Bulgaria: Political Turmoil Could Hit Energy Investors
Bulgaria faces snap elections after Prime Minister Boyko Borisov's 20 February resignation spurred by ten days of protests against electricity bills, which in January averaged €100. That is a significant portion of monthly income in a country where average monthly wages are just €387 and the average pension is just €150. Despite Borisov's decision to step down, protestors will not be appeased and are likely to turn the heat up on the energy sector.
Borisov's first instinct during the early days of the nationwide protests was to limit the damage. He moved quickly to dismiss the head of the State Commission for Energy and Water Regulation (DKEVR) Angel Semerdzhiev, and then when that failed to mollify the public he attempted to scapegoat the unpopular minister of finance Simeon Djankov.
Finally, after overnight violence on Tuesday including two reports of public self-immolation, Borisov surprised even his own cabinet by falling on his sword and resigning. This decision was probably motivated by a desire to shield his Citizens for European Development of Bulgaria (GERB) party from fallout ahead of general elections scheduled for July.
Parliament is now debating the latest developments and will vote on Thursday 21 February and probably accept Borisov's resignation and that of his government. President Rosen Plevenliev is then obliged to offer the party with the largest parliamentary representation, which is GERB with 117 of the 240 seats, the option to form a new government.
Borisov has already said he would decline, leaving Plevenliev to turn to the next largest party. But no other parliamentary party has a realistic chance of forming a majority, and a caretaker government and early elections are the most likely outcome. Elections could take place no earlier than mid-April, about ten weeks earlier than originally planned.
Prior to Prime Minister Borisov's resignation there had already been calls for the power utilities to be re-nationalised as one step toward easing retail energy prices. The Bulgarian government privatized electricity distribution companies in 2004 and subsidiaries of Austria's EVN, the Czech company CEZ, and the home-grown Energo-Pro control the market.
The nationalist opposition parties Ataka and Inner Macedonian Revolutionary Organization (VMRO) are happy to promise voters that they will take over the utilities. Following through on such pledges would be difficult, however. Bulgaria is already facing a legal case in the European Court of Justice because it has not yet implemented the Third Energy Package, the EU directive that calls for liberalisation of energy markets.
But some foreign companies could still face additional difficulties. While the Borisov government rejected the calls to renationalise energy distribution companies before its resignation, the DKEVR has launched efforts to strip CEZ of its license.
Utilities are unlikely to be the only victim of public wrath and political scapegoating and the energy sector as a whole will likely figure greatly in the upcoming campaign.
Renewable energy producers are especially likely to feel the heat. Before stepping down, Borisov suggested that regulated energy prices could drop by about 8 per cent if comparatively expensive renewable energy was substituted in calculations by relatively cheaper nuclear energy.
Such a move would be another blow for renewable energy producers, who have already been pinched by the late 2012 introduction of a grid connection fee. Both CEZ and EVN are among the major investors in Bulgaria's solar energy production, heading a long list of high-profile players including the Malta-based ACF Renewable Energy (which owns the country's largest solar park), and Enel and AES (wind parks). Those companies and others may reconsider their plans if the incoming government reduces subsidies.
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