Банкеръ Weekly

Briefs

ELECTRICITY PRICES FOR HOUSEHOLDS TO REMAIN UNCHANGED

The share of the free power industry market is only 10 per cent. By end-April 2005 a little more than one tenth of the deals in the sector were effected according to competitive principles and at prices which are not liable to regulation by the State Commission for Energy and Water Regulation (SCEWR). Only 4.6% of the market was liberalized in the beginning of the year. According to forecasts, by the end of 2005 the share of the free energy market will reach 12-13 per cent. This is quite a low percentage considering the requirement that as of July 1, 2007 the entire Bulgarian energy market should be completely free of the State's participation.In 2004 the profits of electricity distribution companies (EDCs) rose by 48% as compared to 2003 and reached BGN48,281,000 . The average return on equity capital of EDCs was 5.05%, and the average profitability in the sector was 4 per cent, SCEWR's report on the situation in electric power engineering reads.During the coming heating season electricity for household purposes won't be hiked and prices will go up only in a year. The cheap 75 kilowatthours will remain for the time being, but the bonus 50 kilowatthours of cheap electricity for household consumers who do not have central heating will be eliminated. As of October 1 all industrial consumers, connected to the low voltage electricity network, will be paying 16% more per kilowatthour than now. The hike for industrial consumers of medium voltage electricity will be only 5 per cent. This was announced by SCEWR's Chairman, Prof. Konstantin Shoushoulov, at an open session of the energy regulator on Thursday. According to SCEWR's report, electricity prices tariffs for household purposes will remain unchanged at their present levels till October 2006. Until then the expenses and investment programmes of electricity generating power stations and of EDCs will be cut down as much as possible. They may demand a change of prices only in a year after presenting to the SCEWR detailed financial and economic accounts and justifying the necessity of investments. If the regulator considers their requirements reasonable, it might approve the higher prices, but that is not obligatory, Prof. Shoulshoulov explained, adding that the cheap 75 kilowatthours will certainly be eliminated then. According to him, however, a new price hike of electricity, at that not for industrial consumers only, is much more probable as of October 2006. Otherwise, when Bulgaria joins the EU, we might turn out among the countries with the lowest electricity prices and the availability of free capacities could result in a dumping in the common energy market of the community. And while the journalists attending the open session loudly applauded SCEWR's decisions, the heads of energy companies unanimously expressed extreme dissatisfaction. A representative of the Czech CEZ, owner of the EDCs in Sofia, Sofia region, and Pleven, said that the cutting down of acknowledged expenses would force the company resort to strict economizing, thus creating risks for the electricity supply and worsening of quality. EDCs need investments, especially the Sofia utility, which is developing the most quickly. On one hand, investments are needed for the expansion of network as according to the present tariffs each subscriber pays only 50% of the expenses for joining the network. On the other hand, new technologies for improving the quality must be introduced. Huge amounts of money are necessary as well for reducing technological losses along the Bulgarian electricity distribution network, which are among the highest in Europe. When forming the new expenses of the companies, the regulating commission acknowledged technological losses higher than the real ones, professor Shoushoulov justified himself and added that the year 2003 percentage was kept even though this type of expenses had shrunk. This fact enables companies to form a real profit equal to 3 million kilowatthours on the average for each company.The managers of the privately-owned electricity distribution companies protested that the regulator set an extremely low amortization rate of the assets and most of all - that it failed to declare the uncollected receivables of the companies expenses. The commission replied that no one of the distributors provided an analysis of the uncollected receivables mainly from the Roma neighbourhoods. Nor did they propose methods to collect them. That is why they were not included in the expenses.Representatives of the production plants were not satisfied, either. Experts from the Kozlodoui nuclear power plant complained once again that the SCEWR did not take into account all expenses of the plant when calculating its production prices. Most expenses were made after June 30, which means after the commission examined the financial condition of the company. Since then the plant's profit has decreased by BGN16MN and the nuclear plant has paid additionally for another transportation of exhausted nuclear fuel which was not reported in the expenses. The reduced expenses will force the plant not to transport the exhausted fuel which is a contradiction to the international nuclear safety conventions, Kiril Nikolov from Kozlodoui nuclear plant said. However, he says that a bigger danger results from the fact that revenues set by the SCEWR will not allow the plant to pay interests amounting to BGN33MN on credits jointly guaranteed by the National Electricity Company and the state (represented by the financial ministry). If the regulating commission does not reconsider its decision, the debt will probably have to be paid off by the national electricity company and the state treasury, Mr. Nikolov added.In fact, the electricity produced by the Kozlodoui plant will be sold at BGN13.68 per megawatthour and not at BGN15.28 as asked by the plant. The required price of availability of the powers is reduced by almost BGN3, too - instead of the BGN24.06 per megawatt declared, the SCEWR approved BGN21.26. The Rousse Central Heating Utility is in a more difficult situation, as the regulator rejected the demanded price growth and also cut the sale price. The utility wanted to sell its electricity at a wholesale price of BGN49.51 per megawatthour instead of the current BGN45.52 and the commission set BGN39.74 per megawatthour. Maritsa 3 thermal power plant was denied an increase of up to BGN49.82 per megawatthour, too, and the current BGN45.35 was left unchanged. Electricity produced by the Varna thermal power plant is getting more expensive by BGN0.01 compared to the current BGN43.10 per megawatthour. The only exception is the heating plant in Bobov Dol which asked to sell its electricity at BGN48.70 per megawatthour and was permitted to do so at BGN48.56.Professor Shoushoulov criticized the companies in the electricity distribution sector saying that it was high time they started attracting bigger foreign capitals with low interest rates instead of using their own funds to finance their operations. At present, energy companies operate with about 90% net worth and just 10% attracted resources. If the proportion changes to 50:50, the rate of return of the companies will grow to 8%, the professor comments.

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