Twelve Months of Silence: Ministry of Energy Still Silent About Important Cold Reserve Contracts

Months after a court ordered the Ministry of Energy to provide the Anti-Corruption Fund Foundation (ACF) with access to public information with regards to the Maritza Iztok 2 Thermal Power Plant (TPP), the ministry has still not supplied the documentation which is crucial to attempts to answer the question why, in the spring of 2018, the state-owned power plant gave up on an attractive ‘cold reserve’ contract.

The popular term ‘cold reserve’ refers to energy capacity on stand-by mode which is activated only when needed – usually at times of peak electricity demand, or sudden shortages of generated electricity.

Following the surprising decision on behalf of Maritza Iztok 2 TPP to give up on a cold reserve contract it had already been awarded, the Electricity System Operator (ESO) chose the privately-owned Varna TPP to provide the service. Since the spring of 2018, the Varna-based facility, owned by Ahmed Dogan, honorary chairman of the Movement for Rights and Freedoms, a political party, has been awarded cold reserve contracts worth more than BGN 50 mln:

– BGN 2.8 mln. for the period May – July 2018
– BGN 24.9 mln. for the period August – October 2018
– BGN 26.5 mln. for the period August 2019 – end July 2020.

Besides the sums mentioned in the contracts, signed with ESO, all suppliers are paid additional sums for the electricity generated at the times their facilities are required to work.

With regards to Maritza Iztok 2 TPP, the overall negative effect of the decision to pull out from the contract is measured not only in terms of the value of the payment stipulated in the contract, but also in terms of the missed opportunity to generate more revenue through the sale of more electricity, thus improving its financial results [the company is currently struggling]. Decisions by the management of the power plant are only adopted following approval by the board of the Bulgarian Energy Holding which, in turn, coordinates its decisions with the Ministry.

Following a new tender in 2019, Maritza Iztok 2 was awarded a contract for nearly BGN 1.8 mln. (for the period August 2019 – the end of July 2020). However, why did the state-owner power plant give up, just a year prior, on a contract it had already been awarded? ACF has been asking this question of the management of Maritza Iztok 2, of ESO, and of the Ministry of Energy since 12 months. All relevant institutions have remained silent, while, earlier this year, the Ministry refused to provide ACF with a copy of a report, created by a working group which the minister created on 3 September 2018 and tasked with conducting an economic and financial analysis of the power plant, as well as a plan to stabilize it.

On 20 August 2018, the Administrative Court of Sofia – City pronounced to be illegal the refusal of energy minister Temenuzhka Petkova to provide ACF with the requested report. Despite the court’s decision, ACF has not been given the report yet. Instead, the minister has sent ACF a document from 14 November 2018, containing a number of measures to stabilize Maritza Iztok 2 TPP, which were adopted on the basis of the report.

Among the listed measures is the purchasing of greenhouse gas emissions quotas for Maritza Iztok 2 TPP. The measure is listed as a responsibility of the Bulgarian Energy Holding with 21 December 2018 mentioned as the deadline. To purchase of the quotas is to be funded by state-owned energy companies operating at profit. The report also lists a number of medium-term and long-term measures.

“ACF is campaigning for the transparent management of public funds in all sectors, including energy generation, which has strategic priority for the country. This is why, we have chosen to share the documents that we obtained from the Ministry of Energy with the public and especially with energy experts who could assess how adequate the described measures are,” said Boyko Stankushev, director, ACF.

“However, our question regarding the arguments in support of a questionable decision by the management of the state-owned Maritza Iztok 2 TPP still remains unanswered. The tactics, used by the ministry to circumvent its public obligations for transparency, as well as the court’s decision, deepen our concern whether the interests of the state and citizens are given top priority when key decisions in the energy sector are being made,” he said.

In June 2019, ACF published an investigation into how Varna TPP was acquired. Also outlined were a number of decisions by public bodies which proved key to the change in fortune enjoyed by Varna TPP once it was acquired by politician Ahmed Dogan. ACF filed reports with a number of public institutions and is still expecting their responses:

• institutions regulating the energy sector were all called to check Varna TPP’s operational suitability and its failure to meet licensing requirements

• the State Agency for National Security was called to investigate if there was any risk for the environment and for energy security, which is significant element of Bulgaria’s national security.

• the National Revenue Agency was urged to check suspected related party transactions used to acquire Varna TPP, as well as the real transaction values and the origin of the funds. An audit ensuring that all parties had paid the lawful amounts of taxes was also recommended.

The swift reaction of all above-mentioned institutions is crucial to the future of the energy sector and the security and prosperity of Bulgaria.


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