Energy tax revenue falls short

Late implementation of an excise tax on energy is shaping up to leave the government some zł. 600 million ($145 million) short of targeted revenue this year, while analysts say the measure increases pressure on inefficient power producers to reorganize. The tax - set to add zł. 20 for each megawatt hour (MWh) of electricity sold by power generators - will take effect March 25. The Democratic Left Alliance (SLD) government proposed the measure late last year, aiming to raise zł. 2.3 billion ($555 million) for the nation's strapped budget. The proposal was pushed through Parliament and finally signed on March 4 by President Aleksander Kwaśniewski, despite objections raised by the watchdog Energy Regulation Office (URE) about price increases for end users and heavy lobbying against the tax by power producers. But analysts said the tax's slow enactment would leave the government with no revenue for the first three months of the year, historically high production periods for power generators, according to research from Bank Handlowy. At the same time, the bank notes the government's budget assumes the tax would apply to some 115 terawatt hours (TWh) or roughly a year's worth of sales for the power sector. The Finance Ministry last week failed to respond to several queries on the tax and projected shortfall.

While leaving the state short, analysts expect the tax to hit power generators harder than consumers. The URE said last week end users can expect prices to rise no more than 9-11% this year as a result. But power generators' production costs are expected to increase roughly 20%. "Employment is already too high among generators and you have people now talking about cutting costs," said Piotr Kapla, research analyst at Bank Handlowy. Bloated and aging, some of the nation's power generators were built before World War II. Analysts, with a particular eye on heavy-polluting hard-coal fired plants, said that Poland needs to restructure and in some cases shut down its inefficient energy generators for the sector to remain viable. The government should also force lower outputs at the nation's largest plants by curbing funds - a strategy already hinted at by the Economy Ministry, analysts said. "The less investment, the better," said Jan Popczyk, professor at Gliwice Technical University and former energy adviser to Leszek Balcerowicz, finance minister under the Solidarity Election Action (AWS) government. "It sounds strange, but as we have a surplus of output (30% above demand), we should reduce the capacity of the big plants and try to support smaller ones to increase competition."

Last week, Treasury Minister Wiesław Kaczmarek was quoted as saying the state should keep control of power generator Elektrownia Bełchatów, which produces a fifth of the nation's electricity, while suggesting it could be merged with hard-coal generator Elektrownia Opole. The government may also seek investors for four hard-coal plants - Kozienice, Dolna Odra, Ostrołęka and Stalowa Wola - and float PKE, a cluster of seven power plants in southwest Poland, on the Warsaw Stock Exchange next year. Popczyk said the main challenge with sector reforms will be coordinating the efforts of various government bodies, sure to face increased pressure from various big-generator interests that stand to lose more in the short term. "The big danger is connected with all the government bodies following their own different policies," Popczyk said.