AmCham Alarms Authorities over Proposals of the State Energy Regulator

Position PaperAmCham Bulgaria expressed its significant concern with respect to two proposals of the State Energy and Water Regulatory Commission (SEWRC) from May, 2014 in an official letter sent to Rossen Plevneliev, President of the Republic of Bulgaria, Plamen Oresharski, Prime Minister of the Republic of Bulgaria, Dragomir Stoynev, Minister of Economy and Energy, Mr. Ramadan Atalay, Chairman of the Energy Committee to the National Assembly, Members of the Energy Committee to the National Assembly, and Boyan Boev, Chairperson SEWRC.

One of the SEWRC’s proposals is related to legal amendments for the quantity of electricity from Renewable Energy Sources (RES) to be purchased at preferential prices (50% reduction of average annual operation for wind and photovoltaic power plants). The second proposal consists instructions for the National Electricity Company (NEC) to renegotiate long-term power purchase agreements (PPAs) between NEC and “Contour Global Maritsa East 3” and “AES 3C Maritza East 1” (suggesting reduction of the total price of energy from the first plant by 20% and from the second – by 30% whereas energy produced from two units of the first and from one unit of the second power plant, respectively, to be sold on the open market).

In the letter to the institutions the chamber states that if these latest proposals are implemented, they will violate the letter and spirit of contractual obligations taken by Bulgaria and/or Bulgarian state-owned entities. Moreover, they would create a negative precedent regarding the reliability of contractual agreements in Bulgaria and will likely lead to legal and arbitration procedures against the Bulgarian State with potentially major financial implications.

The current instability of the energy system has been a cause of significant concern for some time. Already suffering from the impacts of an economic slowdown and financial crisis, the system has now been negatively impacted by unpredictability of legislative decisions and regulatory measures. To name a few: solar and wind producers have been asked to pay 20 to 39% access fees, 20% fee on revenues for solar and wind producers only, curtailments on purchases without explanation, balancing rules
implemented in a way to limit producers from determining their own balancing group, etc. Producers are also suffering from regular delays in payments by NEC.

The recent SEWRC’s decisions from May are in addition to the measures listed above and will also impact the PPAs of “Contour Global Maritsa East 3” and “AES 3C Maritza East 1”.

If implemented, they would amount to expropriation of value from independent private producers and would bring a transparent segment of the energy sector to a state of potential bankruptcy and loan defaults.

The SEWRC’s proposals do not correspond to a policy of fair and equal treatment for all market participants. It is alarming that the proposed restrictions will impact one portion of the energy sector while in effect will
Grant state aid to other actors (including NEC).

If implemented, these proposals would have a wider detrimental impact on the economy since the financial stability of the banking system would be compromised. Recent analysis indicates that bank lending to the renewable energy sector is as high as BGN 4 billion. The likelihood that many of these
loans will go into accrual status will impact commercial bank profitability and potentially lead to lower lending in other sectors of the economy.

Perhaps most worrying, the continuing regulatory unpredictability will have a long-term negative impact on Bulgaria’s investment climate.
It is important to note that similar concerns have been raised by nearly all sector stakeholders – investors, independent experts and industry, business and banking associations as well as the EU and other diplomatic officials.

In December 2013, AmCham presented to the Council of Ministers, the Ministry of Economy and Energy, and the Parliament a position paper with proposals for improving the financial health of the energy system. Until now, no formal response has been received by the authorities. In the meantime, the Government announced its intention to prepare a new long-term energy strategy, which would be discussed with relevant stakeholders. After 10 months in office, the Government has yet to promulgate such a strategy. But, despite the lack of a Strategy, Government, Parliament, and SEWRC continue to propose and implement major changes impacting the energy sector. Taking into consideration these facts, AmCham calls upon all relevant authorities to fulfill their commitment to an open dialog and development of a renewed Energy Strategy before taking any further measures in the energy sector.

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