Regulator, ombudsman pile pressure on Bulgaria’s heating utilities

Written by on June 4, 2013 in Business - No comments

Bulgaria’s competition watchdog and the country’s ombudsman have called for an overhaul of the laws regulating the operations of central heating utilities in the country, saying that the current norms were detrimental to consumers.

Heating utilities we spared, by and large, the outrage that prompted tens of thousands of Bulgarians to take to the streets in protest in February, rallies that brought down the Borissov cabinet and brought forward parliamentary elections in Bulgaria by several months.

Although those protests have been focused on electricity distribution companies, heating utilities – especially the country’s largest, Toplofikatsia Sofia – have been the target of consumer ire for years. (Toplofikatsia is the generic word in Bulgarian for “heating utility”; although all heating utilities throughout the country use the name, there is no centralised ownership – some are the property of their respective municipalities, as is the case in Sofia, others have been put in private hands.)

Now, only in the second week of the new Oresharski government, both Ombudsman Konstantin Penchev and the Commission for Protection of Competition (CPC) have called for amendments to Bulgaria’s energy sector laws that would spur competition and protect consumers.

In a lengthy report following a two-month review, the CPC said on June 3 that the current legislative framework passed in 2006 – by the socialist-led coalition government in which current Prime Minister Plamen Oresharski served as finance minister – contained provisions that “could lead to the breach or limitation of competition on the central heating market […] and are detrimental to the consumers’ welfare.”

Specifically, the way in which the consumers in a particular building are billed was unfair, the regulator said. Technologically, it was possible to redress the situation by installing additional meters in each substation, the CPC said, recommending that the Energy Act and other regulations stemming from it are amended in that sense, at the expense of the heating utilities.

Other unfair provisions restricted the methodology for measuring the heating amount used by an individual building, banned consumers from physically removing central heating radiators in their apartments, and failed to provide adequate sanctions for consumers who did not pay for the service, instead redistributing the burden of payment on other residents of the same building, the report said.

The central heating system in Bulgaria’s major cities and town, dating back to the communist era, is built on substations providing service to an entire building, rather than individual apartments. Furthermore, the heating pipes cross all living space, as opposed to being insulated, so heating utilities have argued that even consumers who wish to stop using the service must pay a fee for having ‘free’ heating from the pipes passing through their apartments.

Additionally, there was no meaningful competition between the companies sub-contracted by the heating utilities to measure heating meters, nor were consumers given a choice in picking a company to service their particular building, the competition watchdog said. Worse yet, consumers were required by law to use the services of the company from which they bought their heating meters, further impeding free competition, according to the regulator.

The cumulative effect of these provisions was to limit the access of new service providers to the market and compete with the legacy operators, the regulator concluded.

‘Deliberate action’

Ombudsman Konstantin Penchev, speaking on the breakfast TV show of Bulgarian National Television on June 4, re-iterated much of the same criticism offered by the CPC.

“To speak of competition to Toplofikatsia is akin to speaking of freedom of speech in a totalitarian state. This administrative-totalitarian approach has been pursued for years with a single goal – preventing Toplofikatsia’s bankruptcy and protecting Toplofikatsia without considering the rights of the individuals,” Penchev said.

In the past, when the Supreme Administrative Court would find that heating utilities breached existing laws in their relationship with consumers, lawmakers would routinely amend laws to legalise the utilities’ actions and entrench their natural monopoly, he said. (Penchev served as chairperson of the court in 2004/10, prior to being elected Ombudsman.)

In its annual reports, the ombudsman’s office routinely pointed out the flaws in the existing relationship between heating utilities and their customers, he said. Penchev said that he had collated his office’s findings over the year in a 21-page report, including specific legislative amendments, that he plans to present to Parliament.

“I think that there must be individual contracts with Toplofikatsia, they should not force me to use something that I am not using, namely the pipe infrastructure in the building. Perhaps the metering companies should be done with as well […] The direction is clear, however, we must free consumers from this yoke and have some justice and reason, as well as a free market relationship,” Penchev said.

As the largest heating utility in the country, Toplofikatsia Sofia often tends to dominate the discourse on the future of central heating utilities in Bulgaria. It is also the heating utility that is in the worst shape financially – in its 2012 report, the company said that despite a three million leva profit for the year, its debts rose by 53 million leva to a total of 604 million leva (about 309 million euro).

At the same time, it was owed 350 million leva (about 179 million euro) in arrear payments by consumers.

Its already precarious finances could be hit further, as in the wake of the electricity price protests, Sofia city hall ordered the company to amend its terms of service and stop charging interest on the monthly bills handed to its customers. By removing Toplofikatsiya’s right to impose interest on overdue bills during the heating season, the city councillors effectively removed the biggest incentive for customers to pay their bills on time – rather than wait for the “balancing bill” that usually is issued in summer.

(Normally, Toplofikatsiya Sofia checks the meters once a year – at the end of the heating season, to record actual consumption. The monthly bills are just rough company estimates based on the same period of the previous year; after the meters are checked, the utility issues a “balancing bill”, which shows the additional amounts owed or whether the customers overpaid and are owed money by Toplofikatsiya.)

(Photo: jaime06492/sxc.hu)

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About the Author

Alex Bivol is the news editor of The Sofia Globe.