Банкеръ Weekly

Briefs

INDUSTRIAL GIANTS WILL HAVE TO WAIT FOR CHEAPER ELECTRICITY

The preparation for direct purchase of electricity on the part of big enterprises (the so-called privileged consumers) is almost coming to completion. The only one, but quite substantial hindrance in front of the liberalization in that sector is the passing of the new law on energy and the ordinances connected with it. We are ready to open the market even now, but we need legislative regulations, the Deputy Energy Minister Angel Minev said on Tuesday (August 5). The new law which should regulate the liberalization was approved on first reading by Parliament on July 29, and its final passing is expected after September 15. Then the monopoly of the National Electricity Company (NEC) for the purchase of energy will come to an end, and the contracts will be closed directly between producers (thermoelectric and hydroelectric power plants) and consumers. In June 2003 the State Committee for Energy Regulation (SCER) approved the first ten companies that will be entitled to buy electricity directly from the power stations. These are: Maritsa Iztok Mine, Devnya Cement, Agropolychim, Assarel Medet, Elatsite Med, the KZM Copper Smelter of Plovdiv, Umicore Med, Neochim, Sviloza, and Stomana Industry. They will be able to negotiate lower purchase prices, as they will enjoy the status of privileged consumers for the July 1 - December 31, 2003 period. The condition for granting these enterprises such a status was that their annual consumption of electricity in 2002 exceeded 100 gigawatthours and they had no liabilities to the NEC. In 2004 this limit will go down to 40 gigawatthours and in 2007 it will be 1 gigawatthour. Preparations for the competitive energy market began as early as on May 10, said Plamen Popov, Head of NEC's Electricity Trade Operator department. The trade will be based on bilateral contracts. The above-mentioned privileged consumers will be able to close agreements both with electricity producers and between themselves. In other words, a certain enterprise may resell electricity it has already bought if it doesn't need it all. The price will be agreed freely and will be a secret even for the NEC. If a privileged buyer orders a ceratin quantity of electricity but does not use it (e.g. due to a break-down) and fails to resell it to another enterprise, the former shall pay for the entire ordered quantity. The weekly schedule for electricity supply shall be also entered in the contracts. Initially, each buyer shall have to order the electricity, necessary for an hour (even smaller time periods - 30 or 15 minutes - are applied in Western Europe). The operator (i.e. the NEC) undertakes the responsibility to fulfill the orders within the following 168 hours. Moreover, one enterprise will be able to close contracts with several producers. 97% of the electricity, earmarked for privileged companies, will be sold in that way. The remaining 3% are for the so-called balancing market. It will be organized by the NEC and its role will be to compensate the consumers' insufficiently accurate estimates. The NEC will be buying back the surplus electricity and will sell it if there is shortage anywhere. A special unit called Operator of the Energy System (OES) has already been set up for the purpose. According to plans, the NEC should get rid of two companies - the transition enterprise and OES - by end-2005. OES will be responsible for the organization of the electricity energy market.Maritsa Iztok 2 thermoelecrtic power plant (TPP), Varna TPP, Bobov Dol TPP, TPPs at enterprises and the already privatized hydroelectric power stations can be suppliers on the free market during the first stage of the liberalization. They will be setting aside some of the generated electricity for the ten privileged consumers. This quota will be sufficiently big in order to cover over 150% of the expected orders and create competition between electricity producers, Mr. Plamen Popov explained. According to him, the price will be at least 15% cheaper from the currently effective week-end tariff (BGN63.15/megawatthour).The establishement of an exchange for electricity energy is the other opportunity for opening the market (together with the bilateral contracts). According to projections, such an exchange should begin operations in Bulgaria in about a year and a half. The electricity market should be entirely liberalized not only for industrial but also for household consumers prior Bulgaria's accession to the EU in 2007. Such conditions have been set by the EU by the new energy directive, approved on June 4, 2004, under which all non-household consumers from the EU member countries should enjoy the status of privileged consumers. As of July 1, 2007 all household conusmers will be signing direct contracts with electricity producers.According to experts, only after Bulgaria's admission to the EU electricity prices could be expected to go down by some 20-30 per cent. Until then, a new price hike will become effective as of July 1, 2004. The above-mentioned energy models comply to a large extent with the European practice, but things concerning institutions in the branch are wide apart from it. As the BANKER weekly has already written, the biggest shortcoming of the new draft bill on energy is the increased role and rights of the Government and the Energy Minister. On the other hand, the functions of the SCER have been limited. The word state will be eliminated from the name of that institution. All members of the present SCER will be relieved of their duties and their successors will be appointed by the PM within a month after the new legislative act is enforced. In end-July the Energy Minister Milko Kovachev personally undertook a commitment in Parliament to propose such amendments to SCER's statute that would make it a really independent authority, but its fate will become known in the beginning of Parliament's authumn session.

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