It is open season on Bulgarian electricity distribution companies and once again it was ultra-nationalist Ataka leader Volen Siderov that marked the occasion with his usual flair. "CEZ is Czech and is siphoning out enormous sums from Bulgaria. Director Rossen Yordanov is a janissary," he said.
Siderov accused Yordanov, once an MP candidate for centre-right Union of Democratic Forces (UDF), of financing the party, an accusation rejected by UDF leader Martin Dimitrov, who called Siderov a liar. Several hours later, CEZ said in a statement that it could not be implicated in political arguments. Several hours later, Yordanov was no longer the head of the maintenance division at CEZ, with the company saying that it was a case of mutual termination and that the timing was coincidental.
Every year, at the end of February, the distribution companies submit their business plans to the State Energy and Water Regulatory Commission (SEWRC), which outline the companies' planned spending for the coming year. Usually, the proposals are double the size from the previous year and always come with a request to increase end-user prices.
The script is set in stone by now: Ataka and the right-wing Internal Macedonian Revolutionary Organisation party call protest rallies and threaten to take the matter into their own hands (last year's wrinkle was Prime Minister Boiko Borissov threatening to nationalise the three companies), followed by SEWRC trying to calm the waters by saying that it would never allow a drastic increase in prices. By mid-summer, the electricity distribution companies' bills are cut in half, while state-owned power utility NEK somehow avoids similar treatment.
On the edge
This year, NEK's request was fairly moderate, asking for only a five per cent increase. The private distribution companies' requests, however, will have increased prices for customers by between five and 17 per cent. According to calculations by CEZ, the monthly bill of the average consumer who uses 200 kWh would have to increase by 5.40 leva.
The important part is that the requests are double the amounts demanded in 2010. "SEWRC's decision, now in effect, has led to a drastic decrease in our ratio in the production-transmission-distribution cycle, which is significantly limiting the investment in the distribution segment," said EVN, the Austrian company whose subsidiary services southern and south-eastern Bulgaria.
In 2008, from every 100 leva paid by the consumers, the company received 17 leva. In 2010, that amount was down to 13 leva. With such a drastic decline in turnover and revenue, the company said that it took a 50 million leva loan to carry out investment. "This cannot be a stable solution," the company said.
Germany's E.ON, which services northern and north-eastern Bulgaria, plans to inject cash in its Bulgarian subsidiary through a capital hike.
Neither solution is a good one for the state and consumers. In the first case, the extra costs of EVN's loan will have to be serviced by consumers in the future. In the second case, the state stands to lose future revenue because the equity injection would severely dilute the state's 33 per cent stake in E.ON Bulgaria.
All of this is because of SEWRC's continued policy to help state firms at the expense of the private ones. Over the past three yeras, the regulator has cut the distribution companies' planned revenues by an average of 17 per cent, while NEK and its subsidiary ESO, which operates the power grid, have been approved increases ranging from 12 per cent to 56 per cent.
In 2010 alone, E.ON lost 21 million leva because the NEK and producer prices went up by 8.4 per cent, while the end-user price went up by only 1.9 per cent, pushing E.ON into making a loss.
SEWRC finds itself with the difficult task of balancing the electricity cycle, without the tools to control the management of the state companies, able to only state the facts after the deed is done. Like the fact that NEK has been under-investing in grid maintenance.
Even should the state companies be fined, the effects are negligible, because it would be once again consumers that have to pay for it. Not so with the more efficient private companies, which are much more sensitive to regulator sanctions.
Take or pay
This year's proposals come with a new twist, with EVN offering to change the way in which the cost of grid access is calculated. Now, corporate consumers pay based on the amount they use, but the power distribution company suggested that payment is based on amounts that the companies will declare in advance. The goal is to teach industrial consumers to plan their usage in order to optimise network efficiency.
The proposal sounds modern and, the company said, was entirely in line with the spirit of the forthcoming full liberalisation of the market for business customers. The problem is that it would only penalise those companies that use less electricity than they declare in advance, paying a fee for the difference between the amounts declared and used.
At the same time, the companies that declare lower usage, in part to save on grid connection costs, would not be affected. Yet it was these companies that caused the black-outs on the Black Sea coast in the summer of 2010. Many seaside hotels understate the amount of electricity they really need, literally causing EVN to blow a fuse.
The next episode in the annual saga, the one in which the private distribution companies are being accused of all possible sins, will go on for at least two weeks. SEWRC could use that time to think how to synchronise the submission of business plans when the next financial year rolls around, so as to avoid the pointless attacks against some of the companies in the energy sector.
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