Policies locked in the past could cost Bulgaria dearly

A 2013 EU Commission review of the Bulgarian energy sector noted the country’s “high energy intensity, low energy efficiency, and deficient environmental infrastructure hamper business activity and competitiveness”, writes Dick Roche.

Ten years on state state-owned enterprises still retain a stranglehold on Bulgaria’s electricity assets including power generation and transmission, creating a structure that the EU Commission has flagged as inconsistent with the requirements of the Regulation dealing with the EU internal market for electricity.  In Bulgaria’s gas sector, the stranglehold is even worse.  

From the outside, Bulgaria’s energy structure looks like an entrenched bureaucracy dedicated to its own objectives, rather than the interests of the Bulgarian people,  a long way from the model favoured by EU law.  

Protecting the Status Quo

 The dogged determination to protect the status quo is strikingly demonstrated by a series of events over the last five years in Bulgaria’s gas sector.

In  December 2018 the EU Commission fined the Bulgarian state-owned company Bulgarian Energy Holding (BEH) and its subsidiaries over €77 million for blocking competitors' access to key gas infrastructure in Bulgaria in breach of EU antitrust rules.

The fine, which some at the time suggested could have been as high as €300 million, would have been avoided had Sofia entered serious discussions with the Commission as to how the Bulgarian government intended to meet the commitments made when Bulgaria signed the EU Treaty of Accession and to honour the obligations set out in the Gas Directive (Directive 2009/73/EC) to "promote market access and enable fair and non-discriminatory competition".

When the BEH case was concluding the then-Bulgarian Energy Minister made it clear that her government had no intention of opening Bulgaria’s gas sector, saying that such a move threatened Bulgaria’s national security. The then Prime Minister Borishev suggested any privatization in the sector would be a “betrayal.”

Nobody in the other 26 Member States sees private enterprise involvement in the energy sector as either a betrayal or a threat to national security.

The reaction to the decision in the BEH case was a clear ‘marker’, a message to Brussels - “we are not for turning” a stance much favoured by former UK Prime Minister Margaret Thatcher.  

A continuing unwillingness to abide by EU norms is evident in a series of more recent events.

The Bulgarian Gas Release Program (GRP) unveiled following the BEH case is a case in point. Flagged as a reform contributing “ to the actual diversification and liberalization of the market” the programme required Bulgargaz to release specified gas supplies by way of business-to-business auctions over a five-year period. The “reform” was short-lived.  The programme was scrapped weeks before it was due to come fully into effect.

Another striking example of anti-private-sector bias was demonstrated by Bulgaria’s failure to live up to obligations entered into with EU partners to meet the energy challenges arising from the war in Ukraine.

The invasion of Ukraine in February 2022 heralded a potential energy crisis for EU Member States going into the winter of 2022-23.  

In order to meet that challenge a programme was put in place to ensure that the EU’s gas storage capacity was employed to maximum effect. Legislation was amended to introduce gas-filling targets intended to ensure that the EU would have access to the energy needed to avert possible chaos in the winter months.

EU law obliged Member States to “ take all necessary measures, including providing for financial incentives or compensation to market participants” involved in meeting the EU’s ‘filling targets’.

Bulgaria met its gas storage targets but failed to fulfill its obligations under the 2022 EU Gas Storage Regulation in full. Instead of introducing measures to protect all enterprises who participated in the drive to meet EU storage targets, Bulgaria introduced arrangements that limited protection to the state sector. A soft loan scheme benefiting Bulgargaz and a questionable state aid regime to fund Bulgaria’s largest and most inefficient central heating company were introduced. 

This skewed approach not only failed to meet the spirit and the letter of the Regulation agreed amongst the EU partners it also knowingly put Bulgaria’s private operators at risk of financial ruin: a bad faith effort to wipe out competition to the state sector.

The high cost of bad policy

Placating Bulgaria’s energy bureaucracy has come with significant costs. The Bulgarian economy uses 4 times more energy per unit of GDP than the EU average. It means that Bulgarian citizens are denied the benefits of an integrated and competitive single European energy market.

While the newer EU member states have cut their carbon intensity over the last 10 years, Bulgaria barely shifted the dial on its figures. Bulgaria is also seriously out of line in terms of the ratio of primary energy consumption (consumption by all energy uses) and the final energy consumption (by end users).

All of this runs counter to the EU’s green transition objectives. It puts Bulgaria further out of step with its EU partners. It makes it harder for Bulgaria to play its role in the EU’s effort to combat climate change.

EU member states are expected to operate in ‘good faith’. They are expected to meet their responsibilities under the EU laws which they help to put in place.

Bad faith is demonstrated by the general foot-dragging on anything that looks remotely like liberalisation.  It is demonstrated again in the scrapping of the Gas release programme before it became operational. Bad faith is strikingly evident in the failure to live up to the responsibilities under the 2022  gas storage arrangements – a blatant attempt to use the crisis posed by war to wipe out the private gas sector and bolster the inefficient state sector.

The gas pipeline agreement with Turkey which delivers monopolistic advantages to state-owned corporations and which contains the extraordinary requirement that the origin of the gas that will flow through the pipeline must be kept secret again raises questions as to Bulgaria’s commitment to EU standards.

Self-harm

The EU Commission’s 2023 country report on Bulgaria makes dismal reading. It portrays Bulgaria as having a generally unsupportive business environment. It notes structural weaknesses that limit Bulgaria’s growth potential. It talks about “high economic uncertainty”, comments on   ‘limited inflows of foreign direct investment”, and refers to an “ efficiency gap in public investment, including investment supported by EU funds.

While the lack of reform in the energy sector is not responsible for all of this, the blunt refusal to reform the sector is both a contributory factor and emblematic of the thinking that holds Bulgaria back.  

It is not smart politics for a small member state that needs goodwill to simply refuse to abide by EU rules when it suits. The political statements made at the time of the BEH judgment may have gone down well with a domestic audience, but they won few friends elsewhere.   

The refusal to honor commitments in the gas storage program sent a bad message about reliability that will not go unnoticed in the boardrooms of multinational enterprises where decisions regarding investment are made.

The questions that have arisen regarding the gas pipeline agreement with Turkey sow distrust in an EU that wants to end energy imports from Russia.

All these issues impact Bulgaria’s standing as a reliable player within the EU. They come with significant reputational costs, they inflict self-harm, and they hamper Bulgaria’s capacity to reap the full benefits of EU Membership.

Dick Roche is a former Irish Minister for European Affairs, he was heavily involved in the discussions on the terms for Bulgaria’s EU membership and was a guest at Bulgaria’s EU Membership celebrations on 1 January 2007. 

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