An appeal to MPs in Ružinov and Old Town: Don’t vote on the selection of a heat supplier without a competition, you risk millions of dollars in fines

On Tuesday, 28 June, the deputies of the Bratislava municipal districts of Ružinov and Staré Mesto are to vote on the change of the heat supplier without a public tender. The procedure appears to be in contradiction with the methodological guidance of the Public Procurement Office and municipalities face fines of millions of euros for failing to comply with the law. Changing the heat supplier for the next 20 years by direct order and without sufficient professional discussion is irresponsible to say the least nowadays. That is why the ENGIE Group has addressed an open letter to the members of both local councils, urging them, on the basis of arguments and facts, not to vote on the selection of a single heat supplier by special consideration. Such a procedure is disadvantageous for the inhabitants of the municipality and, moreover, is clearly contrary to the legislation in force.

The aim of the proposal is to change the heat supply from the current supplier Prva Ružinovská společnost (a member of the ENGIE Group) to MH Teplárenský holding (former BAT – Bratislavská teplárenská, a. s.) by direct procurement. A similar scenario is being prepared for the Bratislava district of Staré Mesto, where heat is supplied by TERMMING, a.s. (a member of the ENGIE Group). Collectively, the contracts are worth a quarter of a billion euros for 20 years and the procedure of both municipalities may, according to the available documents, with a high probability be in violation of the law.

In the case of a concession, tendering is compulsory

Ružinov and Staré Mesto plan to conclude contracts for a total of a quarter of a billion euros without a tender in the form of a special consideration under the Municipal Property Act. In the case of a simple lease, this allows for a change of contractor to be made by a direct decision without a public tender. The claim in the Proposal for approval of the lease of the Ružinov municipal district that in the past the selection of heat suppliers in other towns has already been carried out in the form of special consideration is misleading, since then it was a matter of extending existing contractual relations, never of selecting a new supplier, as is the case today.

However, in the case of the lease of secondary distribution lines, according to the available information, it will not be a lease, but a so-called concession or contract. This is also stated in the published Methodological Guidance of the Public Procurement Office. The Authority points out that a concession is necessary if the so-called operational risk is transferred to the lessee. Operational risk means that the lessee is not guaranteed a return on investment or costs and is exposed to market fluctuations. The lease of the secondary distribution lines clearly meets these conditions, even though the details of the proposed contract between MH TH and the municipalities of Ružinov and Staré mesto are not yet known.

The lease relationship is not the main object of the contract, but only the means/tool for its fulfilment. The object of the contract is the production and supply of heat, using the operation of the leased heat management system for this purpose. The municipality transfers to the heat supplier its own obligations and risks in connection with the operation of the heat management system (as it does not have a licence for heat production) and also expects to capitalise on its assets in the form of modernisation. It follows that in this case it is not just a lease of municipal property but a concession.

MEPs would knowingly circumvent the law

If it is confirmed after the vote by special consideration that it is indeed a concession (which is obvious according to the above), the deputies in Ružinov and Old Town would have knowingly circumvented the Public Procurement Act by their actions. In case of non-compliance with the law, the contracting authority is liable to a fine of up to 5 % of the contract value. In the case of the 20-year contracts for Ružinov and Staré Mesto, the fines amount to approximately EUR 12.5 million (EUR 10 million for Ružinov and EUR 2.5 million for Staré Mesto).

Competition is the best solution

At a time of rising energy prices, the price of heat is a particularly sensitive issue for residents. It is therefore even more important to deal with the selection of suppliers in the most transparent way possible.

“The conclusion of a 20-year contract, which includes the supply of heat worth a total of more than EUR 250 million by direct award, appears to be a fundamental circumvention of the law. We therefore call on MEPs, already aware of the view of the Authority, to postpone the vote on the contracts by way of special consideration and instead organise a public tender, for example for the purpose of procuring a concession,” says Roman Doupovec, CEO of ENGIE Services.

In order to avoid the risk of circumventing the law with a decision based on special consideration, the deputies of Ružinov and Staré Město should postpone the vote and prepare a proper public tender on Tuesday, 28 June. This can take place within a few months and all technical, operational, legislative, development and environmental criteria and information can be incorporated into the tender conditions.

“We do not see any reason why the tender cannot be carried out in this case. MH Teplárenský holding can also participate in the selection process and offer the residents more favourable prices than those already declared. Of course, we are also prepared to offer the best possible price,” adds R. Doupovec.

The price does not include the almost two million cost

Moreover, the initiative of the two municipalities is based on an unfair price offer of a possible future contractor. The price offer of the company MH Teplárenský holding (MH TH) does not include the costs for the operation of the boiler houses and secondary distribution systems, which bring the heat directly to the end customer. The price thus appears to be more favourable, but in reality it will mean an increase in costs of up to EUR 1.8 million. These will be reflected in the price of heat in other districts where MH TH operates.

“In order for the hot water to reach the specific point of consumption through the primary MH TH pipelines, heat exchanger stations and secondary heat pipelines are required. The operator of the secondary heat infrastructure has costs with its network, which are of course reflected in the heat prices,” explains Stanislav Janiš, Chairman of the Board of the Slovak Heat Producers Association.

According to Janiš, the philosophy of MH TH is purposeful, without a transparent competition, without discussion on the issue, with the aim of directly acquiring the operation of two thermal farms for 20 years.

Additional information:

Letter from the First Ružinov Society to the members of the Municipal Council of Ružinov

Letter from TERMMING to the members of the Local Council of Staré Mesto

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