State-owned Bulgarian Energy Holding (BEH) is taking huge long-term financial obligations to solve current liquidity problems of its companies, delaying a blast in the sector. The National Electricity Company (NEC) has no vision on how to operate under the new market conditions and has no viable plan to repay its billion-euro debts. State-owned thermal power plant (TPP) Maritsa East 2 is in critical financial condition, with no prospects for the future. National gas transmission system operator Bulgartransgaz has accumulated billions of euro in debt to suppliers and contractors for the construction of an extension of Gazprom's TurkStream gas pipeline megaproject from Bulgaria's border with Turkey to the border with Serbia. And the heating utility serving Bulgarian capital city, Toplofikacia-Sofia, which is the biggest one in Southeastern Europe, owes tens of millions of euro to public gas supplier Bulgargaz. Only Kozloduy nuclear power plant (NPP) and electricity transmission system operator ESO are turning profit but their earnings are used to keep afloat state-owned loss makers in the energy sector.
This horrifying picture was outlined by caretaker Minister of Energy Andrey Zhivkov at his first media briefing after he took office in May. "When I came to the Ministry of Energy, I found an empty desk and I was told that everything in the sector is in order and there are no problems. There wasn't any information on what should be done urgently or in the long term," he said.
Millions of problems
The most significant challenge in the energy sector now is the future of coal mining and energy complex Maritsa East. With more than 175 million euro loss for 2020, coal-fired Maritsa East 2 is like a hot potato for the caretaker energy minister. On the one hand, the plant has to be closed, as the cost of CO2 emission allowances makes the price of its electricity uncompetitively high. On the other hand, more than 2300 people work there and a shutdown of the power plant will become a social disaster, especially considering that thousands of coal miners will be affected.
An executive order of the energy minister giving Maritsa East 2 an electricity generation quota for the regulated segment of the market can provide a short-term solution. That means higher electricity prices for households but gives authorities a few more months of comfort with energy workers in the Maritsa East complex and trade unions.
The real solution lies in a shift away from coal but it is only hypothetical for now. No one in the energy ministry or the government wants to take a final decision just days before the July 11 general election, and the parties that have a chance to enter the next parliament don't even speak about the problems in the sector.
Pressure builds up
Bulgartransgaz, which operates national and transit gas pipeline networks, is sinking into indebtedness. Тhe company's liabilities reached record high 1.3 billion euro at the end of 2020, up 250% year-on-year. The financial report of the company shows that debt to banks soared from 150 million euro to 470 million euro, whereas commercial and other liabilities exploded from only 5 million euro at the beginning of 2020 to 650 million euro at the end of the year.
At the same time, the available cash and cash equivalents in Bulgartransgaz decreased from 240 million euro to 170 million.
The rise in debt is due to the construction of the TurkStream extension through Bulgaria, which happened last year. Bulgartransgaz paid 550 million euro for the acquisition of property and equipment compared to 345 million euro in 2019. However, a further 640 million euro remains to be owed for the continuation of works on this pipeline. Then come the obligations for the compressor stations needed for the transmission of Russian gas from Turkey to Serbia via Bulgaria.
At the same time Bulgartransgaz has launched another big project - the construction of a gas interconnector with Serbia worth an estimated 80 million euro. The state-owned company has already ranked the bidders in the tender, with the first place awarded to an unknown joint venture of Bulgarian subsidiaries of a Canadian company. The shareholders of the company are lawyers from Luxembourg representing other unknown people.
Grand corruption suspected
While the financial problems of Maritsa East 2 stem from the Green Deal, and the rise in Bulgartransgaz' indebtedness is linked to the construction of new pipelines, there is a real black hole in Bulgaria's energy sector - the Electricity System Operator (ESO). It is one of the few richest state-owned companies which operates the high-voltage electricity grid and dispatches electricity production. In the last 3 years ESO has paid more than 200 million euro to Targovishte-based private company EMU through murky contracts for maintenance and construction works on the grid. And it is going to pay more.
Тhe suspicions of corruption in this case arise from the fact that the CEO of ESO, Angelin Tsatchev, is a former employee of EMU. Now, he is awarding contracts worth hundreds of millions of euro to his former employer without a public tender. If no significant changes to the National Recovery and Resilience Plan are made, EMU will get a further 250 million euro from ESO.
The ESO-EMU relations are at the edge of the law and inspections have already been ordered by both the caretaker energy minister and by the prosecution. But in parallel to that, in May new members of the supervisory board of ESO were chosen, and one of them is the lawyer of EMU's owner Tanu Tanev. So the scheme will hardly stop functioning.