site.btaEC Presents Analysis on Electricity Tariff Deficits in Bulgaria

EC Presents Analysis
on Electricity Tariff
Deficits in Bulgaria


Brussels, October 3 (BTA correspondent Nikolay Jeliazkov) - The
European Commission's Directorate General for Economic and
Financial Affairs published a report on Friday about the
electricity tariff deficits in several Member States, including
Bulgaria.

Electricity tariff deficits are caused when the tariffs for the
regulated components of the retail electricity price are set
below the corresponding costs borne by energy companies. The
paper shows that the drivers or causes of the deficits are
broader than just a bad economic situation. Several factors
related to the design of the electricity markets are found to
have an influence on the prevalence of a tariff deficit.

In the case of five Member States (Bulgaria, Latvia, Hungary,
Malta, Romania), there is evidence of possible electricity
tariff deficits based on the financial performance of the
regulated companies, the report says.

In Bulgaria, the three largest distribution companies owe a
combined 347.6 million leva to the state-owned National
Electricity Company (NEK) due to disbursements for subsidies to
renewable and combined heat and power generators since 2010.

A World Bank report from 2013 which addressed the issue of
electricity tariff deficit in Bulgaria is cited. Bulgaria's
deficit, however, is different compared to the situation in
Spain, Portugal and Greece, which were hit hardest by the
economic crisis and exhibited the largest deficits.

Retail prices for households in Bulgaria are in nominal terms by
far the lowest in the EU and hardly changed between 2008 and
2012. On the other hand, over the past five years there was an
upward trend in generation costs due to the recent expansion of
renewables stimulated by generous subsidies for solar power and
cogeneration. Other factors like the long term purchase power
agreements and delays in market liberalisation also played a
role. Investment in wind and solar power installations over the
last year in Bulgaria is estimated at more than 4 billion euro,
which needs to be repaid by surcharges on electricity prices
over the next years. According to the World Bank and the
utilities, the integral tariff is not sufficient to match the
corresponding costs borne by electricity utilities. However, in
contrast to Spain and Portugal, the existence of this tariff
deficit is not recognized by the authorities as a public
liability. Thus, the Bulgarian government has not given the
utilities credit rights to recover the corresponding amount. The
situation is further complicated by lack of accounting
standards for regulated utilities, lack of cost benchmarking, as
well as by market distortions such as cross subsidies and
purchase power agreements, the EC notes.

The deficit has accumulated in the energy system, especially in
the foreign-owned distribution companies (which also collect the
revenues from energy consumers) and in the incumbent stateowned
electricity supplier NEK. The financial situation of the latter
is deteriorating quickly; at the end of 2013, NEK is considered
to have a debt of 2.3 billion leva (3 per cent of GDP) and one
third of this amount were liabilities to energy producers.
Foreign-owned energy distribution firms have announced their
intentions to sue Bulgaria over non-compensated obligations for
purchasing electricity from renewable energy sources, and claim
to have accumulated substantial losses due to these obligations.
NEK and the distribution companies are also in dispute over the
amounts of renewable subsidies, which are collected by the
distribution companies and should be paid to NEK. While there is
no official estimate of the electricity tariff deficit, the
annual deficit in 2013 has been estimated by the World Bank to
be between 800 - 1,200 million leva (1 - 1.5 per cent of GDP)
and is expected to increase further in the coming years if no
measures are taken. The Bulgarian energy regulator tried to
increase electricity prices for households by 14 per cent as of
January 2013 to match the rising electricity system costs. This
decision, however, triggered dramatic street protests and
finally led to the resignation of the government of PM Borissov
in February of the same year. Following these events, the energy
prices for households were cut in several steps by an average
of 13 per cent in 2013.

Other measures to reduce the energy system costs include the
introduction of grid access tariffs for renewable energy
producers and the prohibition of access to the energy system for
a part of the gridconnected renewable capacity. These measures
were contested by the renewable investors and some International
Financial Institutions, who claimed they were breaching the
law. The first of these measures was indeed revoked by the
constitutional courts as discriminatory. In addition, in
December 2013 the parliament imposed a 20 per cent charge on
income from wind and solar power installations in 2014. This
measure was also sent to the constitutional court by the
President, who considered the fee on wind and solar power
producers as a form of discrimination against other electricity
generators.

As Bulgaria has an excess generation capacity, one of the
recommendations in the World Bank's 2013 report is to facilitate
exports which would require better interconnections. The World
Bank also addresses the energy poverty aspect and suggests
increasing the heating allowance and other social benefits for
the poorest, as they decreased dramatically over the recent
years. VI/MY