Czech Utility CEZ Likely to Win Over Bulgarian Regulator

Views on BG | May 11, 2013, Saturday // 12:47
Czech Utility CEZ Likely to Win Over Bulgarian Regulator: Czech Utility CEZ Likely to Win Over Bulgarian Regulator File photo

By Sean Carney
Dow Jones Newswires

SOFIA, BULGARIA –  Czech-owned utility CEZ AS (BAACEZ.PR), one of three foreign power companies whose prices provoked nationwide protests in Bulgaria and brought down the government earlier this year, looks set to retain its operating license there.

Assen Vassilev, who is acting as energy minister until a new government is in place, said talks are going smoothly between CEZ and Bulgaria's energy market regulator to resolve concerns that some of the company's practices may violate antitrust law.

"Both sides are working very cooperatively," he told Dow Jones Newswires Thursday.

He said the ministry's preliminary legal findings indicate CEZ may be able to keep its license but stressed that the regulator, an independent agency, has final say. It will likely make its decision next month, he said.

"We are not leaning on the regulator," he added.

Bulgarian authorities in March took action against Czech- and Austrian-owned electricity distribution companies on suspicion of anti-competitive behavior. The Bulgarian Commission for Protection of Competition subsequently raided the local offices of Prague-based CEZ, which is 70% owned by the Czech government.

The commission said it had received "signals" that CEZ, Austria's EVN AG (EVNV.VI) and Czech privately held Energo-Pro, may have implemented "similar practices which prevented consumers from switching electricity [distributors]."

The companies deny any wrongdoing.

And yet on Friday the commission announced fines of roughly $1.1 million against Energo-Pro for abusing its dominant market position in electricity sales in a northern Bulgarian region serving over 1 million customers.

CEZ spokeswoman Barbora Pulpanova Friday said CEZ expects to keep its license, reiterating comments by the company's Chairman and Chief Executive Daniel Benes. Earlier this week, Mr. Benes said he "firmly believes that in the end our license will not be revoked."

EVN is cooperating with Bulgarian authorities and to date they have found no evidence of the Austrian utility operating outside the law, the company's spokesman, Stefan Zach, said Friday.

In February, huge demonstrations against rising electric bills led to government scrutiny of power companies and eventually to the fall of the center-right government of Boyko Borisov. Early elections set for this Sunday could lead to more political turmoil as the two leading parties are running neck-and-neck in polls. They might have to share power if neither wins outright.

In an effort to restore calm, regulators in March slashed regulated electricity distribution tariffs by roughly 7% on average among the three companies.

Since then, the caretaker energy ministry has drafted legislation that would cap power prices for at least 12 months, Mr. Vassilev said, adding that European Union directives on liberalizing the market would be put in place in July.

Mr. Vassilev said power prices were merely the spark for the unrest, and that the real problem is poverty, as Bulgaria is the EU's poorest member. Unadjusted for income disparity, electricity prices in the country are the cheapest in the 27-nation bloc.

The ministry is also auditing contracts between power companies and state institutions and expects to have results this month. Mr. Vassilev said government offices appear to be overpaying for electricity and that the contracts commit them to buying more electricity than they consume.

He said he would propose changes but can't impose them. Any revisions must be the result of negotiations between all parties, a task for the incoming government.

EVN doesn't face the threat of losing its license, but like other distributors the regulator has cut the price it can charge. The company is also required to prepay some fees for rolling out renewable energy sources, which Mr. Zach, the EVN spokesman, described as problematic, even though other companies are not disputing that point.

"Distributors have to pre-finance the [renewable rollout] like a bank, but we're not a bank," he said. He said the process will cost EVN EUR40 million ($53 million) through July.

Earlier this year, EVN launched international arbitration against Bulgaria with the aim of recovering those losses. CEZ officials said the company is not planning to follow suit.

Mr. Vassilev said his ministry is reviewing the local market for renewable energy and would propose changes in its operation, including steps that would stabilize the grid due to overcapacity and make the system fairer for all.

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Tags: utility, CEZ, regulator, Bulgaria, assen vassilev, Commission for Protection of Competition, EVN, Energo-Pro

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