Банкеръ Weekly



The head of the Privatisation Agency (PA) Atanas Bangachev signed a second order for stopping the deal on the Bobov Dol thermoelectric power plant (TPP), an excellently informed source from the Energy Ministry told the BANKER weekly. The PA, however, refused any comments whatsoever on the matter, but officials at various levels unofficially confirmed that the Bobov Dol station won't be changing its owner. All participants in the deal will be glad with its frustrationand only millions of electricity consumers will be the losers, experts say. Among the most contented will be probably the miners' syndicates, which blocked Sofia's centre and important road arteries in the country several times, demanding to stop the selling of the power plant. They claimed that the interests of local coal producers were not well protected in the terms of the contest and the divestment was discriminating the national capital. No less satisfied will be the lobby of the notorious businessman from Samokov Hristo Kovachki - owner or consultant of most of the private mines in Bulgaria (including those, supplying coal to Bobov Dol). Branch representatives believe it was that lobby which stood behind miners' protests. Absurd as it might seem at first glance, the participants in the divestment tender - the Greek state-run company PPC (which offered EUR70.9MN for the plant) and its rivals from Italy's Enel (that offered only EUR 100,560), will be also glad from the cancelling of the privatisation procedure. Immediately after making public the results of the bidding, there was sharp criticism in the Greek mass media against the high price, offered by PPC. There were also questions if Greece needed the outdated Bulgarian power station, for which urgent, huge investments were necessary. Many people in our country saw the long-reaching hand of the Bulgarian coal lobby behind the statements in the Greek media. The forecasts then were that despite the obvious advantage for PPC (which will be importing cheap Bulgarian electricity directly from the Bobov Dol plant, without having to pay to the National Electricity Company (NEC), the negative publications would most probably cool down the enthusiasm of the candidate buyer. Simply because РРС is a state-run company and the public image of its heads is not less important to them than the economic and geopolitical advantages. The other bidder - Italy's energy giant Enel also has its reasons to be satisfied. It had estimated Bobov Dol's worthcheaper than a wagon of scrapThe Italians' Regional Manager Enrico Vialle has recently told the BANKER that their extremely low offer was due to incomplete information about the station, which they got from the PA. It is not known how these statements were accepted by the PA, but its execs are certainly also glad that the sale was frustrated. It is the only way they could guarantee they will not make a wrong move, which could cost them the position and probably quite unpleasant explanations in front of other state institutions and NMSII's party headquarters. The more so because they will have to report the open result of the other two big energy sales of the power plants in Varna and Rousse, for which the Russian Energy giant RAO UES has been chosen.On June 20 the press centre of the PA announced that the term for closing the contracts for the sale of the power plants in Varna and Rousse, was extended by 30 days. As a reason for the postponement the press release points out the necessity to clarify matters which are of the competency of various state institutions. Nobody from the PA, however, was willing to specify these institutions and what matters had to be clarified with them. A participant in the negotiations told the BANKER that the future of the deal was in the hands of the State Commission for Energy and Water Regulation (SCEWR).The Russians have demandedfrom the commission to increase the the norm of capital return (set in the regulatory framework) from 12 to 18%, to lengthen the terms of the long-term agreements, and to expand their range. The regulatory framework, approved last April, projects 12% return on capital, which the SCEWR will be acknowledging to the future owner after it has made the investments. The document projects also that in the 2006 - 2010 period the NEC should sign long-term agreements with the private owners of the two electricity power stations. For the Varna utility the contract projects that NEC will be paying to it for its readiness to be switched on to the energy system plus a small percentage of profit. The contract will regard three of all six generators of the plant, and the price will be fixed in the autumn when the regulatory commission will specify the electricity tariffs. NEC is projected to pay a preferential price for one of the Rousse plant's units, as the station generates electricity from a combined production. If the Russians' demands are accepted, the entire regulatory framework in electricity generation should be changed, at that in a negative direction. Serious barriers will be put in front of the future liberalized electricity market and electricity prices should be considerably raised, at that more than once, each year of the contract, economists from the branch pointed out. According to their calculations, if the permitted norm of profit does not go up to 18% (as per the demands of RAO UES) but to 16% (as much as the new owners of energy distributions companies got), the cost price of the electricity generated by the stations will rise by at least 10-12 per cent. The long-term contracts, however, will increase the price for end consumers by about 10% on average, as the sums which the future owners of the stations in Rousse and Varna will get, will be calculated in the price for electricity transfer along the network and will thus be evenly distributed among all consumers in the country.The probability that the energy regulator accepts the terms of Russia's RAO UES is insignificant, because the SCEWR will then have to undertake also the responsibilityfor the considerable price hike of electricityboth in October 2005 and in each heating season in the period of the long-term contracts. According to pundits, it's absurd to expect that the Russians would withdraw their demands and accept the conditions, announced in advance. RAO's firm policy is based on the high price it offered for the two power stations - EUR389.7MN for the plant in Varna (the other bids were more than twice lower - that of the Czech CEZ - EUR192.4MN, Italian Enel's - EUR150.9MN, and Greek PPC's - EUR131.6MN). The offer for the station in Rousse was even higher as compared to that of the competitors - almost EUR120MN, while CEZ offered only EUR24.3MN. The high bids of RAO UES did not remain unnoticed in Russia's capital. The electricity failure which caused chaos in Moscow, provoked a series of checks in the energy company's accounts. Its Chairman Anatoly Chubais gave lengthy explanations to the prosecutor's office, while Russian mass media actively commented how RAO was spending the millions, accumulated due to its dominant market position. A month later the execs of the energy giant would hardly be willing to explain why their bids for the Bulgarian power plants are several times higher than those of their rivals in the tender. The good chance for them is if the Bulgarian institutions do not accept their demands and suspend the deals. Thus, the three TPPs will remain entirely state-owned and the next government will dispose of themHowever, it will hardly have many options. If a second procedure is invited for the Varna and Rousse plants, the purchase bids might be quite low and accompanied by unacceptable demands for a norm of profit and long-term contracts. And if the next cabinet decides that the two utilities will remain state-owned, it should pour into them almost EUR200MN (EUR160MN in Varna and the balance - in Rousse). The investments are to be made within the next two years. Otherwise, Bulgaria takes the risk of having to pay huge fines for the harmful emissions from the chimneys of the two TPPs. The situation in Bobov Dol seems a causa perduta. It's quite improbable that a candidate buyer for the plant turns up, not only because of the danger of syndicates' protests and the pressure of the coal lobby, but due to the little time remaining till 2008 when the enterprise will be most probably decommissioned. The alternative is to immediately begin a process of modernization in it and build sulphur purification installations, for which at least another EUR200MN will be necessary. In fact, the EUR400MN, urgently needed for the three TPPs, will be paid by the electricity bills of the millions of NEC's subscribers. And it's all the same to them if they will be giving their money to the future private owner or to the still state-run power plants.

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