Searching for the Spark

Economic News

22 Jul 2010
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Bulgaria has joined the bloc of nations opposing the EU's energy liberalisation laws. While state-owned companies fear the opening may result in the forceful privatisation of their businesses, increased demand in energy coupled with periodic drops in output mean that the country could face an electricity shortage in the coming years.

As part of the EU's programme of energy liberalisation, integrated energy companies are required to 'unbundle' their operations. Non-regulated production and supply activities must be run separately from the regulated transmission and distribution operations. The aim of the plan is to stimulate greater competition in a single European energy market by allowing independent energy companies to generate and supply power in a cheaper and more efficient manner. To make this possible, according to the EU, distributors must not favour their own producers.

Originally, it was intended that state-owned companies would sell off their distribution operations, but a second proposal, put forward in September, allows the power giants to continue to control distribution as long as it is done through a separate and demonstrably independent company. Prior to EU accession, NEK, the state-owned energy transmission system, was unbundled to create the Electricity Systems Operator (ESO). EU commissioner for energy Andris Piebalgs told OBG, "To comply with the unbundling requirement, the state must ensure, in practice, that the separation is truly effective and that the companies operate entirely separately from one another."

However, the decision has met stern opposition from Bulgarian power companies. NEK made its concerns known in a letter to the ministry of energy and economy which claimed that the unbundling process could lead to the forceful privatisation of the company. In turn, representatives of the ministry of energy and economy made the position of energy companies known in Brussels.

Bulgaria will be joining a bloc of countries, including France, Germany and Austria, that oppose the unbundling laws on the grounds that they will unnecessarily weaken the role of the major power firms which still have a substantial role to play in the international energy market.

Furthermore, there is a belief among some companies that the unbundling of energy production will only theoretically stimulate competition because an anticipated increase in demand over supply will lead to uncompetitive conditions.

Lubo_ Pavlos, regional manager of CEZ, the Czech-based electricity distribution company, told OBG, "In Bulgaria we have a theoretical surplus of electricity, but fuel shortages and maintenance mean that we cannot run at full capacity continuously, and a slight drop in output means that in the future we will not be able to meet demand." Pavlos said electricity shortages in neighbouring Macedonia, Greece and Turkey meant that demand for Bulgarian electricity will outstrip supply.

On December 12, Mardic Papazyan, the executive director of NEK, announced that in 2008 Bulgaria will face a power capacity deficit in the region of 1.324bn kw per hour , or 3.4% of total consumption.

Although the major nuclear power plant in Belene recently received the all clear for construction from the EU, Pavlos pointed out that it is unlikely to go online before 2015 and in the meantime there are few substantial production projects. "When there is such a shortage of production, this does not create true competition in the market" explained Pavlos.

There are, however, a number of projects scheduled to boost Bulgaria's electricity production in the medium term. AES Corporation, a US power company is currently constructing Maritsa East 1, a $1.4bn, 670MW thermal power plant due for completion in 2010. Its subsidiary company AES Geo Energy is also scheduled to bring online its 120MW Kavarna wind park project in mid 2008.

Although the situation is still subject to heavy discussion in Brussels, reports suggest that the European Commission is prepared to push through the plan by offering concessions to various opposition states in order to achieve a majority vote.

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