Energy under pressure - differences in pricing, introduction of new suppliers and complete reversal of the model

Marinela Arabadjieva

Two different points of view and two radically different approaches have been at the heart of the energy clashes in recent months. Is it a problem that due to the different approaches the intervention of the Minister of Power is used and is a question that will be answered in the future.

A change in the management of Bulgargaz, a change in the pricing model in the natural gas sector and the introduction of another supplier - a competitor of the state public supplier - are at the heart of the tension. One thing is clear - this could not happen under the current rules of the EWRC, nor under the current contracts of Bulgargaz with Gazprom Export for the supply of Russian gas and with the AGSC for the supply of Azeri gas.

The change in the pricing model and the introduction of a new supplier were confirmed during the hearing of the two candidates for new heads of the EWRC and the Minister of Energy Alexander Nikolov from the Parliamentary Energy Committee. They are set as a philosophy in the draft state budget 2022.

In his speech on Wednesday, President Rumen Radev made it clear that he did not approve of Petkov's cabinet's actions in the energy sector. Moreover, he made it clear that behind these actions are private interests, that he is worried about "galloping prices and the purchasing power of Bulgarians." "My concern is for the future of Bulgarian energy, for electricity prices for citizens and businesses. When the cabinet makes changes in the management of the companies, it must ensure that there will be no private intermediaries in the supply of gas, that better conditions for Bulgaria and better prices will be achieved. "My hope is that the cabinet will not be tempted by the inherited management model, which used the services, the boards, the regulators to argue and promote private interests," Radev said.

Energy Minister Alexander Nikolov disagrees. According to him, "speculation is that Bulgargaz is the reason for strained relations between the Prime Minister and the President, and in particular for the return of the Borissov model, as well as the intermediaries in gas supplies.

"I am not left with the impression that he is referring to this thing," Nikolov told reporters before the hearing by the parliamentary energy committee. "As far as I know, nothing has changed in the current relations of Bulgargaz," Nikolov said. He clarified that "the reasons for the change in the company are mainly to be able to operate in the first place to the maximum useful public provider and in its secondary function to be a state company that brings maximum benefits not to outsiders." Speaking of intermediaries, overt or covert, it will become clear in time how intermediaries are used," he said. However, it later became clear from his words that the intention to innovate in the gas sector is well-formed.

Commenting on the industry's concern about changing the price of natural gas so that the cheapest supplies are always for households and gas distribution companies, and the most expensive for industry, the Minister of Energy said that "There are no most expensive and the cheapest. " And here are his arguments:

"The main function of any state-owned company is to follow the public interest in the first place. This is recorded and valid for Bulgargaz. Regarding prices - in the last year there has been a movement of prices by components that are unprecedented. It was in the hands of the energy regulator and the company in particular to decide whether to take appropriate measures so as not to harm households. That's one thing, "said the energy minister.

According to him, there are no grounds for business concerns that gas prices for households will be compensated at the expense of industrial consumers, on the contrary - companies and employers should be happy that people will have more money left. "Second, when household utility costs rise, it directly takes away from the disposable income of the poorest country in the EU. That is, business, if it goes into the detail of GDP, should be extremely happy if households have a higher income, as the multiplier for business and GDP, respectively, would be much more serious if they remain with one or two percent more expensive gas supplies for the industry in Bulgaria, which depends on natural gas?, Nikolov commented.

As a third argument, the minister pointed out that "in the structure of energy-intensive enterprises, those that depend on natural gas are significantly less than those that depend on electricity."

Fourth, the EWRC decision of 1 January led to the need for additional compensation for the heating season and for district heating companies, which led to an additional redistribution of over BGN 200 million during the heating season, which could be used for other measures and other purposes and so on. A lot are the question marks. "I believe that in its new composition both the EWRC and Bulgargaz will be able to find the appropriate balance so as to observe the public interest," Nikolov said.

He said "the industry has no reason to have any concerns". Strange or not, the Minister of Energy bases his statement on the analysis of the removed management of Bulgargaz that as a result of the pursued business policy millions of levs have been redistributed. "First, because, as the old leadership said back in time, in recent years I don't know how many hundreds of millions have been redistributed to business. This and the second, the price of natural gas for industry is significantly lower than all neighboring countries, which means - in terms of competitiveness, the industry is very good when you consider this operating cost, "said Nikolov.

