Category: Slovakia

The Slovak system for the support of renewable energy sources has been marked in recent years by a lack of transparency and strategic vision. Even though the Slovak Republic undertook to increase its share of energy from renewable sources to 14% by 2020, in fact in recent years the share of renewables in energy consumption has actually decreased. “Allegedly for technical reasons, virtually no renewable electricity sources have been connected to electricity distribution networks since 2014.”

After considering extensive comments by companies active in the energy sector, in mid-October the Slovak parliament adopted an amendment to the Act on Support of Renewable Energy Sources and High Efficiency Combined Heat and Power (Act No. 309/2009 Coll.) that substantially modifies the existing system for the support of these sources. The amendment is designed to align the Slovak system – which was previously managed by three regional distribution network operators – with best international practices by moving it toward a more market-oriented structure, centralizing it, and making renewable energy sources less expensive for customers. 

All of the renewable electricity sources and high-efficiency combined heat and power production sources have preferential access to the distribution and transmission networks. In addition, renewable sources with an installed capacity of up to 250 kW shall not be responsible for deviations.

The feed-in-tariffs are available to new renewable energy sources (but not to wind and solar sources) with an installed capacity of electricity production of up to 500 kW as well as high-efficiency combined heat and power production sources with an installed capacity of up to 1 MW that utilize at least 60% of the produced heat for supply through central heating systems, provided that the co-generation results in the saving of at least 10% of primary energy. This support is also available to refurbished combined heat and power production sources with a certain minimum efficiency level, if 60% of the heat is distributed by the central heating systems and 60% of this supply is to the public.  

Some of those producers have the right to have their electricity purchased by one or more electricity suppliers yet to be selected by the Ministry of Economy (in 2019, this role will be played by the regional distribution network operators).  

The amendment marks a transition from a system of feed-in-tariffs to a system of feed-in-premiums for all new renewable energy sources with an installed capacity of over 500 kW. Such new sources are to be selected in auctions organized by the Ministry of Economy. The feed-in-premiums should compensate for the difference between the market-based price received by the producer (a method of calculation of this price is to be defined by the Regulatory Office for Network Industries – URSO) and the price offered by such producer in the auction. The auctions should be organized under conditions yet to be specified by the Ministry of Economy and URSO, and obviously the efficiency and transparency of the new system will to a large extent depend on the technical and market conditions imposed by those rules.  

From 2020, the support will be managed and paid for by the short-term electricity market operator (a government-controlled entity). 

Both feed-in-premium and feed-in-tariff support are available for 15 years after the generation facility is put into operation. The support based on the mandatory off-take of electricity and taking-over of responsibility for deviation will terminate by the end of 2033. 

The amendment also provides for a framework of state aid to be provided to energy-intensive industries and to producers with a consumption of electricity of at least 1 GWh in the form of compensation for payments that each of those make to support RE sources. Such compensation is to be provided for consumption exceeding 1 GWh, but only up to 85% of the payments made by those businesses to support renewable energy sources. The Ministry of Economy already submitted an implementing decree listing the industries to benefit from the compensation as well as the details for granting it into the legislative process.

The amendment defines local renewable energy sources with an installed capacity of up to 500 kW to be used for local consumption. Such sources shall have preferential access to the distribution network, and may deliver surplus energy to other market participants (up to 10% of the total installed capacity), but shall not receive any feed-in-premium or feed-in-tariff. 

The existing support (feed-in-tariffs) for renewable energy sources granted under previous schemes remains in place. 

By Peter Bollardt, Leader of Energy Practice, Peterka & Partners, Slovakia

This Article was originally published in Issue 6.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Maros Pogany is the Head of Legal at KIA Motors in Slovakia – a position he has held for the past nine years. Before joining KIA in 2004, he spent over three and a half years as a litigator in private practice and one year as a lawyer with the Matador Automotive Group. He is a 1999 graduate of the Law Faculty at the Pavol Jozef Safarik University in Kosice, Slovakia, and in 2017 he obtained an MBA from the DTI University in Dubnica nad Vahom, Slovakia.

CEELM: Thank you for speaking with us, Maros. Can you walk us through your career, and tell us how you ended up at KIA Motors?

MAROS: After graduating from law school my obvious choice was a tire factory close to my place. But this job did not satisfy my hunger for legal experience so I accepted an offer from a local law firm, where I learned many things, both as a lawyer and a person. After passing the bar exam I ran my own law firm for a while. When Kia Motors decided to build a factory in Slovakia it caught my attention and I applied for job there – and this July I will have been there for 15 years. The initial years in Kia were very difficult and I survived thanks to my then-boss, a Korean-American lawyer who trusted me and supported my professional and career growth.

