Банкеръ Weekly

Briefs

ELECTRICITY TO BE HIKED TWO TIMES

The heads of the National Electricity Company (NEC), experts of the State Commission for Energy and Water Regulation (SCEWR) and managers of the big electricity producers and distributors in the country explained during the week that electricity will be hiked two times by January 2007. At that, the price increase won't be trifling, but by almost a quarter, reaching USD0.10/kWh. However, nobody explained the reasons for the consecutive hike and why is it necessary after electricity have already considerably exceeded the 3.5 cents per kWh, agreed with the IMF back in 2002. Explanations concerning our EU membership won't be appropriate this time. The more so that Bulgaria's accession to the community as of January 1, 2007 is not certain for the time being. Nevertheless, we'll be paying for electricity according to West European tariffs as early as this summer.
The price hike will be by some 15%, NEC's Executive Director Lyubomir Velkov forecast on April 18. According to him, that is necessary due to the higher prices of electricity producers. SCEWR has already raised the purchase prices of electricity from the Bobov Dol thermoelectric power plant (from BGN48.56 to BGN56.68 per megawatthour, or by 16.7%), from Toplofikatsiya-Rousse (from BGN34.39 to BGN48.12/mWh, i.e. by 39.9%), and from the Varna TPP, concurrently with the deal for the sale of the power station. Maritsa Iztok 2 TPP and Kozlodoui N-plant have demanded higher selling prices as well.
The second reason for the forthcoming price hike is NEC's demand for raising the fee for the transition of electricity by some 20-30% as of July, Mr. Velkov said. That tariff was lowered by SCEWR last autumn in order to halt the price rise of electricity for households. But the electricity company is not able to secure normally its operation, Mr. Velkov explained.
These two hikes will cause a demand for a price increase on the part of electricity distribution companies as well, which are the last unit of the production chain: generation - transportation - distribution, experts said. They recalled that the electricity distribution companies were insisting for higher prices back last summer. The energy regulator then rejected the demanded 12-14% price hike.
It is interesting how the NEC arrived at the average 15% hike of electricity for end clients, considering that the growth along each unit of the chain is almost 15 per cent. If the demands of the transportation and distribution are approved electricity prices should go up by 45% as soon as this summer. SCEWR will obviously not approve such a price shock and might agree with the 15% hike as of the summer, projected by NEC's head. However, the energy regulator explained there would be probably a second price hike as of January 1, 2006 due to the decommissioning of Kozlodoui's units 3 and 4. Replying a question in Parliament some ten days ago Energy Minister Roumen Ovcharov said the price increase would not be great but only several percent above the current prices per kilowatthour. According to energy experts the hike will be by at least 8%, simply because the two small units generate cheaper energy than the two 1,000-MW units 5 and 6 and compensate for the average price of the N-plant electricity. In other words, after their decommissioning only more expensive electricity generated by units 5 and 6 will be sold which will considerably lower its proceeds. Concurrently, the enterprise should be paying BGN80MN in principal and additional money in interest on the credits for the modernization of generators 5 and 6 and also maintain the four decommissioned small units. For them alone 70-80% of the money necessary for their normal operation will be spent. But their safety is not guaranteed otherwise.
As of January 1, 2007 the electricity for end consumers (both households and economic entities) will be also hiked due to the new fee for management of the transmitting energy network. It will be paid to NEC's new subsidiary - Electricity System Operator - by all companies on the liberalized energy market wanting access to the electricity transportation network.

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