Bratislava 22 September 2023 – The current model of emergency stocks of crude oil and petroleum products ensures that these commodities are stocked in the required quantities. However, it is set up in a very complex and non-transparent way and would be dysfunctional without the active input of the private sector. These are the conclusions of a follow-up audit by the Supreme Audit Office (SAO) of the Slovak Republic of the State Material Reserves Administration (SMRA), which is the state supervisory body of this public policy and is co-responsible for the Storage Company (SpS), which ensures the storage of emergency stocks of crude oil. The storage of emergency stocks of petroleum products (petrol, diesel, aviation fuel) is provided by the private sector. The National External Audit Authority has repeatedly looked at how Slovakia's emergency stocks of these strategic commodities are secured and, as insufficient action has been taken following the 2020 audit, the findings of the current audit will be sent directly to the government by the auditors. „More than a year and a half of war conflict in Ukraine has highlighted the importance of a functional set-up of emergency stocks of oil and its products for the functioning of the state. We therefore recommend that the government comprehensively analyse the effectiveness of the existing system and subsequently decide on the necessary changes, as our findings have revealed significant risks associated not only with the lack of transparency in the company's operation, but also with the economically unbalanced position of the state and the private partner“ highlighted the president of the national auditors Ľubomír Andrassy. „Slovakia must be prepared for a complete shutdown of Russian crude oil supplies, which requires legislative changes in the sustainable management of emergency stocks. The existing infrastructure does not allow for replenishment of stocks other than with crude oil transported from Russia,“ added Ľ. Andrassy. The President of the Supreme Audit Office informed the highest constitutional officials - President Zuzana Čaputová, the President of the National Assembly Boris Kollár and the Prime Minister in charge Ľudovít Ódor - about the conclusions of the audit, as well as about other findings of the Office from previous audits, in his regular report.

The current so-called agency system of ensuring emergency stocks of crude oil and petroleum products was established ten years ago (2013), when SpS was set up, without any professional analysis, as a subsidiary of the state enterprise Transpetrol and the State Material Reserves Administration (SŠHR), which until then had jointly ensured this strategic area. Transpetrol provides SpS services under a contract for approximately 19 million per year, which it previously did in-house. An Emergency Crude Oil and Petroleum Products Agency (EOSA) has also been set up, in which the State owns 70 % and the private sector 30 %. It is responsible for maintaining the emergency stocks of crude oil and petroleum products, including their financing. „The audit found that the Warehousing Company appears redundant in the State's crisis management system in providing emergency supplies and complicates one of the key crisis management systems. In doing so, it provides most of the services provided in the agency model through third parties and is merely the owner of crude oil and petroleum product storage facilities with unsettled property relationships,“ explained the president of the Audit Office. He clarified that the crude oil and petroleum product storage facilities owned by SpS do not provide the required minimum capacity. Not to mention the fact that the company rents them for 1,4 million to the private Storage Association (a subsidiary of Slovnaft, a.s.), which in turn provides storage for the Agency's stocks of petroleum products. The State company does not even own the accessories to the petroleum product tanks, as they belong to Slovnaft. It also does not own the land under the storage facilities or the access roads to them. All storage facilities are located on the premises of the private company.

In their report, the SAO auditors also draw attention to the fact that the Storage Company does not enter into the pricing for the storage of petroleum products, which is determined by the storer, i.e. the private sector. Already in the 2020 audit, the SAO identified wasteful expenditure of more than EUR 190 million related to the establishment and operation of the Agency for Emergency Oil and Petroleum Products Stocks and the restructuring of its loan, which would not have been incurred if the management of the emergency oil stocks had not been changed. This time, the auditors point to a cost increase of 22 million between 2020 and 2022, as SpS has to pay the parent company Transpetrol for services it previously provided directly. „This uneconomic management of companies, where the state plays an important role, is ultimately reflected in the output price of petroleum products, which is paid by the customer, i.e. every citizen, in the price of petroleum products,“ pointed out Ľ. Andrassy. In the existing system there is also a risk of cost shifting from the parent company Transpetrol to the subsidiary SpS. The auditors also identified serious weaknesses in economy, for example in the use of funds for promotion and advertising and in the provision of various valuable gifts. At the same time, the President of the National Authority for External Audit, commenting on the findings of the audit, warned Members of Parliament and members of the Government that the company was not meeting its strategic objectives under the shareholders' agreement and that its management was unconceptual and uncoordinated in ensuring sufficient storage capacity for the future, or its renewal and modernisation.

The Audit Office also informed the three highest constitutional officials of the conclusions of its other audits. The SAO have long been involved in the state management of the disposal of strategic raw materials. In addition to crude oil, they also provided information on the state's policy towards water and the connection of Slovak households to the public sewage network. The rate of connection of property owners to the public sewerage system is weak, not even reaching one percent per year. Although the connection of households and properties to drinking water or public sewerage is the standard of the 21st century, in the audited year 2021 only 70% of the population was connected to it. Responsible state institutions have long failed to meet their obligations in sewerage projects and the European Commission has therefore already launched an infringement process against Slovakia, the President of the Office warned constitutional officials.

An example of absolute waste and a serious failure of internal control is the Electronic Monitoring of Prisoners in Detention (ESMO) project implemented by the Ministry of Justice. This is a project costing more than EUR 50 million, but during the six years audited, it was used on average only 10 percent of the time. This project was accompanied by fundamental errors from the initial setting of the measurable parameters, through the practical implementation phase, to its sustainability. The results of the audit were passed on by the Authority to the law enforcement authorities. The National Authority for External Audit also regularly audits the functioning of state-owned enterprises. Currently, we audited the Air Traffic Services and the State Forests. It is confirmed that the 1990 legislation under which state-owned enterprises operate is old and needs to be fundamentally changed. The auditors have also repeatedly looked at the quality of accommodation for university students in Slovak boarding schools. In 2018, the Office drew attention to the critical situation of the accommodation facilities, following which the government allocated EUR 50 million for their renovation. The auditors therefore looked at how this was reflected in the quality of the accommodation services offered. Three audits provided an insight into the work of local authorities. The audit of the management of electronic documents showed that computerisation has not made it easier for local governments to issue decisions, nor has it resulted in faster processes. The auditors also looked at whether the introduction of the development charge had been beneficial for municipalities and how municipalities had dealt with the agenda of providing accommodation for war refugees from Ukraine. SAO analysts published two of their expert analyses - on covid aid and on the proficiency of primary school education.

The full text of the press release about this issue in Slovak language