CEELM: What – other than your previous boss – has kept you there? What makes Kia such a good place to work? 

MAROS: The beginning was tough due to cultural shock between Slovaks and Koreans. In addition, the construction site provided by the Slovak government was not cleared of land ownership issues, which eventually took six years to resolve. As I mentioned, I was lucky to have a boss who stood out. He was very ambitious and demanding as well as politically skilled. I learned a lot from him, and even now some of his traits are unachievable for me. What’s more, lawyers never get bored at Kia; there are always new things happening in the company and the legal department’s voice is carefully listened to (even though sometimes the business units do not like what we say). Over time Kia has established a generous remuneration and perks system which corresponds to the company’s high demands on lawyers’ output. Last but not least, some of my current and former colleagues have become my good friends, so while working I am spending time with my friends.

CEELM: Are there changes to the legal/regulatory regime in Slovakia involving your role and Kia Motors that you would like to see, or alternatives present in other markets that you would like to see tried in Slovakia?

MAROS: Typically, in Slovakia, guidelines stemming from EU directives are stricter than those directives actually require. This means more work for lawyers, and it results in a greater administrative burden for companies, including Kia Motors. Thus, taking into account the tax burden, availability of manpower, and other factors, Slovakia has become less attractive to do business in than its neighbors – especially the other Visegrad countries. Whenever I have an opportunity to speak with government people, I request that they not impose more duties on business than EU law requires.

CEELM: What does a regular day in the office look like for you? 

MAROS: It is a mixture of various forms of communications. Almost every day I attend brainstorming meetings with other business units, discuss with members of our department how to handle issues assigned to us, and review and comment on various internal documents prepared by other business units where input by Legal is required. Checking and aligning of the legal department’s weekly plan of work and progress of projects based on the yearly business plan is also a regular part of my job. Lunchtime is a great opportunity for me to chat with other Kia managers so we can keep each other updated on our work-related as well as personal matters. A few days a week I devote time to reading blogs on people management, legal tech, and the like. I am happy that most of the time the legal department can do the job without major interference.

CEELM: How big is your legal department? How is it structured, and who do you report to?

MAROS: We are four lawyers altogether. This year that number will be increased to five – we are now looking for a suitable candidate. There is no formal structure in the department; we train our members so that everyone should be able to do everything. However, a certain level of specialization has naturally developed over time. Each lawyer supports certain departments or handles specific legal matters for the whole company. At the same time our senior lawyer allocates time on strategic & development issues, as well as standardizing legal documents, while the juniors are assigned mainly with operative tasks.

In our company, I report to a Korean coordinator, who is not a lawyer, and who is in charge of three different departments, including the legal department. He serves as an intermediary between me and the Vice President, although, depending on the situation, I am free to communicate with the VP directly. I have a collegial relationship with our General Counsel Europe, who is located in Frankfurt am Main. I am not his subordinate, but the legal department supports him when necessary; the same is true for the legal division of our headquarters in South Korea.

CEELM: In your many years with Kia, what was the largest single deal or project you worked on involving external counsel? 

MAROS: Most of the deals are handled by our in-house lawyers. External counsel assisted us with the due diligence of land ownership of a site where our factory is located, which resulted in an amendment to the Investment Agreement between Kia Motors and the Slovak Republic. With this amendment the structure of the land acquisition deal was changed and the government gave further warranties so that Kia is safe from future claims by the former land owners.

CEELM: What’s the one most important lesson (on business, team management, etc.) that you have learned during your nine plus years of leadership? 

MAROS: It is important to realize that nobody can see what’s inside other colleagues’ heads, meaning that we cannot assume or prejudge other peoples’ motives, thinking, or understanding. That’s why I must ensure that my communication is clear and comprehensible to others.

CEELM: You publish a series of articles on LinkedIn on the “Organization of Legal Function.” Why did you start doing this, and what sort of feedback have you gotten?

MAROS: So far, I have published just two articles. The first one deals with the “In-house or Outside Counsel” dilemma. In the second one you can read my take on the proper number of in-house lawyers in a company, calculated based on the yearly workload. The articles are excerpts from my MBA thesis “Organization of Legal Function for Innovative Companies and Start-ups,” so I have topics like legal KPIs, how to organize the legal department to foster innovation, evaluation of in-house lawyers, and so on, in the pipeline. During my MBA studies, I studied and considered various approaches to those topics and by writing articles I hope to provoke discussion. The feedback shows that heads of legal deal with similar issues regardless of the type of business, even in non-profit areas. I plan to publish more articles, but after my second son was born it is not a priority for the time being.

