AOBE insists on keeping the business support mechanism with the electricity price cap in 2023 as well

The Association of the Organizations of Bulgarian Employers (AOBE) requested the retention of the business support scheme in 2023 as well, with a view to preserving the competitiveness of enterprises and limiting inflation. These are recorded in a letter from the AOBE, which was sent to the caretaker government. "Similar mechanisms for compensation of electricity exist in the EU countries, and in the event of a change in the methodology, conditions will be created that put Bulgarian companies in an unequal position and create conditions for unfair competition compared to other European companies," they explain.

We also attach the entire text of the letter:

The Bulgarian business, united in AOBE, is greatly disturbed by the lack of a program to implement the Decision of the National Assembly "to assign the Council of Ministers to adopt a program for providing compensation to non-domestic end customers of electricity" with 100% compensation of the price above BGN 200/MWh.

Moreover, with the "DECISION TO DETERMINE THE VALUES USED FOR CALCULATING THE MARKET REVENUE CEILING FOR THE CORRESPONDING TYPE OF ELECTRICITY PRODUCER UNDER PARAGRAPH 9, AL. 1 OF THE TRANSITIONAL AND FINAL PROVISIONS OF THE LAW ON THE IMPLEMENTATION OF PROVISIONS OF THE LAW ON THE STATE BUDGET OF THE REPUBLIC OF BULGARIA FOR 2022, THE LAW ON THE STATE SOCIAL SECURITY BUDGET FOR 2022 AND THE LAW ON THE BUDGET OF THE NATIONAL HEALTH SECTOR OF 2020. 11.01.2023 repeatedly raised ceilings, above the production costs, including profit, approved by EWRC, are offered to the respective electricity producers. In this way, the amount of funds that enter the FSES and which are the main source of compensation for non-domestic electricity consumers is reduced.

By reducing the funds providing the financing of the compensatory mechanism for electricity prices, uncertainty is created among businesses and other non-domestic consumers (a total of over 633 thousand consumers, including hospitals, kindergartens, community centers, schools, homes for cares, religious temples and others), which will again introduce unpredictability and accordingly be calculated in the prices of goods and services and which will not calm the market, but on the contrary will generate inflation. The main argument is that without spending on the budget, without putting Bulgarian enterprises in an unequal position, the compensation mechanism works and any unmeasured change in it can lead to serious shocks that are unwanted by everyone.

In this regard, we find the setting of a revenue ceiling of BGN 350/MWh for RES producers without contracts for premiums to be unfounded. These are manufacturers with low production costs, where fuel and emissions are not paid. The very level of market prices is determined by the high prices of fossil fuels and the prices of emissions. Therefore, these RES producers realize an unexpected income that is not due to their increased technological and economic efficiency. We believe that this ceiling for RES without premiums can be lowered at least twice.

The same applies to the Kozloduy NPP, which will calculate its ceiling at times higher than the price set by the EWRC, which, in addition to a guaranteed return, includes both fuel costs and the costs of mandatory contributions to the management funds RAW and decommissioning. Therefore, we find that the actual NPP revenue cap should be at least 1/2 lower.

In a similar way, there is the issue of unexpected revenues and thresholds in the other sectors of the electricity industry, for which AOBR promptly signaled and presented estimates of the justified levels (Appendix 1 http://aobe.bg/wp-content/uploads/2022/11/2022 -11-24-Energy_Regulation-PRIL.pdf). Without presenting the public with any alternative estimates, the IC approved suspiciously generous thresholds and cast doubt on the compensation program.

We remind you that the funds (surplus profits) generated by the electricity producers are actually the funds of the enterprises received in the energy sector due to market distortions and their use to compensate the prices of consumers in the free market does not burden the state budget.

Please note that unlike household prices (82 BGN per megawatt hour), which are heavily subsidized in Bulgaria and are several times lower than the European average, the prices for enterprises in our country, even after compensation, remain higher than the average for electricity intensive industry in the EU. However, as a result of the program to compensate for the extremely high electricity prices, the Bulgarian industry recorded some of the highest growth in the EU and the highest growth in labor costs for the last quarter. After the decision of the National Assembly for 100% compensating the prices of electricity on the free market above BGN 200 per megawatt hour, which represents a justified reduction of about 15% (given the non-reduced network fees and commercial surcharges) and bringing the prices for Bulgarian enterprises closer to the average European ones, AOBR appealed to businesses in Bulgaria to reduce their selling prices. These are good intentions that will be thwarted in case of delayed or incomplete implementation of the aforementioned decision of the National Assembly.

In connection with the above, in our capacity as nationally recognized employers' organizations, whose members create 86% of the gross added value and employ 82% of the employed in Bulgaria, we believe that there is no need to go into a mode of opposing business with political forces, once the compensation mechanism has been proven to work. Similar mechanisms for compensation of electricity exist in the EU countries, and in the event of a change in the methodology, conditions will be created that put Bulgarian companies in an unequal position and create conditions for unfair competition compared to other European companies.

We are addressing you with the intention that the working electricity compensation mechanism should not be torpedoed, which should continue with a horizon at least until the end of 2023, but with the clear awareness that while such measures are being taken in the EU, it must continue to exist. By creating stability in the mechanism, inflation will be reduced and the prices of products and services will be maintained.

We remain ready to meet to discuss the decision and calm the tension among our members.