As it became clear from the words of the Minister of Energy, the basis of the forthcoming negotiations with Gazprom will be the new changed model of pricing and supply in the sector. Before that, the details will be cleared.

The variable (component) in the price of natural gas, petroleum products and the use of the Chiren gas storage facility will be taken into account. In addition, the vision of a third party supplier will be taken into account. "We are potentially negotiating with a third country and there we will also potentially take their visions for our long-term relationship. "I mean a third country outside BEH and Bulgargaz (as a third supplier)," the minister said.

Again in this spirit and quite ambiguously, he explained that "the change in the formula depends on the consent or lack thereof of an external partner. This must also be taken into account, and insofar as it is in our interest to make a change or not, it will be made or not, with the idea of ​​a long-term perspective, and not against the current pressure of the current crisis. "

Meanwhile, a regular meeting of ministers from the Southern Gas Corridor Advisory Council is scheduled for Friday, which will be attended by Alexander Nikolov. The visit of EU Commissioner Kadri Simson has already been confirmed by the EC. Everyone is talking about looking for an opportunity to increase Azeri gas supplies to Europe. Difficult task. Especially if we go back to the visit of EU Council President Charles Michel last July. Then, personally, the head of state of Azerbaijan Ilham Aliyev officially at a press conference pledged to increase gas supplies from the Azerbaijani side to Europe.

As for the contract for the supply of Azeri gas to Bulgaria, the Minister of Energy admitted - it is good.

In response to a deputy's question, what is the possibility of not receiving the agreed amount of one billion cubic meters, Alexander Nikolov said that "the routes are available. If there is a place to deliver, there will be a place to go. For the price of July 1, 2022, I do not think we can get quantities at the fixed price, but we can get additional quantities after July 2022 during the time allocated as capacity, "he said. In fact, as it turns out, there is no possibility to bring in another supplier under the Azerbaijani gas contract by that date. From then on, however, such a possibility could be opened under the formula "diversification of suppliers". It fully complies with European legislation and calls.

"The fact is that Bulgargaz has a good long-term contract. We will see how it will affect future deliveries, "he said.

Meanwhile, the Minister of Energy drew attention to another unusual feature that has long been established in international markets and, which is relevant to the agreement with Azerbaijan - the reversal of the trend of higher gas prices, and not, as until a certain period - of oil (the price of oil historically until the current crisis has always been higher than the price of gas).

Recently, Bulgargaz's contract with Gazprom was changed, reducing the weight of the price of oil and oil derivatives in the pricing formula at the expense of including the leading spot price of gas on one of the most expensive European gas exchanges. This is the main reason why the price of gas in our country is so sensitive to the rise in the price of blue fuel on the stock exchanges. In this regard, Alexander Nikolov stressed that "Bulgaria must have maximum flexibility in terms of price formation." This question was also touched upon in a comment to a question from MP Zhecho Stankov, who pointed out how much a reduction in price levels the previous government has achieved. The energy minister's comment was that if the contract with Gazprom had been at the old price tied to oil, the reduction would have been even greater. At the same time, he acknowledged earlier that at current oil prices, Azerbaijani gas is not so cheap. We remind you that the contract with the Russian company was changed as a result of the antitrust case of the European Commission.

From the hearing of the Minister of Energy it became clear that there is no common vision for the compensations. Thus, a policy of resolving problem at the moment of its appearance. Proof of this is not only the budget of the Ministry of Energy, but also the lack of adequate response to compensation for municipalities, social institutions, hospitals, schools and temples. In reality, such compensations are not provided in the budget and probably the problem will be solved in another way - financial inspections will establish why the municipalities spend so much money on lighting. Whether there will be in the schools remains to be seen. Because, as the Minister said, "Lighting is not such a factor as it is presented." He pointed out another motive - first, that they need a common framework and second, if they are now included in the package, they could delay the notification by the EC.

The electricity sector will not stay out of the realm of change. However, this will be less due to the ambition to quickly build a sector of strong alternative wind and solar energy. In particular, it is not a question of the production sector at all, at least not according to the current model, but rather the changes will be personnel and will focus on pricing. Requests for changes in the approach to price formation were submitted by the candidates for new heads of EWRC. The emergence of a new model of TED, as well as another type of recognition of investment costs deserves attention.

In the last few years, European legislation has in one way or another become a leader in energy policy. In this regard, the new approaches raise a number of questions, but the best expression in the current situation is "we will live and see".