Slovak Republic

After decades of production, the Slovak Republic’s coal output has consistently decreased since 1990 but this downward trend stopped in 2021, seeing a rise in consumption and production due to the COVID-19 economic crisis and later the spike of energy prices as a consequence of the Russian Federation’s (hereafter “Russia”) war of aggression against Ukraine in February 2022. Considering this, the country has been steadily shifting away from its domestic coal consumption and towards renewable energy (chiefly biofuels and waste). As oil and natural gas production in the country is negligible, the Slovak Republic’s demand for energy is met by imports, which prior to the war in Ukraine was mainly sourced from Russia.

In 2018, coal was being mined by the country’s only coal company, privately owned Hornonitrianske Bane Prievidza (HBP), primarily to supply lignite to the Novaky power plant in central Slovakia. In November 2018, the government announced to end public support for the production of electricity from lignite by 2023. However, considering the uncertainty of energy markets, this date may be postponed.

Gas imports are held by the key natural-gas importer SPP (Slovensky Plynarensky Priemysel). Taking advantage of the country’s geographic location, Eustream is one of the largest transmission system operators (TSO) in the continent, transporting Russian natural gas to Western and Southern Europe.

Oil accounts for one of the smallest shares of total primary energy supply of any OECD country. Out of the total volume of crude oil imported, nearly half is refined and exported, mostly as diesel to neighbouring countries. In the oil infrastructure system, two companies command a considerable market position: (i) Transpetrol, which is fully state-owned and is the only operator of the crude-oil pipeline network; and (ii) Slovnaft, which is owned by the Hungarian MOL Group and operates the country’s refinery and product-pipeline network and supplies nearly two-thirds of all transport fuels.

The Slovak Republic has made sound progress in introducing a market-based regulatory framework for the energy sector and a programme to restructure state-owned energy enterprises. Following legal unbundling, the five biggest energy companies have been privatised, either partially or entirely. For this reason, every consumer has the right to freely choose their electricity and natural gas supplier.

The Regulatory Office for Network Industries (URSO) is a state authority responsible for electricity and natural gas regulation of tariffs, production, transmission and supply.1 End-user prices of both electricity and natural gas for households are regulated by URSO with the objective of attaining ‘cost-effective’ prices, by virtue of Act no. 250/2012. Cost-effectiveness in this sense implies prices that would secure sufficient maintenance and investment of the country’s energy infrastructure and at the same time protect the rights of the most vulnerable households.

Value-added Tax (VAT), set at 20% since 2011, is levied at the same rate for all commercial energy products but is refunded for purchases of commercial purposes.

A significant part of the movement in Slovak Republic’s total support estimate can be traced to the increasing trend of the feed-in tariff support for domestic lignite. There are also measures for the consumption of coal which sets out tax exemptions when used for specific purposes (e.g. for electricity generation, metallurgical purposes, residential heat generation). Besides coal, natural gas is also fully exempt from taxation for a number of purposes, such as the processing of minerals and in combined-heat-and-power plants as final energy prices (electricity, gas or heat) are then subject to VAT. The regulated tariffs scheme on the energy market is representing an important cost for the Slovakian government, namely for natural gas and electricity, as well as the price cap that has been set in 2022 for these two same energy sources in response of the energy crisis. However, the total cost of the measures supporting electricity see a much smaller share benefitting fossil fuels consumption, since around 75% of Slovakia’s electricity production is derived from nuclear and renewable sources.

The fiscal cost of support measures for fossil fuels in Slovak Republic was estimated at EUR 3876.22 million in 2022 (Table 1). One hundred per cent (100%) was directed to firms. Support was mainly given out in the form of tax expenditures (EUR 3591.00 million) accounting for 93% of the total fiscal cost of support measures. Direct transfers amounted to EUR 285.22 million.

The fiscal cost of support measures for fossil fuels has increased by 972% since 2017. Since last year, tax expenditures have increased by 2090%, from EUR 750.44 million to EUR 3591.00 million and direct transfers increased by 67%, from EUR 125.36 million to EUR 285.22 million. All growth rate percentages above are expressed in terms of nominal national currency amounts.

Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.

Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.

The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.

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