Sofia water: The price of water in Sofia, if approved by EWRC, will be the fourth lowest in Bulgaria

Sofia Water's business plan was prepared during the renegotiation of the concession and was finally submitted for consideration to the Commission for Energy and Water Regulation (EWRC) on July 27, 2024. This was explained by Lyubomir Filipov from Sofiyska voda during today's discussion of the company's business plan at the regulator.

The company's business plan is for the period 2022 - 2026, but it has not yet received approval from the EWRC for a number of reasons - from the renegotiation of the concession, to the clarification of a number of issues, including due to a case in the Supreme Court on the rate of return of the capital.

He foresees a 20% increase in the price of water in Sofia from October. This means that instead of the current BGN 2.94 per cubic meter, residents of the capital will have to pay BGN 3.52 per cubic meter with VAT. Since the business plan is for the period until 2026, two more increases are to come - in 2025 to BGN 3.64 per cubic m and in 2026 - to BGN 3.80 per cubic m.

"There is a lot of talk about our profit, but the total investments are BGN 260 million and are for the period 2022 - 2026. It is already 2024, and we are still discussing the business plan and making investments based on it," commented Filipov. He was categorical that the services provided by the "Sofia Water" company are the lowest. "If the price (of water) is approved, it will be the fourth lowest in Bulgaria. The increase in Sofia will be 20%, but in the country it is 67%," he said.

Before that, Filipov commented that the company works at prices from 2021.

The review of the report of the working group and the business plan of the company indicates that the offered complex price of the services is nearly three times below the level of social tolerance, after the EWRC corrections, it is lower than that proposed in the business plan reviewed by the Metropolitan Municipality.

The company's business plan also foresees that the quality of drinking water in the designated territory will continue to be far above the legally defined standards - 99.04% for large water supply areas (long-term level 99%) and 98.46% for small areas (long-term level 98%). In terms of effluent quality, full compliance of 100% is reported and predicted (with a long-term level of 93%).

An ambitious program to reduce water losses has been set, and at the end of the period, the company is expected to achieve the EWRC target of 33.29% (compared to the level of 41.63% in 2020).

The complex price of the services of "Sofiiska Voda" JSC /supply of water, removal and treatment of waste water/ has not been changed since 2021.

Before that, in the framework of the discussion, the municipal councilor Vojslav Todorov called on EWRC not to accept the business plan of Sofia Water, as it was not discussed by the Metropolitan Municipal Council. He criticized the regulator for the marginal rate of return on leveraged capital of 3.88%, which together with the rate of return on equity raises the total rate of return to 14.44%. The municipal councilor drew attention to the high dividends set by the company.

Similar were the objections of Maya Manolova from "Stand Up BG". According to her, out of BGN 228 million profit for the next three years, BGN 175 million in dividends "will go to France". Manolova criticizes the regulator for not being able to uphold the previously determined dividend of 8.1% and allowing the Supreme Court to cancel it and decree 13%, which, by the way, is also a consequence of the fourth additional agreement under the concession contract between the company and the Municipality of Sofia. Manolova spoke out against the adoption of the business plan also because it was not discussed by the SOS and no consultations were made with consumers in Sofia.

During the discussion, however, it became clear that the chairman of the Metropolitan Municipal Council informed EWRC that no new discussion of the business plan will be held.

Velizar Enchev, in his capacity as a citizen, commented that the arguments for increasing the price of water in the capital are insufficient. According to him, given the fact that for the improvement of the water quality according to 50 indicators, Sofia Water has fulfilled only 17 of them. He raised the question, how on the basis of an implementation of less than 50%, an increase in the price of water is requested. Enchev also made a comparison with the price of water in two French cities - Paris and Marseille, which according to him is roughly the same as that in Sofia, regardless of the huge difference in terms of income.

Engineer Stefan Toshev, for his part, raised the issue of invoices and VAT.

During the discussion, as well as from the business plan, it became clear that one of the main reasons for the price increase is the significantly increased costs for materials and external services in 2021-2024, including cleaning materials, communication services, security, operational repairs and others, compared to the base year 2020. Another factor is the annual growth of the salaries of the employees in the water supply operator by 15%, in accordance with the provisions of the signed agreement between NBS "Vodosnabditel" - KNSB, Ministry of Regional Development and Public Works (MRDPW) and "Bulgarian Water Supply Holding" EAD.

It is a mandatory requirement of EWRC that the final revised business plan be re-examined and agreed upon by the public owner of the water supply systems and the assignee of the contract for their operation and maintenance. "Sofiiska Voda" JSC presented its final project on 26.07.2024 both to EWRC and to Sofia Municipality. With a letter dated 27.08.2024, the chairman of the SOS informed the Commission that the changes in the final draft of the business plan are mainly of a technical nature and lead to a reduction in the complex price of the plumbing services, compared to the initially presented project. It is stated that the opinion expressed in the Decision of 14.09.2023 remains in force also in relation to the business plan of Sofia Water AD presented on 26.07.2024.

EWRC Chairman Prof. Ivan Ivanov emphasized that the regulator has strictly fulfilled its commitments according to the regulations, as the company's application for prices and business plan, as well as the report of the working group, were published in a timely manner on the EWRC website. Ivan Ivanov reminded that in 2021, EWRC determined in its decision the same rate of return for "Sofiiska voda" AD and for all other water supply operators from the group of large companies, but the Supreme Administrative Court gave mandatory instructions for the Commission to comply with the rate of return on equity agreed in the concession contract. EWRC clarified that the chronology of events and the written correspondence conducted is described in detail in the publication on the website of the regulator's website.

The working group at the EWRC, which prepared the report on the company's business plan, stated that immediately after its entry, a number of questions were asked both to the importer itself and to the SOS on what basis the parameters were obtained. The chairman of the working group at the regulator, Ivaylo Kaschiev, explained that in connection with the requirement for re-coordinating the final business plan, two letters were expressly sent to the chairman of the SOS and the mayor of Stolichna Municipality with an insistence on re-coordinating its final version. In particular, the response of the SOS was that the parameters were based on the fourth supplementary agreement. In addition, the decision of the Supreme Administrative Court is in full protection of the concessionaire of Sofia Water and EWRC can only implement it. The working group also answered the question about the rate of return of just over 14%, explaining that "this is the model of the concessionaire" because the company has invested 100% of its own capital. The working group confirmed that after they notified the SOS about the company's business plan, the answer was that they would not consider it.

Within 14 days, opinions can be submitted to EWRC by the interested parties.

The Commission for Energy and Water Regulation will rule on Sofia Water's business plan, specifically targeting a 20% price increase, at a closed meeting on October 1, 2024.

Meanwhile, at the beginning of the meeting, it was explicitly emphasized that none of the invited organizations, in the form of consumer and trade union organizations, the Water and Sewerage Holding, MRDPW and others, had requested participation in expressing an opinion on the subject.