Банкеръ Weekly



The replacement of the executive director of the National Electricity Company (NEC) Danail Tafrov by Vassil Anastasov, who was appointed to the post on October 17 by the new Chairman of the State Agency for Energy and Energy Resources (SAEER) Milko Kovachev, will result in a several months delay of the big investment project at the Maritsa-Iztok energy complex. This opinion was inofficially expressed in front of a reporter of the BANKER weekly by employees of the US companies AS and Entergy.It's only logical for an investor to seek a certain level of security for his money in such a troubled region as the Balkans. The more so having in mind that the construction of the new heating station with gross capacity of 670MW will cost about USD850MN, of which USD625MN will be ensured as credits from the European Bank for Recconstruction and Development (EBRD), the German Kreditanstalt fuer Wiederafbau (KfW), and the US Overseas Private Investments Corporation (OPIC). (Editor's note - during the negotiations held in the last few months between AS and the chief contractor - the French corporation Alstom - the aggregate costs of the project were reeduced from USD 996.7MN to USD850MN.) However, something else is disturbing in this case. If the contracts with the creditors are not signed by the year-end, the construction of the new power station will not start in kid-2002 and it will not be operating in full capacity in end-2005, when units III and IV of the Kozlodoui N-plant should be shut down under the agreement signed with the European Commission. Thus, on January 1, 2006, Bulgaria will be deprived of 1,760MW of electricity generating capacities, without having completed the construction of a production facility for a single MW. The price at which the new power station will be selling the electricity to the NEC for a period of 15 years is not less important to the Bulgarian side. It was this issue that caused a number of interpellations in the former 38th National Assembly. The sale contract between the NEC and AS, signed on June 13, 2001, stipulated a price a bit under 4.4 cents per 1kWh before VAT, which is considerably higher than that at which nuclear power plants, thermal power plants, and water power plants are selling the electricity to the only buyer in Bulgaria (NEC) - 2.2 cente, 2.8 cents, and 1.6 cents per 1 kWh, respectivelty. However, the contract projects three options for its reduction as well.The Americans from AS explain that the repayment of the loans for the station's construction and the interest on the credits increase the price by some 1.9-2.0 cents per 1 kWh, while the other about 2.4 cents per 1 kWh inlcude all operational expenditures plus the profit sought by each investor. However, the excessive price will be reduced after the end of the 15-year period for the loans' repayment. In fact, a reduction may be expected as soon as the final specification of the financial terms with the banks, crediting the project. If more advantageaous conditions for releasing the loans are reached than the previously negotiated, the selling price of the electricity to be generated by the new power station will be reduced. In case of more unfavourable financial terms, the contract with the NEC stipulates that the risk would be undertaken by AS. The third possibility for cutting down the prive is after the completion of construction when the really made costs will be known. If they are lower than projected, it will influence favourable the price. Otherwise, the risk will again be at the expense of the investor. For comparison, the selling price for the population in a poorer country than Bulgaria, such as Georgia where AS is also implementing a project for the construction of a new power station, is 5 cents per 1 kWh. Practically, the price is about the same in Bulgaria also after the recent 10% hike as of October 1. For the time being, however, neither SAEER's Chairman Milko Kovachev, nor his deputy Gati al Jebouri have taken pains to promise that that there would not be another electricity price hike immediately after the New Year, when the first stage of the liberalization of the domestic energy market begins. Having in mind that the price offered by AS would become effective in end-2005 at the earliest, the proposal of the US company does not at all seem so bad.

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