After business entities and 650 thousand gas users in the household category, the benefits of gas market liberalization will soon be felt. Riding this wave is RWE, whose offer has been available to all households in Croatia since the beginning of September, regardless of which gas supplier they currently have and to which distribution network they are connected. Zoran Miliša, CEO of RWE Gas and RWE Energy, expects that in the first three years RWE Gas will capture about 10 percent of the Croatian gas supply market.
– Households will save an average of five percent on their bills, and if they contract electricity and gas supply with the company, they will save an amount equivalent to two monthly bills per year – RWE states.
Complete liberalization of the gas market, when the state should not influence the price of gas that INA sells to HEP, which then sells to distributors, will occur on April 1 next year. RWE is not limited to domestic sources, which is why it can present its offer now. Furthermore, whoever can procure gas at the lowest price will dominate the market. RWE Croatia buys gas at a low price from its sister company in Germany (RWE Supply&Trading), which is why it will likely have extremely low prices, although Miliša claims he does not know what will happen after April 1, and this company could become the first choice for Croatian households. Another powerful player in the market is certainly Prvo plinarsko društvo. Signing a binding agreement with the E.ON Group Ruhgras, which will supply them with natural gas, should make it RWE’s biggest competitor. Prvo plinarsko društvo, led by Pavle Vujnovac, currently holds more than a third of the total gas supply market in Croatia, and its revenues in 2015 exceeded four billion kuna. EVN Croatia, a company owned by the Austrian joint-stock company EVN AG, is dedicated to building a 1450-kilometer gas network in Dalmatia that distributes gas to end users.
Chronology of Changes To understand the decisions regarding gas liberalization in Croatia, one must return to the recent past. The problem in the wholesale gas market arose when the state, through the Main Gas Agreement in 2009, committed to take over INA’s gas business by separating the company Prirodni plin from it and thus buying domestic gas from INA at the price of imports. However, due to the political-judicial entanglement in the Sanader-Mol case, natural gas was not separated from INA, and that company continued to sell gas to distributors at a regulated price while buying from INA at a higher price. This increased losses, which Mol’s negotiators with the Government regarding INA consider a debt. The government does not want to acknowledge the debt and refers to a court ruling stating that the Main Gas Agreement is part of the corrupt activities of former Prime Minister Ivo Sanader with Mol’s representatives. The Milanović government, wanting to protect the survival of small monopolistic gas suppliers in state ownership, hesitated in 2014 regarding the final decision on market liberalization prepared two years earlier by then Minister of Economy Radimir Čačić. After additional pressure from the European Commission, it was decided that from April 1, 2017, gas prices for household supply within the public service would be formed exclusively according to market principles. That same year, many decisions were made to transfer gas supply from INA’s company Prirodni plin to Hrvatska elektroprivreda (HEP) for the next three years, as a retaliation against Mol, thus making HEP a new gas supplier in the wholesale market.
Possible Oscillations As previously mentioned, business entities have been able to choose their gas supplier and negotiate prices for a year now. The result has been costs reduced by up to 30 percent. But will this happen with households?
The Croatian Energy Regulatory Agency (HERA) determined earlier this year that the price of natural gas for households will be lower by 16 to 20 percent, meaning that the total annual cost for citizens for gas could be reduced by 550 to 800 kuna. The reason for this situation is the government’s decision that INA must sell all gas produced in Croatia to HEP at a price 20.1 percent lower than before, which means that HEP sells gas to public service suppliers for households at a price 24.2 percent lower than before. Marko Blažević from HEP – Gas Supply claims that a look at Eurostat data reveals that after this last price reduction, gas in the EU is cheaper only in Hungary and Slovakia.
Gas bills are one of the costs that have risen the most in Croatia over the past decade. Sector analyses from the Economic Institute of Zagreb from 2008 to 2015 show that the price of gas for households in Croatia has increased by 73 percent, while in the EU, its price increased by only 25 percent during the same period. If we look at the broader picture, gas has indeed been cheap in Croatia all this time. During this seven-year period, only Estonian and Finnish households spent less on annual gas expenditures, making it difficult to expect that prices will continue to fall despite liberalization.
Zoran Miliša believes that prices will fall, as was the case with business users, but admits there are speculations that after liberalization and that last part of the market, gas prices for households could rise. The president of the Croatian Gas Association, Miljenko Šunić, believes that initial price fluctuations are possible, but he is also confident that prices will balance out in the market afterward, and the increase in electricity consumption is primarily correlated with living standards. Some are certain that gas prices for households will rise because gas will not be procured at the contracted price. Gordana Jukić, director of Household Supply at Prvo plinarsko društvo, claims that prices will adjust to market conditions, and customers will no longer be legally protected and secured from price increases if they occur.
Losers of Liberalization About fifty companies currently have licenses for gas supply, but it is hard to expect that most of them will survive in the Croatian market.
– In the open market, only large players will be able to ensure lower gas prices, so small suppliers will be left without customers – claims Srećko Ezgeta, president of the Gas Distributors and Suppliers Group in HGK and director of the company Elektrometal – gas distribution.
The answer could be the consolidation of distributors, but local government units, adds Ezgeta, which own a large percentage of smaller companies, do not believe in that business model.
– In the near future, the market will consolidate, so I expect that the market competition will be reduced to three to five large players in a few years – believes Miliša.
The losers of liberalization will certainly also be the existing monopolists, about thirty local distributors. In that scenario, Gradska plinara Zagreb will likely survive, but small local distributors have no prospects in the market.
However, while the liberalization of telecommunications, taxi services, electricity, and other sectors has meant lower costs and predictability for users, it has been simple, but when we talk about the liberalization of the gas market in households, only uncertainty is certain. Complete price liberalization means their deregulation, making our market interesting to foreigners. Due to the resistance of local communities to consolidation, electricity prices are so low that they can hardly fall, the disorganized system of protection for end customers and the mechanism for protecting vulnerable customers, and the uncertain relationship between Europe and Russia, the largest gas producer, every forecast is thankless.
