Банкеръ Weekly

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WILL BULGARIA VIOLATE THE ENERGY CHAPTER COMMITMENTS?

Excise duties will be imposed on the Bulgarian energy resources from January 1, 2007. However, they will be 50% lower than the duties imposed within the European Union (EU). This is what the treaty for Bulgaria's accession to the EU stipulates. The agreement will be signed on April 25. Electricity for domestic needs will be assessed with an indirect tax amounting to 50 eurocents per megawatthour. Industrial consumers will be required to pay EUR1. There will be no excise duty on the coal and cox used for production purposes by centralized heating suppliers by January 1, 2010. The grace period for assessing this type of fuels used for purposes other than central heating supply expires a year earlier. An excise duty amounting to 1.5 eurocents per gigajoule will be paid for coal and cox used for business purposes and 30 eurocents per gigajoule will be paid for domestic purposes.The use of coal for electricity production will decrease drastically by the middle of the current century, experts predicted at several energy forums held in Europe and the US. The reason is not in the exhaustion of this oldest (and aggressively exploited) energy resource, but in the poisonous gases thrown up by coal thermal power plants which are most guilty for the global climate changes. In Bulgaria where almost half of the production is made from coal, restrictions will become valid in two years and will mainly affect the thermoelectric power plants which operate with low-quality local coal, said Vladimir Stariradev, Head of the European Integration Directorate at the Ministry of Energy, on April 5 when Bulgaria's commitments under the Energy chapter were presented. In accordance with these commitments, the domestic electricity market will have become entirely liberalized by January 1, 2007 and consumers will be allowed to choose a supplier who provides the cheapest and safest electricity. In turn, traders will offer electricity produced both in Bulgaria and abroad. The only restriction will be that the state from which electricity is bought must be a EU member (or its energy system must be part of the united paneuropean networks).In practice, Bulgarian power plants will appear in a very competitive market environment in the early 2007. A delay has been settled during the negotiations with the EU for 15% of the electricity produced from domestic coal. By the end of 2014, the electricity will obligatorily be purchased by the National Electricity Company (NEC) at prices higher than the market ones, Mr. Stariradev said. However, he forgot to mention that the three largest coal thermoelectric power plants (those in the Maritsa coal basin) already signed long-term electricity purchase agreements with NEC - two 15-year ones and another with a 5-year term. It turns out that in two years the three power plants will be generating almost 30% of the electricity produced in the country, while NEC will keep buying it at the prices fixed in the three contracts... violating the commitments signed in the Energy chapter. But if we observe the European rules, the rest of the Bulgarian power plants operating on domestic coal will have no chance to rank among the guaranteed NEC suppliers. This is mainly valid for the Bobov Dol and Maritsa 3 Dimitrovgrad thermoelectric plants, which have some of the highest production prices in the branch and which production is bought obligatorily. If they want to survive on the liberalized energy market, they will have to offer the electricity produced at competitive prices. Their exact amount can hardly be predicted now. But it is almost certain that the upper limit will be marked by the prices fixed in the long-term agreements with the three plants in Maritsa Iztok.The picture described above will only be valid if Bulgaria observes its commitments to the EU very strictly. However, things are quite different for the plant in Bobov Dol which will probably be sold in May. At the very beginning of the privatisation procedure it was announced that the future owner of the plant will sign two long-term agreements with NEC. Last week the BANKER weekly announced their parametres, too. The first agreement will be valid for five years and will stipulate the reservation of capacity (i.e. the electricity company will pay for keeping the powers ready, plus a small percentage of the profit). The second agreement will arrange the purchase of electricity produced from domestic coals. According to sources familiar with the case, the candidate buyers are now offered to sign a five-year contract and to have it for just one of the three 210-megawatt units of the plant. However, its term may be extended to 2014. Last week the Minister of Energy Miroslav Sevlievski said that an alternative was being discussed to have the energy agreement valid for two blocks of the Bobov Dol plant instead of one. There is a clear perspective for the development of the coal production by 2014 and the claims of the trade unions should be directed to the Privatisation Agency, the Minister noted.Although both agreements violate the commitments to the EU, when the power plant is privatized they will be signed and the new owners will need to make investments until 2014 in accordance with the ecological requirements. Otherwise, the plant will have to be gradually decommissioned in the period 2007-2014. The future of the other two thermoelectric power plants currently offered for sale - those in Rousse and Varna, will be similar. The plants should have met the European requirements by 2011 as stipulated by the Energy chapter. Considering its texts, state subsidies for coal mines will be given after the Commission for Protection of Competition has given the respective permission. After 2007, the amount of the state subsidies to the branch will remain as high as it is on the date the country becomes a member of the community, the Deputy Minister of Energy Angel Minev said.

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