Bulgaria govt resigns amid electricity protests; to revoke CEZ license

By bne IntelliNews February 20, 2013

Sandy Gill in Sofia, Nicholas Watson in Prague -

As riots over high electricity prices continued to rock Bulgaria, the government resigned Wednesday, February 20 and said the license held by Czech utility CEZ for power distribution in parts of the Balkan country will be revoked following allegations it systemically broke procurement rules, newswires reported.

Bulgaria's government resigned from office after continued nationwide protests against austerity and high electricity prices, Prime Minister Boiko Borisov said. "I will not participate in a government under which police are beating people," Borisov told parliament.

According to analysts, parliamentary elections - which were due to be held later this year anyway - must be held within three months.

Huge protests have spread across Bulgaria over high electricity prices that are a politically sensitive topic in the EU's poorest member, since power bills bite off a big chunk of monthly incomes, especially during the winter.

The government tried to quell the anger with the resignation of the finance minister, Simeon Djankov on February 18. His sacrifice was followed February 19 by the PM's announcement that the state energy regulator will strip CEZ of its operating license. He did not elaborate. Prosecutors investigating CEZ's operations said earlier that there were "systematic violations" of public procurement rules.

CEZ, which already in January saw its license in Albania revoked by the government there over a dispute about contract commitments, insists it hasn't breached regulations. The company's spokeswoman Barbora Pulpanova called the statements by Bulgaria's prime minister and prosecution "a serious breach of Bulgaria's law as a member state of the European Union," according to AP.

CEZ has already argued rather cogently that any breaches of public procurement rules were mostly down to CEZ employees rather than the company and anyhow of a sort to merit relatively small administrative penalties.

The Czech government is sounding protective and there's no knowing what damage could be done to Bulgaria's reputation as a foreign investment destination, already dented by its arbitrary treatment of green investors last year.

"If there's a silver lining to all of this, it's that foreign investors are finally waking up to what has been going on at CEZ since even before the Martin Roman empire began in 2004," says Erik Best of The Fleet Sheet. "Analyst Michal Snobr of J&T said in [Mlada Fronta Dnes] today that the markets have lost confidence in ČEZ's management. The markets are way behind the curve this time; Czechs lost trust in CEZ's management years ago."


The protestors have called for the re-nationalisation of power firms. Bulgaria's power distribution market is divided into three regions, which are controlled by Czech firms CEZ and Energo-Pro, and Austria's EVN. Never popular among the Balkan state's citizens, the three foreign owners of its regional electricity distribution and supply companies – heirs to privatisation deals back in 2004 – have been subjected to outright hostility over the last couple of weeks.

On Sunday, February 17, they were the main targets of the biggest demonstrations Bulgaria has seen in more than a decade, when numbers reported by some to exceed 100,000 took to the streets in 33 towns throughout the country, providing a fitting climax to a week of protests.

While discontent had been simmering for some time, it came to a head in the first half of February as people began to receive their monthly power bills. While much-publicised instances of totals several times too high are unrepresentative, there were good reasons why these should have been a bit of a shock. Early (pre-Christmas) reading of many meters meant an unusually long period covered by the next, late-January reading. Cold weather and the clutch of public holidays didn't help, either. And this was the first time that a mid-2012 hike of 13.8% in regulated household power prices really hit home.

Hence the demonstrations. Driven by grass-roots opinion and social networking - and not by political parties - these nevertheless seemed fairly consistent and political in the demands evident on banners and in speeches. These included renationalisation of the distribution companies (discos); publication of (actually or supposedly) secret energy-sector contracts including not just those privatising the discos but also those bringing foreign investors into Bulgaria's lignite-fired generation sector; and holding to account those who had signed those contracts. But it was obvious too that demonstrators were also expressing more generalised discontent: shouts that the government should resign mingled with cries of "mafia".

With feelings running so high, not many arguments cut ice. Pointing out that, despite repeated price-hikes, Bulgaria still has the EU's cheapest power is maybe not tactful when it also has the Union's lowest salaries. Nor do people seem to have taken much notice of CEZ's argument that it only gets 9% of what households pay (the rest is down to generation and transmission, and to the financially very messy and opaque National Electricity Company, NEK, which protestors seemed to want to take over the discos after nationalisation). Nor indeed of CEZ's contention that it had checked 3,341 queried bills since the beginning of the year and found just 43 to be faulty. Nor, finally, of the apparent fact that the CEZ contract had been available on the company website since 2005.

Recent developments deepen the mess its energy policy is already in. Bulgaria's facing EU ire for not transposing market-oriented energy rules into its legislation: that forced the resignation earlier this month of Angel Semerdzhiev's the head of the State Energy and Water Regulation Commission (SEWRC) – the country's supposedly independent sector watchdog. Semerdzhiev's successor, hand-picked by Borisov, is stepping down after less than a week in office after revelations that a company of hers had been involved in illegal online sales of cigarettes. The government is not just tainted by that 13.8% hike but faced by the problem of what to do about a "grid charge", which – arguably illegal and certainly ruinous for green energy producers – was introduced five months ago to shield the foreign disco and supply owners (especially Austria's EVN) from the consequences of an unexpected boom in solar power last year. And assorted investigations into the discos' doings had been underway before the protestors ever took to the streets: one on CEZ by the Agency for State Financial Inspection (ASFI) had delivered its report on February 8, for instance. ASFI checks of the other disco companies – the Czech Energo-Pro and Austria's EVN – "were starting", Energy Minister Delyan Dobrev said on February 7, with completion expected "within 20 days"

But the demonstrations seem to have goaded Borisov into quick and drastic action. Aside from the assertion that CEZ's licences would be yanked "within the day", Borisov set his face against renationalization – without explaining in detail how it would work to have one without the other. He called for strict measures to deal with crooked meter-readers who diverted charges from one customer to another – not, it must be said, prominent among the list of problems so far aired. And he looked forward to former regulator Semerdzhiev being called to account for misdeeds.

Further, he said that an 8% cut in the price of household power "could" take place on March 1–adding thoughtfully that this was a matter for SEWRC decision, since it was after all an "independent regulator". This, he said, could come about through increasing the percentage of cheap power from Bulgaria's Kozlodui nuclear power plant that goes into the "electricity mix" determining household power prices, apparently by eliminating more expensive sources like the Bobov Dol and Maritsa 3 plants of controversial energy tycoon Hristo Kovachki. He also called for an overhaul of SEWRC, with all members to be appointed by parliament–some are the government's business at present–and his own party's quota to include "representatives of civil society".

It was vintage Boiko, but his decision to have the government resign means it did not work politically.

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