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.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
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Slovak Republic
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
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.
Energy prices and taxes
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.
Figure 2. Total tax rebates and support for fossil fuels in Slovak Republic
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
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 1. Fiscal cost of support measures for fossil fuels (in millions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
151.526 |
254.446 |
156.153 |
135.882 |
750.444 |
3591.000 |
|
Direct transfers |
210.054 |
210.544 |
204.661 |
238.589 |
125.363 |
285.219 |
|
Total |
361.580 |
464.991 |
360.815 |
374.471 |
875.807 |
3876.219 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in millions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
|
|||
|
Regulated Tariffs |
3458.883 |
23.583 |
3435.300 |
|
|
Exemptions from the Coal Tax |
56.732 |
68.183 |
-11.451 |
|
|
Exemptions from the Natural Gas Tax |
50.430 |
53.249 |
-2.819 |
|
|
Direct transfers |
||||
|
Price Cap on Electricity and Natural Gas for all Firms |
188.627 |
(Started in 2022) |
188.627 |
|
|
Feed In Tariff for Domestic Lignite |
87.128 |
95.409 |
-8.281 |
|
|
Support for the Payment of the Tariff for System Operation |
9.264 |
(Started in 2018) |
0.451 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Regulated Tariffs |
Vulnerable households and small businesses can access regulated prices for hard coal and lignite (heating), natural gas (heating and electricity) and electricity. However, this measure can also take on negative values, as the regulated price has sometimes been higher than the market price. |
|
Exemptions from the Coal Tax |
As stipulated in § 19 of the Act No. 609/2007, the use of coal is fully exempt from the coal tax, if it is used: (a) for dual use, i.e. as fuel and for other purposes; (b) in mineralogical processes; (c) for a purpose other than that of a motor fuel or fuel for heat generation; (d) in the combined generation of electricity and heat; (e) in electricity generation; (f) for production of coke and semi-coke; (g) in commercial activities directly related to railroad or river transportation of persons or cargo; (h) used by the final household coal customer, the exemption from excise duty shall not apply to coal used for heating and domestic hot water heating supplied to common heating source of the block of flats; (i) for operational and technological purposes in a mining and coal processing company; (j) in the generation of heat for households. As of 1 January 2011, the tax exemption for coal used in the generation of heat for households, i.e. (j), was abolished. |
|
Exemptions from the Natural Gas Tax |
As stipulated in § 31 of Act No. 609/2007, use of natural gas is fully exempt from the natural gas tax if used for the following reasons: (a) for dual use, i.e. as fuel and for other purposes; (b) in mineralogical processes; (c) for a purpose other than that of a motor fuel or fuel for heat generation; (d) in the combined generation of electricity and heat; (e) in electricity generation; (f) used by the final household gas customer, the exemption from excise duty shall not apply to gas used for heating and domestic hot water heating supplied to common heating source of the block of flats; (g) for operational and technological purposes in a gas undertaking, including losses in a technologically justified quantity; (h) in commercial activities directly related to railroad or river transportation of persons or cargo. The exemption from excise duty also applies to natural gas contained in the regular fuel tanks of motor vehicles, machinery, air conditioning, cooling and other similar units upon their entry into the tax territory from another Member State or from a third-country territory, which is used for their own propulsion or operation. |
|
Price Cap on Electricity and Natural Gas for all Firms |
In response to the energy crisis prices are capped at EUR 199 per MWh for electricity and EUR 99 per MWh for gas, with the state to reimburse 80% of expenditures above this level while the rest is to be paid by companies at market prices. The measure started in August 2022. |
|
Feed In Tariff for Domestic Lignite |
Electricity produced from domestic coal has been supported in the Slovak Republic since 2005. As producing electricity from lignite is significantly more expensive than electricity production from other energy sources, power plants producing electricity from domestic lignite are refunded for this activity. The amount of the refund is determined annually by the Office of Regulation for Network Industries that publishes the support amount per every MWh of lignite-fired electricity fed to the network and sets the annual price of lignite. Currently, the only power plant benefitting from this scheme is the Nováky thermal power plant, which is scheduled to close at the end of 2023, as the Slovak Republic plans to phase out any coal activities in this same year. |
|
Support for the Payment of the Tariff for System Operation |
Every year the Ministry of Economy allocates 40 million to compensate electricity-intensive industrial enterprises, with annual electricity consumption above 1 GWh, from the payment of the tariff for system operation (TPS). The amount of the compensation is annually set by the Ministry of Economy according to the number of requests and the consumption of each firm, and every year approximately 99% of the fund is spent. |
Data sources
Note on the Methodology
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.