CEELM: On a lighter side, what one bit of advice would you give to junior lawyers or recent law graduates? 

MAROS: To all juniors, not only lawyers: Start small, aim high, and keep going.

CEELM: Finally, what’s your favorite place to visit in Slovakia, and why? 

MAROS: My family likes swimming so we like Piestany, a city famous for its spa. Or to have a walk in the beautiful Sulovske Skaly hills, ending with eating the traditional Bryndzove Halusky meal in some of the cosy chalets.  

This Article was originally published in Issue 6.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Two new regulations with significant effects on the automotive sector were introduced on January 1, 2019, in Slovakia.

Mandatory Recreation Allowance – All Employers Forced to Boost Tourism in Slovakia

The first of these two regulations provides that, upon request, employers in Slovakia with more than 49 employees must provide their employees with a recreation allowance amounting to 55% of recreation-related eligible costs (up to EUR 275 annually), to be spent for vacation at a hospitality facility situated in Slovakia. While this allowance is income-tax-free for the employees, it remains a tax-deductible expense for employers. Adopted with a view to boosting local tourism – in itself a legitimate and laudable aim – this regulatory measure has attracted widespread criticism, as it not only increases costs, but also dictates how the private sector should remunerate its workforce, thus providing a “hidden” cross-subsidization for the Slovak hospitality industry to the detriment of middle/big sized employers – including, of course, all key players within the automotive sector.

Employers can handle all the administrative work themselves and directly reimburse employees after receiving the relevant invoices. Alternatively, they may cooperate with an external “voucher” provider that will sell them recreation vouchers for a commission not exceeding 3% of the voucher’s nominal value. Recreation vouchers as electronic payment tools can then be used in accommodation facilities that cooperate with a provider of recreation vouchers. The latter appears to be the preferred option, especially in the case of large automotive employers, due to its smoothness. Market signals already show that voucher companies are asking a commission of between 8-12%, which is why many recreation facilities might not be willing to cooperate with them. As a consequence, if employees receive recreation vouchers, their choice of recreation facilities will be limited. It is not yet clear whether an employer can impose a voucher system on its employees and refuse to reimburse employees who decide not to use vouchers and instead stay in accommodations which are not part of the voucher network. This will be a crucial issue, particularly for large employers such as the four key automotive producers in the country (VW, Peugeot, KIA, JLR). Should they go for a voucher system, it will significantly boost the voucher companies’ business.

As a “bonus measure” that is only applied to employers with more than 49 employees, this regulation may be seen as discriminatory. It shows that the state is automatically assuming that such employers can more easily afford to incur the additional cost of the recreation allowance. In addition, the government is restricting private employers’ freedom by telling them how to remunerate their employees beyond minimum wage requirements. Several employers have already indicated that the mandatory recreation allowance will force them to cut other employee bonuses, and trade unions have signalled that recreation vouchers are standing in the way of negotiating wage increases in collective agreements for 2019.

Solution for the Lack of a Local Workforce? 

With a shortage of workers in the automotive sector and the unemployment rate hitting a record low, the government has understood that the time has come to speed up the process for providing temporary residence permits for employment purposes to non-EU nationals. Accordingly, under the second of the two new regulations, instead of a 90-day period, the Foreign Police must now decide on applications within a period of 30 days from the date they receive confirmation from the Labor Office that a vacant position can be filled by a third-country national. However, this shorter period applies only where the vacant position belongs to a listed category of positions with a shortage of workforce and where the employer is located in a region where the average unemployment rate is lower than 5%. 

It seems that many automotive employers will benefit from the relaxation of immigration laws, as positions in the sector suffer from a workforce shortage. However, the precondition of being located in an area with a low unemployment rate might severely limit its utilization. Specifically, automotive employers located in regions other than Western Slovakia may not be able to benefit from the new regulation. In addition, the regulation also sets a limit on the maximum share of third-country nationals compared to the employer’s total headcount. Overall, the amendment brings a cautious facilitation with restrictions, and based on the latest economic data, it may have come too late.

By Radovan Pala, Partner, and Radoslava Lichnovska, Senior Associate, Taylor Wessing

This Article was originally published in Issue 6.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.