Bulgarian Industrial Association Condemns Latest Energy Price Spike

The Bulgarian Industrial Association (BIA) has accused the state energy watchdog of a persistently misguided price-setting policy. Photo by BGNES

The Bulgarian Industrial Association (BIA) has accused the state energy watchdog of aggravating the problems of managing and developing the economy and the energy system.

In a Monday media statement, BIA insists that energy prices are not supposed to be determined a few days before their entry into force, given that they are subject to centralized control.

"This is a recurrent pattern in the behavior of the State Commission for Energy and Water Regulation (DKEVR) which prevents Bulgarian business from planning its development, forming its investment policy and creating a competitive environment," BIA says.

"This approach to the management of the energy sector creates preconditions for a further deterioration of the business environment and the emergence of new social and economic problems in Bulgaria, especially against the backdrop of the economic crisis," BIA emphasizes.

"In 2007, Bulgaria made the decision to liberalize its energy market and adopted the necessary legal amendments. The latest steps in the calculation of energy prices show that we are miles away from the liberalization required by the common European policy and European directives," the organization notes.

BIA claims that the latest energy price spike, under which tariffs increased by over 13% for household consumers and by over 16% for the business sector from July 1, "opens the scissors of cross subsidies even wider".

BIA points out that cross subsidies are a key problem in the energy sector and the anti-competitive policy tends to spill over to heat supplies.

"Energy prices are still being used as an instrument of social policy, which is deeply wrong, anti-competitive and shortsighted," BIA's experts caution.

The business NGO welcomes the decision of the government to compensate socially-disadvantaged consumers, stressing that the right way to go is to use social funds and not price-setting mechanisms for the purpose.

"Cross subsidies block the implementation of one of the main recommendations of the EU for increasing Bulgaria's energy efficiency," the business organization argues.

BIA says that attributing the latest energy price spike solely to the newly launched renewable energy capacities goes against all logic.

"A mere six months after the latest price update, it is unrealistic to say that new renewable energy capacities increased in such proportions necessitating a new 13-16% price increase," BIA insists.

"Another serious problem about price-setting is the persistent application of the cost-covering principle which encourages energy producers to buy expensive raw materials and equipment, rather than invest in increasing their productive efficiency. They have no incentive to decrease expenses and the cost price of energy, respectively," the business organization suggests.

"This skews the energy market, which is at the base of the price pyramid. As a result, by virtue of interbranch connections, the competitive power of other enterprises deteriorates, investments shrink and job cuts are implemented," BIA argues.,

To remedy the situation, BIA calls for long-term planning in DKEVR's price-setting policy to ensure predictability and efficient business planning.

BIA also stresses the importance of developing a free market where no less than 50% of the energy is traded.

The organization insists on the gradual abolition of cross subsidies and the elimination of the practice of using energy prices as a social instrument.

BIA also insists on the introduction of market mechanisms in price-setting, adding that the move will encourage cost optimization at energy companies alongside an increase in investments to boost the quality of service they offer.

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