of petrol or diesel accounts for much less than a tenth of the price on both markets, whereby it needs to be emphasised that such margin does not enable covering the increased labour costs, the cost of energy commodities, the costs of transport and warehousing and the financial costs of procurement. Based on the Petrol Group’s role in the Slovenian and Croatian economic and social environments, an unsuitable regulatory framework, if it stays in effect for a longer period of time, may have extensive economic and social consequences. The excise duties, taxes and contributions paid by Petrol d.d., Ljubljana contributed EUR 1.1 billion to the budget of the Republic of Slovenia, and in Croatia, the charges paid by Petrol d.o.o. (including Crodux derivati dva d.o.o.) contributed EUR 533 million to the budget of the Republic of Croatia. According to the Management Board, Petrol d.d., Ljubljana was the largest company in terms of the annual turnover in 2022. The Petrol Group has 3,320 employees in Slovenia and a broad network of more than 3,700 suppliers. In Croatia, the Petrol Group has 2,211 employees and cooperates with more than 1,500 Croatian suppliers. For 2021, dividends paid by Petrol d.d., Ljubljana amounted to EUR 61.7 million, of which EUR 20.2 million to state entities. We estimate that EUR 3.4 million was deducted from domestic natural persons’ income tax based on the paid dividends. Therefore, the consequences of too low margins will affect all stakeholders of the Petrol Group.

Activities taken to receive compensation for the damage resulting from the regulated energy prices in 2022

Certain concrete steps have already been taken in order to receive compensation for the damage resulting from the regulated energy prices in 2022 for Slovenia and Croatia, which had a strong negative effect on the business result presented in the preliminary unaudited estimate of the Petrol Group's results for 2022 published on SEOnet on 20 January 2023. In Slovenia and Croatia, proposals for amicable dispute resolution have already been submitted to the State Attorney’s Offices, in Slovenia in the amount of EUR 106 million and in Croatia in the amount of EUR 56 million. A notification on the effect of price regulation on operations and market competitiveness in the Republic of Croatia has been sent to the European Commission, and initiatives to put an end to the petroleum product price regulation have been sent to the governments of both countries.

The main findings from a study on the petroleum product price regulation in Slovenia conducted by the School of Economics and Business of the University of Ljubljana were presented at the General Meeting. The findings show that the regulation in Slovenia does not deliver any social benefits; moreover, margins in Slovenia are among the lowest in the EU, which is reducing market competitiveness, and the regulation does not support the ambitious goals in the field of renewable energy use for transport. It also suggests that the reasonableness of the motor fuel market regulation should be reconsidered.

In the period marked by the complex and volatile business conditions, the Management Board of Petrol d.d., Ljubljana will continue to diligently protect the Company’s interests and be responsible towards its employees, suppliers, buyers, and shareholders.

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mag. Barbara Jama Živalič