The European Commission (EC) published on 26.02.2016 the Country report for Bulgaria which includes an in-depth review on the prevention and correction of macroeconomic imbalances. The report follows the development of the country in regard of the specific recommendations from the European Union from 2015. The document is a European Commission staff working document and it does not constitute the official position of the Commission, nor does it prejudge any such position.
Regarding the progress in reaching the national targets under the Europe 2020 Strategy, Bulgaria appears already to be well ahead of its targets in regard to reducing greenhouse gas emissions and increasing the share of renewable energy, and progressing well in regard to energy efficiency. With a renewable energy share of 18% in 2014, Bulgaria is already above its 16% target for 2020.
The report underlines the importance and the negative outcomes of the accumulated financial obligations in the state owned companies operating in the energy sector. Liabilities of state-owned corporations could have important implications for the economy as a whole. State-owned enterprises in the energy and transport sectors have experienced financial difficulties in recent years. More specifically, the National Electricity Company, part of the Bulgarian Energy Holding, has generated significant losses and incurred liabilities towards the parent holding company. So far, the energy holding has been able to finance those, through profits generated in other companies, such as the nuclear power plant in Kozloduy and the Electricity System Operator, as well as through borrowing on international markets. However, in the last year, the energy holding has faced difficulties securing external financing to repay obligations of the electricity company. Creditors have demanded a state guarantee for their loans, which for the moment has not been provided.
Those two examples highlight the interconnectedness of economic sectors and the risks posed by contingent liabilities both to public finances and overall macroeconomic stability.
For a long time urgent reforms in the electricity sector have been delayed by a combination of complex problems. These include overcapacity of power generation, expansion of renewable energy sources based on generous public support schemes; long-term power purchasing agreements; delays in phasing out power plants that are non-compliant with the Large Combustion Plants Directive; and a weak and politically dependent energy regulator. Bulgaria remains the most energy and carbon intensive economy in the EU.[1]
The lack of reforms in the past exacerbated the problems in the energy sector. Previous country reports have pointed out the main shortcomings, including: gas import dependency from a single supplier and a single route, lack of day-ahead market for electricity and natural gas revenues from the regulated end-consumer-tariffs set below corresponding costs of electricity utilities; low consumer satisfaction and very limited or inability to switch suppliers in gas and the supply of electricity to households and small businesses.[2]
An important step in the liberalisation of the power market was concluded in January 2016 with the start of operation of the electricity day-ahead segment of the Bulgarian Independent Energy Exchange. Further efforts will be needed to ensure deep and liquid trading volumes, as well as the possibility to trade electricity on the forward segment and the introduction of gas contracts. Adequate protection mechanisms for vulnerable consumers and amendments to the single buyer status of the National Electric Company (NEK) remain to be prepared.
Other measures addressing the financial stability of the energy system will be assessed in the coming months as new data emerges. These include the commitment to reduce administrative costs in the companies of the Bulgarian Energy Holding (BEH); the renegotiation of the power purchasing agreements between BEH and the thermal power generators and the take-up of recommendations from the 2016 World Bank analysis of the financial situation of the energy sector.
Bulgaria has a significant energy-saving potential that can be achieved through the full and effective implementation of the energy efficiency legislation (Energy Efficiency Directive, Energy Performance of Buildings Directive, buildings codes, energy market rules). The most important challenges remain in energy renovation of multi-flat family buildings; the modernisation of the district heating networks and the energy intensity of industry and SMEs.
The complete document is available at the webpage of the European commission.
Source: Country Report Bulgaria 2016 – Commission staff working document
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[1] Eurostat 2015, tsdec360
[2] Despite an improvement since 2013, the electricity market in Bulgaria is still assessed by consumers as the worst amongst such markets in the EU, whereas the gas market is in the fourth worst position amongst other EU Member States ‘Consumer Markets Scoreboard 2016.