Bulgaria threatens electricity firms with fines, loss of licences

Written by on March 18, 2014 in Business - Comments Off on Bulgaria threatens electricity firms with fines, loss of licences

Bulgaria’s Economy Minister Dragomir Stoynev and the State Energy and Water Regulatory Commission (SEWRC) have threatened to repeal the licences held by the three privately-owned electricity distribution firms if they fail settle “outstanding debts” to state utility NEK.

Stoynev and SEWRC chief Boyan Boev, who until his appointment in December 2013 was chief executive of NEK’s parent company Bulgarian Energy Holding (BEH), have said that the three electricity distributors – owned by Czech CEZ and Energo-Pro and Austria’s EVN – owed NEK about 320 million leva.

The electricity distribution firms, for their part, say that the amounts are owed by NEK as compensation for the mandatory purchase of electricity generated by renewable energy firms (which they are required to do by law), but NEK failed to pay, forcing the electricity distributors to withhold payments to NEK.

Stoynev did not give a break-down of how much each electricity distributor owed NEK. On March 18, EVN Bulgaria chief executive Joerg Sollfelner told reporters that his company withheld 104 million leva from its payments to NEK, but the state utility owed EVN a further 144 million leva. He said that EVN would offer NEK a 32 million leva short-term liquidity loan as a sign of good will, but did not intend to renounce its claims.

A day earlier, Energo-Pro said, as quoted by news website Mediapool.bg, that it withheld 46.3 million leva to pay renewable energy producers.

The issue is rooted in Bulgaria’s renewable energy boom of the past several years, fuelled by the generous feed-in tariff paid by the government. The tariff was meant to encourage renewable energy development to meet the target set for Bulgaria – 16 per cent of all electricity should be generated from renewable sources by 2020 – in the EU directive 2009/28/EC.

Under the law, electricity distribution companies would buy all electricity produced by renewable energy installations and then be refunded by the state utility, NEK. However, the sheer number of new facilities exceeded government expectations, leaving both the government and the regulator scrambling to find the money to foot the bill.

Regulatory attempts to curtail such expansion have been moderately successful at best – in 2012, SEWRC introduced grid access fees for renewable energy producers and raised electricity prices by an additional three percentage points (to a total of 13 per cent) to cover specifically the increased amount of electricity from renewable energy sources.

But the price increase was cancelled out by the price cut following the cost-of-living protests in February 2013 (and would be followed by two more price reductions over the past 12 months) and then the country’s Supreme Administrative Court ruled that the SEWRC fee was unlawful and struck it down.

Despite repeated calls from the electricity distribution companies for the regulator to find a solution – EVN’s Sollfelner said that his company alone sent 105 letters to the regulator, NEK and BEH, the economy and finance ministries, even the National Assembly – SEWRC has done nothing to redress the situation.

(Critics of the current government have said that the regulator, far from being an independent entity given that it is appointed entirely by Parliament, has been merely playing its part in not rocking the boat and ensuring low electricity prices during the winter season to prevent a repeat of last year’s protests, even if this came at the cost of underfunding the energy sector.)

Boev said on March 18 that the regulator had all the grounds to repeal the distribution licences held by the three companies – namely that they owed so much money to NEK – and would decide whether to start the lengthy process at its meeting on March 19. He also said that EVN and Energo-Pro have been fined one million leva each and that a similar fine against CEZ would be imposed later this week.

He said that NEK owed no money to the electricity distribution companies, because the regulator was yet to review and approve the companies’ spending claims.

The regulator’s threat also poses a certain legal quandary – EVN, Energo-Pro and CEZ all operate separate infrastructure and commercial subsidiaries, with the former holding the distribution licences, whereas NEK’s dispute is with the trading arms. To repeal the licences, SEWRC will have to prove that EVN, Energo-Pro and CEZ endangered the security of electricity supplies – their main duty under the terms of the distribution licence – by failing to pay NEK on time.

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Alex Bivol is the news editor of The Sofia Globe.