Gas Distributors: Tariffs Not Revised, Supply Security at Risk

Tariffs for gas distribution have not been revised for four years, while operational costs have significantly increased, thereby undermining the sustainability of the distribution system, warned the Association of Gas Suppliers and Distributors of the Croatian Chamber of Economy (HGK).

A meeting of the Association of Gas Suppliers and Distributors was held at HGK at the beginning of the week, where key challenges in the operations of the Association’s members were discussed, the Chamber announced on its website. The President of the Association and Director of the City Gas Company Bjelovar, Srećko Ezgeta, emphasized that distribution system operators have been forced to operate at a loss for three years due to the fact that gas distribution tariffs have not been revised.

The tariffs, which were last set in 2021 based on cost parameters from 2020, no longer reflect the current economic conditions of business, he stated, noting that in the meantime, operational costs have significantly increased, including prices of materials, services, and labor costs, while additional financial pressure has been created by inflation, thereby undermining the sustainability of the distribution system.

– Due to limited revenues, distributors have not been able to invest in the renewal of the aging gas network for three years, which directly affects supply security. The gas infrastructure is predominantly located in densely populated urban areas, making its maintenance crucial for preventing failures and potential accidents, Ezgeta warned.

Data shows, as he stated, that gas distribution accounts for only 6 to 8 percent of the total gas price, which means that a tariff correction of 20 to 30 percent would have a minimal impact on the final price for consumers, increasing it by only 2 to 3 percent. Distributors have been warning about this for three years and are still waiting for a solution.

Ezgeta reminded that by the Government’s decision, distributors were prohibited from submitting requests for tariff revision until April 1, 2024. After this deadline, requests were sent to HERA, but a decision on their adjustment has not yet been made.

– The distribution activity, which has been operating under conditions of financial unsustainability for three years, is still waiting for a concrete response from the regulator, he emphasized.

Inconsistencies in the Methodology for Determining Tariff Items

The Vice President of the Association and Director of E.ON Gas Distribution, Dean Gnjidić, pointed out the inconsistencies in the methodology for determining tariff items. According to current parameters, he said, distributors are in a situation where they lose on every investment because the interest rates at which they can secure financing are higher than what the regulator recognizes through tariffs.

Such a system prevents new investments and further jeopardizes the maintenance of gas infrastructure, and it is necessary to find solutions that will enable a balance between regulatory requirements and actual market conditions, he emphasized.

The Director of the City Gas Company Zagreb, Bruno Lacković, stated that, in addition to security challenges, distributors are also facing increasingly stringent regulatory and technical requirements.

– We are expected to modernize the system, implement smart metering, and technologically develop the network, but distributors are forced to deal with existential problems because financial sustainability is not ensured, he said.

The Director of Termoplin Varaždin, Nevenka Grbac, noted that gas distribution companies are commercial entities that, in addition to fulfilling prescribed obligations and maintaining the system, must ensure financial sustainability.

– There has been no profit in the gas distribution sector for years, and companies engaged in supply are still managing to operate positively, but only due to specific market conditions in that segment, she emphasized.

She was joined by the Director of Međimurje Plin, Nenad Hranilović, emphasizing that systemic adjustments are necessary to ensure the long-term stability of the sector.

Supply Security Must Be a Priority

All participants in the meeting emphasized the urgent need for tariff adjustments, despite their unpopularity among consumers, stressing that such a measure is necessary for the financial sustainability of distributors.

They highlighted that supply security and the stability of the distribution system must have absolute priority, even when it involves certain cost adjustments for end users. In this context, they pointed out the importance of transparent communication to the public about the consequences of years of neglecting investment in the distribution network, which, they said, poses a serious security risk.

They also stated that tariff adjustments would have a negligible financial impact on households – for example, during the summer months, it would amount to only 0.30 euros per month, while in the winter period, this cost would be between 2 and 3 euros per month. They emphasized that the issue of distribution tariffs cannot be viewed through the lens of current consumer boycotts of retail chains, given that gas distribution tariffs have not changed for four years.

Moreover, at the beginning of the current regulatory period in 2022, some distributors even reduced tariffs compared to the previous period, further deepening the financial challenges in the sector, according to the HGK statement.