Despite the sad example of the financial position of the National Electricity Company (NEC) and the electricity sector in Bulgaria as a whole, the State Energy and Water Regulatory Commission (SEWRC) continues to push down energy prices. This week it was the turn of the gas companies to contribute for the sake of social peace before elections.
First sacrifice before this altar was to be the public provider Bulgargaz, which was requested, as of April 1, to reduce the price of natural gas for the second quarter of 2014 by 2.73%, that is down from 630 levs to 612.80 levs per 1,000 cubic metres without duties and VAT. The public hearing on Tuesday (March 25) made it clear that this decrease was seen as insignificant to the members of the energy regulator, who decided to try and push the price even lower.
According to them, the gas company has submitted data for actually purchased quantities of natural gas in January and February and forecasts for March. Arguing that the differences that arise between estimated and reported amounts of the costs of supply of natural gas could be recognized only after the publishing of the final data for the first quarter of 2014, the Commissioners of the regulator intended to diminish the rate to 601.25 levs for 1,000 cubic metres and to bring the overall cheapening to 4.56 percent. The purpose of the commission led by Boyan Boev was clear: cheaper gas will affect all energy companies using natural gas. But this is mostly valid for the district heating companies, and hence – for the prices of heating and hot water. This, on its turn, is a major trump card before the elections.
Alexander Petrov, head of the Licensing Activity Department within Bulgargaz, however, stressed out that greater price reduction will put the company in poor condition. The supplier’s overall performance will not be compromised, but its capacity would be limited. Therefore, the company said it would lodge a supplementary opinion as to why they insist the current price not to be reduced by almost 5 percent.
When Mr. Petrov managed to write the supplementary opinion what it actually said and when the regulator managed to consider and discuss it can only be guessed now. But ultimately the regulator mitigated its charity attitude and on the same date, March 25, issued a decision which formally accepted the proposal of Bulgargaz for a reduction of 2.73 percent only.
It is good that reason prevailed; otherwise the Commissioners may have seriously harmed the state gas company.
Its annual report has not yet been released, but the interim one for the first nine months of 2013 year was quite revealing. True, for the period ended September 30, 2013, Bulgargaz reported a profit of 14.138 million levs, but it stands against an accumulated through the recent years loss of over 135.5 million levs and a negative cash flow from operating activity of 84.47 million levs.
The share capital of the company, which amounts to 257.691 million levs exceeds by 99,405 million levs net assets, that at the same date amounted to 158.286 million. These circumstances indicate the existence of tangible uncertainty and possible doubt on the ability of Bulgargaz to continue functioning without the support of the sole owner and other sources of funding, said in its report the direction of the gas company.
Bulgargas managed to avert a larger disaster, but the same can not be said for other gas companies in the chain. Pressing procedures have been in place for all 30 gas distribution companies in the country where the major player is in fact the company of Sasho Donchev – Overgaz. He himself is one of the fiercest critics of the current government.
It turned out that by an order issued on March 20, 2014 the chairman of the regulator, Boyan Boev, formed a working group to perform analysis of the prerequisites for changing the rate of return on capital and other pricing elements subject to the principle of ensuring a balance between the interests of energy companies and customers.
Breaking to pieces the theory of a slow-working state machine, only for five days experts of the regulator were able to study the experience of Germany, Lithuania, Spain, Czech Republic, and Hungary in gas regulation. They concluded that there are cost-effective (in terms of the trends and changes in the relevant basic macroeconomic parameters) preconditions for change in the cost of equity, which is why the regulator with its decision of March 25, 2014 has reduced the target rate of return on equity of 12.98% to 8% for the activities of distribution of natural gas and natural gas supply to the end supplier.
On Friday (March 28) a formal public consultation on the price of each particular company was conducted and despite criticism by the distribution companies, there are no viable prospects for the regulator to reconsider its views. The last word of an impartial regulator is to be heard next week.
The BANKER
