понеделник, 6 октомври 2014 г.

Privatizing the energy sector - shock therapy and more opportunities ahead

Bulgaria's energy sector is tumbling deeper and deeper into the red, with recent election failing to provide a clear answer to the ability of the next government to engage in quick and radical remedial remedial action. With the system re balancing in need of substantial financial injection from the state and with no clear public and political consensus in place it is doubtful that any single party or coalition thereof will take upon itself the task of spending it limited resources in public trust to repay years of negligence and corruption.

Energy efficiency has emerged as the favourite of the GERB party but it is no substitute to painful cuts in subsidy levels, laying off workers and downsizing generation activity across the board with the renewables and the "expensive" power generation capacities being first in line. Energy efficiency ceteris paribus leads to lower consumption levels and cash flows into the system which further aggravates the state of the sector. Prices hikes are hardly a magic bullet as they will lead to lower consumption and higher energy poverty compensation - i.e. negative cash flow effect on the budget. Energy efficiency on the consumers side should be met with equal zeal on the generation, transmission and distribution chains, yet after years of disinvestment and declining power demand projections foreign investors interest are not exactly overenthusing.

The likelihood of different stakeholders in the energy sector reaching a compromise within the Energy board format is negligible to none. Most of the companies have already lost hope for government leadership in identifying a systematic resolution. Some have started searching for an individualistic approach taking to court the state energy company NEK. The Austrian EVN are taking NEK to an US court of arbitration with a $1 billion claim. The other EDCs - CEZ and Energo-Pro - are not far behind with the renewables companies and the long-term PPA new coal fired TPPs in the Maritza-East basis joining the army of disenchanted.

The chances for avoiding a free fall and a system collapse are growing slimmer with the outcome of elections and the lack of clear sign of quick new government formation.

It is not all doom and gloom but there is one message - there is no alternative to shock therapy and many energy assets are due to change hands. With more M&A deals pending 2015 might be an interesting time for investors, banks and advisers.

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