The liberalization of the Bulgarian power market has been characterized by constant external (the European Commission) and internal (private stakeholders) pressure. Regardless, the government has shown prevailing reluctance to take any serious actions that might deliver effective structural improvements to the market, making changes only on paper. In short, it may be described as “reform at gunpoint” – doing anything it takes to make the problem go away, while obstructing efficient market functioning.
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The road to market liberalization in Bulgaria began during the country’s pre-accession period to the European Union (EU) and the government’s decision to take a step-by-step approach. The process began in 2004, when high voltage power consumers were required to secure their power consumption from the wholesale supply of electricity at freely negotiated market prices, followed by medium voltage consumers in 2013.
Although there was a formal liberalized power market, it soon became obvious that it was characterized by low competition and a high degree of concentration. This was due to the fact that three state-owned enterprises (SOE), organized in a holding company – Bulgarian Energy Holding (BEH), also owned by the state, supplied the majority of the power for the liberalized market (around 85%) and were taking advantage of their position. This led to an antitrust procedure against BEH and the implementation of commitments on behalf of the holding to remedy the situation.
One of these commitments included establishing an organized power exchange (Independent Bulgarian Electricity Exchange – IBEX), which began working in early 2016 – nine years after the country’s accession to the EU, thus marking the beginning of the first real steps taken towards market liberalization. And while the government was dragging its feet with regard to some reforms (for example to power exchange), other decisions – for example obligatory power trading on IBEX, effectively banning over-the-counter (OTC)1 trading – were finalized in less than a week. Judging from the country’s experience with deregulating the power market, it would seem that the government is deliberately delaying decisions that can improve market functioning and only making them when there is no other option due to the mounting pressure – both from external and internal parties.
The current result is that Bulgaria has a liberalized power market, which is highly concentrated, essentially monopolized, and thus it is inefficient and non-transparent. Some reforms that could improve market operations are being delayed (deliberately, it would seem), while others, which fundamentally change the market, are fast forwarded with little to no prior preparation – sometimes leading to greater uncertainty and higher risks for both traders and consumers. Perhaps what is most shocking, is that while market inefficiencies may be the result of government policy, it is state-owned enterprises, not private stakeholders, that are the beneficiaries, and ultimately are distorting the market.
Market Competition and Concentration
Traditionally, the power sector in Bulgaria operated as a vertically-integrated company, as was the case in the rest of Europe, in a completely regulated market. There are, perhaps, two main differences when considering Bulgaria’s and the rest of the EU’s experience in power market deregulation – the process started much later in Bulgaria and the political “enthusiasm” about it was borderline nonexistent. D
uring the country’s pre-accession period the companies being a part of the vertically-integrated company were uncoupled, which was one of the first steps in the liberalization process. In 2008, just over a year after Bulgaria joined the EU, the government reversed that step by transferring ownership of the state-owned energy companies (which are also the largest generating companies in the sector) to a state-owned holding company.