Bulgaria leaves the door ajar for CEZ

By bne IntelliNews February 21, 2013

Tim Gosling in Prague -

Stepping back from the prime minister's announcement that it would strip the Czech power giant of its operating licence for one of the country's three grids, the Bulgarian government on February 20 ordered CEZ to fix all violations by April 16. The move comes as Czech officials expressed outrage at the threat to the state-controlled utility.

Launching a licence revocation procedure against CEZ Bulgaria, the State Commission for Energy and Water Regulation (DKEVR) said it has identified 21 violations, including evasion of public procurement laws, reports Bloomberg. Spokeswoman Ralitsa Stoyanova said the Czech company has seven days to comment and set a deadline to repair the breaches. DKEVR will hold a new sitting to examine the potential revocation of license in slightly under two months, by which time the Czech company must have fixed all the issues.

"The process has only started, and if the commission is convinced the breaches are reparable and CEZ agrees to comply with regulations, [it] may also not be revoked," Andon Rokov of DKEVR said at a news conference, according to Reuters. "[The licence], however, will be revoked if the breaches cannot be repaired."

The announcement comes a day after Prime Minister Boyko Borisov pledged to cancel the licence in the midst of mass protests in Bulgaria against electricity prices. However, the PM's attempt to deflect the pressure onto CEZ and fellow foreign operators of the country's three distribution grids - Austria's EVN and Czech Energo-Pro - was not enough, and the government resigned on the morning of February 20.

Responding to DKEVR's statements, CEZ flatly refuted all accusations. "We have now received some twenty comments from the Bulgarian regulator; however, they do not confirm any significant malpractice on the part of CEZ," said CEZ board member Tomas Pleskac, in a statement. "Therefore, they cannot constitute a ground for license revocation." The Czech company blames raised electricity bills on a cold winter.

The apparent back pedalling in Sofia follows the predictable backlash the threat to the state-controlled company has provoked in Prague. Calling the issue of Bulgarian power prices "politicized," Prime Minister Petr Necas said in a statement that he would demand the Sofia explain the "unprecedented step."

Industry and Trade Minister Martin Kuba said he would bring the matter in front of the European Commission. "The Bulgarian Prime Minister has announced that licence would be withdrawn from CEZ, but it is necessary to realise that in the EU, a withdrawal of licence is not a political decision. It is a decision that can be made by an independent regulator. The regulator can do so only at a moment when somebody points to some gross errors, enables the other party to protest against such accusation, and if it is proven, the process of licence withdrawal can start," the minister told Czech Television.

Still, CEZ has form in the Balkans, as well as elsewhere. It was stripped of its licence to operate Albania's power grid in January following a long fight with Tirana over tariffs and investment levels. It is also negotiating the disposal of assets at home in order to close an EU anti-monopoly charge, and admitted this week that Czech anti-corruption police are probing four recent transactions - including the Albanian investment.

Bulgaria's State Financial Inspection Agency started a probe into CEZ Bulgaria in 2012, and reported the public procurement violation in early February. The country's energy minister, Delyan Dobrev, accused the Czech company of fulfilling up to 80% of its orders without holding tenders or signing contracts. CEZ Bulgaria assigned orders to companies linked to its parent to the tune of BGN35m (€18m) in 2011, according to CTK.

Meanwhile, following the resignation of the government, DKEVR is also reported to be backing away from promises to lower electric power prices, reports Novinite. Borissov pledged on February 18 to slash prices by 8% by the end of the month, but the regulator says it has received no official request and therefore cannot act. It also added that it has been advised by its legal department that existing regulations stipulate that price changes must be carried out once a year, on July 1.

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