Bulgaria Energy Regulatory Development Project

DEVELOPMENT CHALLENGES The energy sector in Bulgaria has undergone major restructuring in recent years. One of the most important factors for the power sector reform and for attracting private investors is achieving regulatory stability in the country. The Energy Law, adopted in December 2003, establishes the energy sector legal framework and sets the basis for creation of a transparent and predictable regulatory environment where the key regulatory responsibilities are vested with the State Energy and Water Regulatory Commission (SEWRC). The development and functioning of a competitive energy market in the country is the next challenge the Bulgarian energy sector is facing. As of the EU Accession in 2007, Bulgaria will have fully liberalized power and gas markets. The role of the energy regulator to effectively balance the competing interests of the investors and consumers is of critical importance for the success of the power sector reform.

USAID INVOLVEMENT USAID provides technical assistance to the Ministry of Economy and Energy and the State Energy and Water Regulatory Commission (SEWRC) to develop the energy sector legal and regulatory framework, transparent tariff mechanisms that reward good performance of the energy utilities, and sound regulatory accounting and reporting practices. Another key aspect of the program is the institutional strengthening of the energy regulator, increasing its authority, autonomy and accountability of SEWRC.

GOAL USAID efforts are aimed at establishing a sound energy legal and regulatory framework and a competent energy regulator with a high degree of autonomy, authority and accountability, capable of carrying out its monitoring and regulatory functions.

PROJECT DESCRIPTION

• Development of the Energy Legal Framework.
This component provided technical assistance to the Ministry and to the energy regulator in drafting the related legal and regulatory provisions. A significant achievement of the project was the passage of the Energy Law in December 2003, which established the overall legal framework of the energy sector, set the basis for a competitive energy market, provided for an independent regulatory body and created incentives for future investments. The project also supported the development of the key secondary legislation pieces such as the licensing ordinance, as well as a number of regulations and rules that facilitated the opening of competitive electricity and gas markets in the country.

•Tariff Development.
One of the most controversial and contentious portions of any energy policy is the methodology for determining tariff rates. A balance must be achieved between the necessity to provide affordable energy to the public, the competitive needs of the industrial consumers to keep low costs, and the need of the energy utilities to provide a good rate of return on investment to their shareholders in order to justify energy infrastructure investment. USAID advisors provided major support to SEWRC with the development of the tariff ordinances for electricity, natural gas and heat supply, all these adopted by the Council of Ministers in the first half of 2004.

• Development of Accounting Standards and SEWRC Accounting Regulations and Regulatory Reporting Requirements.
With a sound legal and regulatory framework in place, monitoring the performance of licensees becomes another task of the energy regulator that is of critical importance. USAID works with SERC on the development of regulatory reporting forms and a Uniform System of Accounts (USOA) to be applied for all energy sector licensees. Much of the development work is completed now; the next year challenge remains the effective implementation of the USOA.

SUCCESS STORY Privatization of Electricity Distribution Companies. In 2004 Bulgaria reached a milestone in power sector reform with the successful privatization of the electricity distribution companies. The privatization process was greatly aided by the significant support of USAID, particularly with respect to modernizing the energy sector legal framework, developing clear and transparent secondary legislation and regulations, and strengthening the capacity of the energy regulator. Significant progress in these areas promoted investors’ confidence in the competence of SEWRC and increased the perception of regulatory stability, which contributed to the success of the privatization process.