After twelve years in Bulgaria, the Czech power utility company CEZ plans to withdraw. In January 2017 its headquarters in Prague announced that it is looking into potential bids for its subsidiaries: CEZ Distribution Bulgaria, the mothballed Thermal Power Plant Varna, two electricity traders, as well as a host of smaller companies. With revenues of almost €1 billion, CEZ Bulgaria is one of the biggest companies in the country, serving more than 3 million customers.
CEZ released scarce information about its plans but it is well known in the industry that the company is looking out for possibilities to divest its Bulgarian assets and concentrate on its core markets. CEZ's Bulgarian activities account for approximately 12% of its global operations. Three years ago CEZ left Albania.
The Czech parent company has selected a consultant and set a price for its various Bulgarian businesses, around €400 million, according to Capital Weekly. So far, the candidates have been mainly local industrialists with considerably more modest business in the energy sector than that of CEZ and no experience in power supply. The only big energy company that has expressed interest is Romania's Elelctrica SA.
CEZ's business in Bulgaria has not been an easy ride. Frictions between CEZ and the Bulgarian authorities began in 2009, only four years after the much touted privatization deal. The newly privatized electricity distribution companies (CEZ acquired control over the distribution network in western Bulgaria, Austria's EVN - in southern Bulgaria, and Germany's E.On - in the northeastern part of the country) were obliged to implement investment programs, but the Bulgarian energy regulator systematically refused to reflect those investments in retail prices. Later, because of muddled regulation, the companies were forced to accept some of the costs of the booming renewables sector.
Tensions erupted in the winter of 2013, when protests were held in several cities against "high" electricity bills. Although the distribution companies had very little "guilt" about the high price, Prime Minister Boyko Borissov threatened to revoke their licenses. The independent energy regulator duly followed the PM's recommendation and attempted to strip CEZ of its license. The authorities conducted numerous investigations and significant fines were imposed (most of them then were challenged and annulled by the court). It is hardly accidental that German giant E.On endured the pressure in Bulgaria less than ten years before selling its local business to the Czech Republic's Energo-Pro in 2012.
CEZ's announcement of its intention to exit Bulgaria, however, came out of the blue, which was evident by the chaos in quotations on the Bulgarian Stock Exchange. On the first day of trading after the news broke, the bourse recorded a higher-than-usual number of transactions in shares of CEZ units, which led to significant changes in prices (CEZ Electro Bulgaria fell 13.24%, while CEZ Distribution Bulgaria rose 8.93%).
World Bank recommends electricity price increase
The long awaited report on the liberalization of the Bulgarian electricity market will probably yield few results.
The World Bank recommends a power price hike and continued state support for the ailing National Electricity Company (NEK) in order to stabilize the Bulgarian energy system. NEK's owner, the state-owned Bulgarian Energy Holding (BEH), hurriedly hired the Bank two years ago to help devise a plan for the elimination of tariff deficits caused by the regulated retail electricity prices that were below the true cost of power supply and draw a path for a further liberalization of the market.
Since 2011 the energy regulator has suppressed retail prices to keep them socially tolerable - at the expense of energy companies. The increased cost of power supply is mainly due to the rapid introduction of new expensive renewable sources of electricity, high natural gas prices and the newly built coal-fired power plants with costly power purchase agreements.
The accumulated tariff deficit in NEK, which is the sole supplier for the households and small businesses (the regulated market), was one billion euro as of the end of 2015. In the same year NEK's losses in its capacity of a public supplier were reduced to €36 million, down from €280 million in 2014.
Most of the tariff deficit was financed by two consecutive bond issues of €1.05 billion in total which eliminated NEK's debt arrears to its suppliers but are now burdening the company. The World Bank proposes that both bond issues are refinanced with a state guarantee in order for BEH to achieve better credit terms. This will save the company around €50 million annually but it will not be enough to eliminate the deficit.
Additionally, the World Bank proposes an increase of the electricity prices by approximately 2% annually for a period of five years in order for NEK to accumulate enough resources to pay its dues.
The World Bank also recommends that all electricity in Bulgaria be traded on the energy exchange which will provide greater liquidity and price transparency. All the long-term contracts and feed-in-tariffs should be transformed into contracts for difference, allowing the integration of energy producers into a fully liberalized market.
The Bank's report made public earlier this year doesn't propose radically new measures. Most of those measures have been discussed in Bulgaria for a long time but it is hoped that the authority of the World Bank will now help launch reforms faster.
BSP plans a super big grand energy slam
The Socialist party, which leads in the polls ahead of the March 26 election, has declared support for the construction of new nuclear and coal-fired power plants, gas and oil pipelines and renegotiation of contracts with power suppliers
The Bulgarian Socialist Party (BSP) which has great chances to will win the upcoming elections presented grand plans for several new energy projects. It is double down on its previous energy "Grand Slam" - the Belene nuclear power plant, South Stream gas pipeline and Burgas-Alexandroupoli oil pipeline - declared by former president Georgi Parvanov.
The BSP energy team proposes to restart the construction of Belene NPP terminated in 2012 by the government due to lack of financial resources. The sole investor in the estimated €10 billion NPP project was the state-owned National Electricity Company that was technically in default by that time. Last year, Bulgaria lost an arbitration case to Russia's Rosatom and had to pay €600 million for the manufactured equipment which will soon arrive in Bulgaria for storage. The sunken cost is now used as an argument in favor of restarting the project.
According to BSP, the pressure against air-polluting coal-fired power plants will open the need for the construction of additional units in Bulgaria's existing Kozlodui NPP and new, more up-to-date units at the state-owned TPP Maritza Iztok 2.
BSP is certain that the South Stream gas pipeline project will be restarted, albeit with reduced capacity, and vouches for the possible resurrection of the Burgas-Alexandroupoli oil pipeline project.
The Socialists have also hinted at their intention to try to renegotiate the long-term contracts with power suppliers, which they failed to achieve during their term of office in 2013-2014.
After twelve years in Bulgaria, the Czech power utility company CEZ plans to withdraw. In January 2017 its headquarters in Prague announced that it is looking into potential bids for its subsidiaries: CEZ Distribution Bulgaria, the mothballed Thermal Power Plant Varna, two electricity traders, as well as a host of smaller companies. With revenues of almost €1 billion, CEZ Bulgaria is one of the biggest companies in the country, serving more than 3 million customers.
CEZ released scarce information about its plans but it is well known in the industry that the company is looking out for possibilities to divest its Bulgarian assets and concentrate on its core markets. CEZ's Bulgarian activities account for approximately 12% of its global operations. Three years ago CEZ left Albania.
