Банкеръ Weekly

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SMALL CENTRAL HEATING UTILITIES TO BE SOLD TO BIG PLAYERS

Procedures for the privatisation of the central heating utilities in Lovech, Vratsa, Pravets, Yambol, Iskrets, Loznitsa and Pernik, as well as the one of the Trevnya-based Bedek utility will be announced in the first half of the year 2003. The central heating company in Pravets will be the first to be put up for sale. 100% of its capital will be sold in an open tender. The initially asked price is BGN1.5MN. Tender dossiers should be purchased by February 17 and the deadline for submission of offers expires on February 21.The utilities in Yambol, Vratsa and Lovech will be sold through public competitions, the Privatisation Agency (PA) announced. This is necessitated by the different requirements which will be presented in the privatisation dossiers. The documents for two companies - in Yambol and Vratsa, are already in preparation, while the Lovech-based utility is still waiting for the opinion of the Minsitry fo Environment and Waters.The Pernik central heating company should first undergo some transformations and then will be offered for sale. The one in Loznitsa will first add 21 dca of land to its capital. The central heating company in Iskrets is now in a liquidation procedure and will be sold in accordance with the regulations of the Insolvency chapter of the Commercial Code. The privatisation procedure for (a tender or a public competition) for the Samokov-based utility is still to be decided.Still, the Trevnya-based Bedek company has the most unclear fate. It is selling 98.39% of the produced steam to industrial enterprises. The privatisation in the energy sector started with eight small central heating utilities. All of them work with natural gas and are not subsidized by the state. Indeed, small state-owned utilities owe money to the monopoly Bulgargas, but they have signed long-term agreements for a rescheduled payment of their debts. Their liabilities to the Treasury and the insurance state institutions are not huge, either. The prices of the heat they produce are not fixed by the Government. They are approved by the State Energy Regulation Committee (SERC). Companies that are not subsidized require higher prices that sometimes cover their productions costs. Nevertheless, the preliminary reports show that these companies have ended 2002 at a loss.The main reasons are the extremely inefficient technological process, the low efficiency ratio and the burden of the non-production costs. Judging from the accounting reports, the cost price of one unit of produced heat is 2 or 3 times higher than the price of the fuel needed for its production. For example, the Bedek utility spends BGN195.39 per megawatthour. It pays only BGN58.99 for the consumed natural gas (30.19% of all costs of the company).The central heating utility in Pravets has spent BGN128.10 for each megawatthour sold. The fuel has only cost BGN58.56 (the efficiency ratio is 45.71). In the regions that provide central heating in Western and Central Europe this ratio varies from 60 and 80 per cent. However, all central heating utilities there produce electric power as well. By selling it, they increase their efficiency and reduce the final consumption prices. Of the eight small utilities offered for sale in Bulgaria, only two have combined production - those in Pernik and Pravets.Branch experts warn unofficially that investments in the central heating sector are still risky because of the low incomes of the population. In order to reduce the risk, the future owner of the utilities will acquire all of their assets (and liabilities), as well as a licence for regional central heating monopoly that will guarantee him a certain local market. Most of the small utilities sell over 50% of their production to budget institutions and industrial enterprises.Unlike the household consumers who sometimes appear insolvent, they will pay for the consumed heat. And the prices will be determined by the monopolistic central heating utility. The new owners of regional central heating utilities will also acquire long-term agreements to sell the electric power they produce at preferential prices. And will also acquire the so called green certificates for environment-freindly production of electricity, which will soon be traded very well. This possibility is stipulated by the new energy draft law which is to be presented in the coming weeks. In united Europe, the price of the green certificates will be constantly growing because of the adopted ecological directives, standards and restrictions. The holder of this document will be allowed to get free assistance or a credit at favourable conditions, because he will build or modernize installations for production of ecological electricity. The amount will be sufficient for the central heating utilities to change their activity (initiate combined production of heating and electricity) and to rehabilitate the distribution network.As a result, the technological losses would reach 5 to 7% - their usual level for the European Union. At present, Bulgarian companies officially report losses of 20, 30 and even 50 per cent. For example, the central heating utility in Pravets reported that 37.79% of its heating production has disappeared before reaching the final consumer. The Pernik-based company reported losses of 43.78% and the one based in Yambol - 53.68 per cent. The explanation for the impressive spending is the extremely outdated transportation network which led to the loss of huge amounts of steam. However, this is a very simple explanation. The experts in this branch realize that everybody is able to report fanciful values thanks to the commonly used measuring devices. And thus cover a huge amount of electric power sold unofficially. The same method is used to hide the inefficient management of each company which most often is not the merit of its local manager but of the restrictions imposed by his directors. If the privatization comes to a successful end, the situation in the central heating branch will change drastically. Technological losses will fall significantly, the transportation network will be rehabilitated, the subscription stations and measuring devices will be modernized, and the whole business will be put under strict supervision. First of all, however, all the eight companies will start producing electricity along with the steam. And sell it to the National Electricity Company at preferential prices. The possibility for this kind of long-term agreements will be stipulated in the privatization dossiers.The resources for investment in combined production will come from the green certificates, also included in the tender dossiers. The fixed assets of the companies will be an extra bonus for the future owners.Another bonus will be the unsettled liabilities of the heat consumers, most of which small industrial enterprises and commercial companies. Obviously, debtors will be urged (by the court) to either pay their duties or sell their property.

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