The biggest Bulgarian energy companies: war tastes like money

Generally, what happened in the energy market is unlikely to be repeated. Since the beginning of 2023 the situation has been radically different, energy prices have fallen dramatically, demand is decreasing and revenues have plummeted. Therefore, it will not be surprising if we see declines of 50% in the next K100 ranking.

State domination

The highest revenues and the biggest profits are in the state-owned energy companies - two-thirds of the energy in the country is produced precisely by companies in the state-owned Bulgarian Energy Holding group.

Kozloduy NPP, NEK, TPP Maritsa Iztok 2, ESO (TSO), gas state distributor Bulgargaz and gas state operator Bulgartransgaz had a total of 23.2 billion levs in revenue last year, which is almost half of the result of the top 30. Their profit totals 3.38 billion levs, if Bulgargaz is not included in the calculation, which is the only one in the red (with 100 million levs).

An average of 11,500 levs per minute. This is how the revenues of the Kozloduy NPP could be summed up over the past year. And although it sold its energy at a price two-and-a-half times higher, and has record revenues topping 6 billion levs, the nuclear power plant reports a significantly smaller profit - 729 million levs. The reason for this paradox is the almost 3.4 billion levs that the nuclear facility paid to the state to provide subsidy funds for the high electricity bills of the business. If these costs had not been incurred, the company would have recorded more than 4 billion levs in profit, which is actually the bill from its operational activity.

The 2021 leader in the sector, the National Electric Company, increased its revenue in 2022 by only 30%, which is why it now ranks third in the ranking with revenue of 5.27 billion. However, the profit increased by almost 70% and crossed the 1 billion levs mark. This is mainly due to the sale of energy from hydropower plants, the costs of which remained unchanged against the background of the repeatedly increased sales prices on the stock exchange. The big effect of the good financial results is the shrinkage of debts from 4 billion to 2.6 billion. And in the event of the sale of the reactors for the Belene NPP, since they are part of the debts of NEK, the indicators will improve even more if the highly complicated deal is concluded.

Unfortunately, the 2023 results also register less hydro production (down 17% year-on-year as of July 16), which, along with lower sales prices, means a drop in revenue and profits.

The state transmission operators - ESO and Bulgartransgaz - have scored double revenues and significantly increased profits in 2022. For them, growth comes mostly from increased volumes of electricity and natural gas that have passed through the grid as transit to neighboring countries. It is certain that in 2023 there will be a drop in income for ESO, as the export of electricity from Bulgaria is literally collapsing - by 70% on an annual basis as of July 16. And the reason for this is low energy prices and the declining need for coal-fired thermal power plants.

The strange case of TPP Maritsa East 2

From the most indebted company in the country to the most profitable, with a record profit for Bulgaria. This is how the performance of the state-owned coal plant over the last two years can be summarized. After years of deteriorating financial results, accumulating billions of debts and even more uncovered losses, in 2022 the coal TPP Maritsa East 2 literally exploded with revenues and profits. Unfortunately, this was a unique coincidence caused by Russia's war in Ukraine and energy prices, which, however, created unrealistic hopes among energy experts and some politicians that coal is staging a comeback and even has a future.

The numbers are truly impressive - the company's revenues have grown by as much as 199% to just over 4 billion levs, and profit has reached 1.19 billion levs. As a result, liabilities (short-term liabilities, liabilities to related parties, etc.) decreased to 580 million levs compared to over 1.5 billion levs a year earlier.

However, since the beginning of 2023, the situation has turned 180 degrees and even regressed to worse than prior to 2022. The plant is again unable to sell its energy on the exchange, as the costs of its production exceed 330 levs/mWh, while the exchange prices are around 180/mWh levs. In fact, since April, the plant has been operating at only 15% of its capacity, and from the data for the first quarter, it can be seen that even then (during the winter period) revenues were down by 30%. This forced the state to administratively provide work for the thermal power plant by including it in the mix for the household market, which costs nearly 700 million levs - funds that all households will have to pay. However, it is very likely that the company will finish the year at a loss.

The new big energy traders

Among the sector's major surprises is the exploding revenues of Axpo Bulgaria, the subsidiary of the Swiss Axpo Group, which deals with the trade of natural gas and electricity, but also provides various other services for businesses.

The company's revenues for 2022 top 6.02 billion levs (compared to 987.6 million levs in 2021). However, the profit margin remains below 3%, with the profit being 40.3 million levs (compared to 17.7 million levs in 2021).

To some extent, the main factor for the growth here is high energy prices - even the company indicates that price fluctuations last year led to higher costs for risk hedging, but there is also a clear expansion of activity. "At the moment, Expo Bulgaria operates as a commercial hub in 15 European markets. The company manages more than 30 licenses for electricity and gas trade and serves more than 150 clients," says executive director Milena Videnova. Unlike previous years, the company is now actively participating in the Bulgarian electricity and gas energy markets.

