On June 19, 2020, the new operational rules of the Independent Bulgarian Energy Exchange (IBEX) were officially published in a State Gazette. The change was required due to the new obligation of the Energy and Water Regulatory Commission (EWRC) to approve the rules of the energy exchange. However, EWRC chose to leave IBEX tariffs on the under the responsibility of the power exchange. It is worth mentioning that IBEX is the mandatory channel for sale of electricity by the power producers in Bulgaria. Thus, a monopoly company in the Energy sector continues to determine its own tariffs. At the moment, as the financial director of IBEX admits, “there is no procedure determined by the sole owner of the capital of IBEX EAD to determine the fees of the Operator“[1]. The financial statements of the power exchange show that the profit before taxes of the IBEX increased over 500% from BGN 794,000 in 2016 to BGN 4,262,000 in 2018. It is expected that in 2019 it will be even higher. We remind you that in 2018 the Bulgarian Stock Exchange bought IBEX for BGN 5,200,000, and probably the investment has already paid off only from the realized profits of IBEX in 2018, 2019.
Regarding the new rules, more significant changes include:
- Single contract for participation on the exchange market. Within three months of the entry into force of the rules, the participants must conclude a new single contract with the power exchange operator;
- Hourly Products screen was removed from Bilateral Contracts segment
- Additional conditions for elimination and / or exclusion of market participants were implemented
- EWRC provides freedom to IBEX to unilaterally determine how to: Conduct trainings, Initiate a tender, Provide a bank guarantee, Method of calculating a bank guarantee and required collateral, Publish of inside information and what type of products to be traded on the exchange.
It is important to note that there are a number of undiscussed changes that were adopted with the new rules. Of these, the key is the opportunity provided to the IBEX to determine the type of products for trading on all of its platforms. As soon as the new rules were announced, the exchange published an instruction in which it excluded for trading the flexible and non-standard products from the “Auctions” screen. The electricity market in Bulgaria has always allowed non-standard and flexible products to be traded. Initially offered by NEK and TPP Maritsa East 2, and in recent years by producers of RES and Cogeneration. The elimination of this type of long-term trading will transfer the quantities to the day-ahead market, which will further increase the price unpredictability and volatility of the spot market in Bulgaria. Moreover, it will not allow a number of producers to offer their electricity on a long-term basis. This will expose them to a daily market risk, which will eventually be transferred to the buyers of this electricity – traders and consumers.
The Power exchange operational rules approved by the EWRC leave too many opportunities for IBEX to determine which products and at what tariffs will be traded. The instructions, unilaterally adopted by the IBEX and not discussed with the market participants, are not subject to any subsequent control or approval by the EWRC. Currently, unilateral IBEX decisions can have a greater effect on the market than changes in the Energy Act or the Electricity Trading Rules.
Moreover, the new rules do not follow the recommendations of the Commission for Protection of Competition (CPC) made in the sectoral analysis of the competitive environment on the electricity market:
“The Commission (CPC) is of the opinion that as long as there is a legal obligation for all producers to offer the entire amount of electricity produced on the power exchange, thus becomes a mandatory trading platform, it is necessary for the sectoral regulator to exercise active ex-ante control over the rules and tariffs of the power exchange. In this regard, the CPC recommends:
- To explicitly prescribe the possibility of the EWRC to exercise control ex officio and upon referral by participants of the exchange, as well as the obligation of the exchange operator to propose the same for approval by the EWRC in case of any change of the rules and tariffs.
- To envisage normative rules for determining the power exchange fees, regarding the types of fees, the principles for determining their amount and the general principles, obliging the power exchange operator to form the same in a transparent and objective manner.“
Source: IBEX, State Gazette
[1] Minutes of a meeting of the Customer Advisory Board 06.02.2020