Банкеръ Weekly

Briefs

BULGARIA SHOULD IMPORT AN ENERGY REGULATOR

The consumed energy resources and the electricity and natural gas prices became one of the most broadly discussed topics by politicians, businessmen and ordinary consumers. It happened not just in Bulgaria, but also in Europe and throughout the world. It is curios to note that in the most developed countries electricity is spent most frugally - in recent years large and even mid-sized enterprises have been appointing a so called power engineer who is not responsible for repairing cables and electricity systems but for optimizing the energy spent. His task is to help the company avoid difficulties in its production process and in the establishment of a normal working environment (heating and/or cooling) while paying the lowest price. In turn, households monitor and regulate the quantity of energy consumed and are not stingy with investing in saving energy. Because modern gauges and automated systems guarantee them lower bills as well as an optimum spending of electricity and natural gas. Curiously, both in Western Europe and in the USA the most demanded energy saving consultants are all officers of big energy companies and as a rule their advice is always free. The bills consumers receive are also simplified and clear enough, so that everyone is able to read what he pays for by himself.
In Bulgaria, the situation is much more different: saving energy remains an exotic idea mainly spread by the media and even an academic degree sometimes fails to help consumers read their energy bills. Energy prices remain an enigma, too, although a special body, the State Commission for Energy and Water Regulation (SCEWR), has been operating in the country since 1998. According to the law, the regulator must be independent and its major task should be to provide transparent, public and equal regulation of prices in the energy and water supply sector. But in practice the situation is rather different. Since the regulator was established, it has been acting as a subsidiary of the ruling party and both have been falling into pre-election indisposition together. It is in these moments that regulators promise the otherwise absurd drops in energy prices and talk about their social compatibility and restricting the price appetites of the big energy players. However, no action follows the words they say and the giants attacked always manage to get what they want. So energy prices in Bulgaria keep going up and we never know where and for what the surplus goes. And as far as experts say, the surplus is much bigger than the world growth of energy resources prices and guarantees the domestic energy companies good profits.
The next price increase will be valid from July 1. Both electricity and central heating will grow more expensive. Natural gas tariffs will most probably be increased then, too, again based on justifications about the international situation. But while the blue fuel prices do grow abruptly in a world scale, the same cannot be said about the electricity ones. In Europe the electricity price depends on the expenses companies make to produce one kilowatt-hour and the national energy regulators oblige the energy companies to publish detailed accounts of the cost price of their output. Therefore, when electricity prices go up, every citizen of the community can see that the increase is provoked by the higher expenses and not by the appetite for bigger profits. What is more, Europe does not know what lower or higher tension is. There are no blackouts there that make domestic appliances burn out and no variable electricity frequency that makes TV screens in Bulgaria vibrate and computers turn off by themselves. In the old democracies on the continent companies are not the only ones that monitor the quality of the electricity supplied. The regulators do it, too, and impose considerable fines for any deviation from the norms.
However, the main point is that the EU member states energy regulators do not allow the profits of the companies in this branch to go above 5% on the average and at the same time they oblige them to invest in improvement of the production and distribution. In Bulgaria, the percentage of energy profits sometimes goes to 16 and the energy companies rank among the richest in the country. Moreover, they are monopolists, even though the law says the market is liberalized. Therefore, we are neither able to choose a competitive electricity supplier who would offer us lower prices nor allowed to ask the SCEWR to observe the legal principles of honesty, transparency and equality in setting the electricity prices.
The least the regulator owes us, before announcing another price increase, is to make public the cost price of the energy produced as well as the fixed profit allowed to each company. Especially for the companies that supply us with electricity. So far, of each lev that we pay the electricity distribution companies BGN0.16 accounts for their net profit. This is a commitment the state made through these companies' privatisation agreements in 2004. This may be true, but the promises were made for a three-year period that expired in 2007. Today the state has no other obligations to the foreign owners of the electricity distribution companies apart from... controlling them. It controls whether or not they make a profit above the fixed amount, offer a quality and safe service, invest in modernisation of the network as they promised to do in these privatisation agreements. In fact, we do not need to see regulators' reports in order to judge the quality of electricity supply and the modernisation of the system, because we all know them from bitter experience. We do not just mean the customers of the German E.ON which owns the electricity distribution networks in Northwestern Bulgaria, many of whom lost their appliances because of blackouts. The alternating current and tensions lower than the standard ones are common practice even for the more distant quarters of the capital, for the exurban areas around it and the people throughout Western Bulgaria. In the area of Trun, for example, boiling an egg with electricity costs too much efforts and about... 30 minutes. Bulbs are also flickering around Pernik, Breznik, Blagoevgrad... That is almost the entire western part of the country where electricity distribution companies are owned by CEZ. It is curious that the Czechs who try to maintain an attractive public image in Bulgaria mainly through massive PR offensives publish transparent public reports in their home country. And in the recent years they have been constantly reporting profits mainly due to... their Bulgarian subsidiary. The problem is not about whether Bulgarians are so rich as to bring profit to the Czech republic's most powerful company while getting electricity services of poor quality. What is more important is to ask why the system remains in a deplorable state four years after the company was sold, considering that its improvement was the major reason for the privatisation. The other reasons included the need of transparency in the process of price setting and reduction of the technological losses. However, losses remain higher than 20% which is several times the 6 to 8% that are normal for Europe. As far as the prices are concerned, they still seem to be made in a black box and the only figure that is clear is the 16% profit.
The situation is similar in the northeastern part of the country where the systems of E.ON operate as well as in Southwestern Bulgaria where the electricity distribution companies are owned by Austria's EVN. Although the Austrians seem to like the accurate and correct information and made most of the investments promised before the privatisation, they fail to show where exactly the 16% profit goes, too.
Now the three electricity distribution companies demand that prices be increased by 10 per cent. In the next two months the SCEWR experts will have to make their analyses and announce the exact size of the increase. However, the regulatory bosses would do well to announce in public what is the exact percentage of the profit they would allow the electricity distributors and justify their decision. Then we all will know what the surplus will be used for. Moreover, the SCEWR should finally realize that it should regulate the energy sector and not an arms or gambling business, for example. It should check how much the rate of profit of the energy companies in the community is and apply the average rates in Bulgaria. Then Professor Shoushoulov's forecasts that electricity prices in Bulgaria may also go down may come true.
However, a more practical solution would be to import a regulator who is aware of the European practice. We could also ask the European Commissioner, Meglena Kouneva, to have a look at the Bulgarian energy sector. Instead of proposing free electricity and gas to the poor people in the community, she'd rather take care of our country first where there seems to be no consumer protection at all. Otherwise Bulgaria risks to be punished by Brussels again, this time with a red card.

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