The other similar case is MET Energy Trading Bulgaria. Until April 2022, it was seen more as a subsidiary of the Swiss-based MET Group, with an almost entirely outward-facing business, rather than as a domestic player. However, after the suspension of gas supplies from Gazprom, the company suddenly entered the public engagements since it provided the first quantities of alternative gas for Bulgaria through the Greek LNG terminals.

Later in the year, the company continued to supply liquefied gas from Bulgargaz, but also to participate directly in the electricity and gas market in the country and the region. This directly reflects on its revenues, which increased four times - from 730 million to more than 3.7 billion levs. However, MET Group's consolidated sales revenues for last year grew more slowly - they reached 41.5 billion euros against 18.1 billion euros in 2021. The total traded volume of natural gas decreased to 109 billion cubic meters from 141 billion cubic meters due to the general decline in consumption in Europe.

"The previous year, 2022, was extremely turbulent for business, and the energy sector proved to be one of the most affected. Despite price dynamics and the rearrangement of logistics supply chains in Europe, we see positive results from energy companies that implement flexible and adaptive policies. Not only have they successfully passed the crisis, but they have also implemented mechanisms to achieve sustainable financial results," explained Petar Fildyshev, Director of Natural Gas Trade for MET Energy Trading Bulgaria.

Regarding the gas-electricity ratio in the business of MET Energy Trading Bulgaria for 2022, the company traded 4226 GWh of electricity and 11644 GWh of natural gas. The results are consolidated for the Bulgarian and Greek markets where the company operates.

Apart from that, the ranking of the largest energy traders (in this case electric) unsurprisingly includes the companies of the three power suppliers - Electro Hold Trade, EVN Trading South East Europe and Energo-pro Energy services. All of them have literally doubled their revenue, which, however, seems to be due to pricing rather than an increase in customers. Regarding the financial result, the companies perform differently - the first one hikes almost threefold, the second - by 80%, and the third reports a drop by one third. The explanation for this lies in the trade policy and the way of concluding transactions at highly volatile prices last year.

The missing Kovachki

The 2020 trader leader, Grand Energy Distribution, is literally bankrupt. At the end of 2021, the company formally changed its ownership, becoming the sole property of Stanislav Stoimenov. In practice, it does not really operate anymore as its revenues have shrunk 19 million levs. On the other hand, the loss has grown almost threefold from last year's 40 million to the current 110 million levs. It is mainly due to incurred financial expenses. Otherwise, Grand Energy's liabilities already exceed 700 million levs.

However, the main new electricity trading companies from the group related to the Bulgarian energy general Hristo Kovachki - European Trade of Energy, Nomat Energy Companies and Hydro Power Utilities - who refused to provide data to Capital Weekly for the purposes of the ranking, even though as licensees of the regulator they are required to publicly publish financial information. But in any case, their income is measured in billions given the increased electricity prices last year. For 2021, they reported 1.15 billion levs in total revenue.

There is also no data for the coal facility Brickell TPP, which should also have increased its income from the sale of electricity given market prices, since it had almost 200 million levs in 2021. However, this is not at all certain when it comes to a company from the group around Kovachki. For example, the Bobov Dol thermal power plant reports even less revenue in 2022 than in 2021, although the market prices of electricity were several times higher, and the demand for electricity was high due to the shutdown of gas capacities in the region. This would mean only one thing - the plant was selling power at below the market price.

However, it is clear from the company's report that the revenues from the sale of production (electricity) will grow by 65% from 128 million levs in 2021 to 208 million levs in 2022, while the rest of the revenues in the two years came from lawsuits, fines and the sale of ashes. But even this is far below the average growth of electricity exchange prices.

On the other hand, the report of Bobov Dol also shows that its main customers are Nomad Energy Companies (with a share of sales of 52%) and Hydro Power Utilities (with a share of 28%). They obviously bought the energy from the plant at much more competitive prices compared to the stock exchange, where it can be assumed that the profit was made precisely by the traders. One of the explanations for this may be the EC-imposed scheme for seizing revenues from energy producers above certain levels. By selling cheaper to nearby companies, Bobov Dol TPP may have avoided this new indirect tax, which was intended to raise funds to compensate the business for high electricity prices.

However, the plant's long-term contract with European Trade of Energy for the purchase of energy in exchange for the supply of coal has been terminated, which may be a signal that the company in question no longer has a leading role in the business group helmed by Kovachki, after in 2021 reporting nearly 400 levs in revenue.

In general, the dynamics not only in the enterprises around Kovachki, but also in the entire energy sector, remains high. In 2023, there will certainly be a lot of shuffling in the ranking of companies by revenue, but unless some new cataclysm occurs, they will be billion-less. Among the big ones, however, new players may appear, such as the large solar parks that have been launched in recent months.