Established in 2006, the Bulgarian Federation of Industrial Energy Consumers (BFIEC) combines large enterprises, consumers of electricity and natural gas. Its goal is to represent their interests in communication with state structures. The organization members are companies like Actavis, Alcomet, Amylum Bulgaria, Asarel Medet, Aurubis, Berg Montana Fittings, Biovet, Gotmar, Druzhba Glassworks, Elatsite Med, Kaolin, KCM , Roca Bulgaria , Sviloza , Solvay Sodi, Stomana Industry, etc. Almost two months after the price hike of electricity by 16%, which was unexpected for business, we sought comment from the chairman of the Federation Konstantin Stamenov about the effects on the largest energy users and the measures offered by businesses to offset their losses. - What are the business calculations of the effects of electricity on the expensive production costs and that another rise in fuel prices is not further compounded the situation for businesses in the federation? As energy-intensive, production companies of the federation are dependent mainly on the prices of electricity and natural gas. I expect that there will be a decrease in production, and some companies even stop and go bankrupt. Fuel prices affect mainly the transport of raw materials supply and implementation of our products, but this is not so dramatic. The increase in energy prices, however, was a serious issue for enterprises and its effects will be felt most clearly in the final production results for 2012. Preliminary forecasts show decline in production this year will reach 30-40%, although I strongly hope this sort of decline is not reported by all companies. At this stage, however, the data is troubling. The big problem is that we feels a repetition of the 2008 crisis, which began with a decline in orders, which we observed in the beginning of this year. The difference between then and now is that while before 2008 we had several consecutive years of growth and profits, now we have several years of losses. - So the current appreciation is another shock to the industry, another "nail in the coffin," as they say? A little too strong a word, because unlike small business, industry is always able to operate with loans which it gets significantly easier. The problem is that this resource is exhausted, because if the past three years most companies have optimized their costs, it becomes increasingly difficult to finance the activities without positive result. Although in 2011 a considerable number of enterprises managed to restore production levels as pre-crisis volumes in 2008, their earnings were much smaller. Consumption was crouching and prices of realized production last year were far below the levels of four years ago. And last year, most companies in our federation reported losses. The expected reduction in production volumes this year by 30-40% will likely lead to levels in 2009, or to summarize - a difficult year for heavy industry. - Does investment in energy efficient systems, that some companies have done in recent years, not help? Yes, these investments were made, but in a crisis they did not help. All entities of the federation are first class investors. Most of these investments are related to loans that must be attended to. When your product is not for sale and you drop in revenue, these costs outweigh further. - In this situation, what crisis measures do you offer? Our Federation is a member of the Advisory Council on industrial stability to the Minister of Economy, Energy and Tourism, with whom we have regular meetings each month. At this point, we have proposed several austerity measures, which are being applied successfully in several European countries. For example, in many large countries such as Germany, France, Austria are applied models that reduce the fee "green and brown energy" that companies from heavy industry pay as major energy consumers. Our proposal is that this fee be reduced to offset the appreciation of the electricity. Now the fee is fixed at Megawatt/hour and the more energy is consumed, the more companies pay. Although our companies have invested heavily in energy efficiency, the very operations are such that electricity costs are important. Companies are subject to restrictions on the quantity of emissions expended, they pay excise duty on energy investments, integrated permits and pay expensive electricity because of cogeneration and energy from renewable sources. So we insist on lowering the cost of green and brown energy. We want Bulgarian industry, which generates the highest added value to the economy of Bulgaria, to survive. A job with us correspond four jobs in service sectors such as energy, finance, logistics, etc. It makes much more sense economically for Bulgaria to produce and export more products with high added value. If we export raw materials and energy we loose turnover and jobs in our economy. The best model for us is the Austrian, where the charge of "green energy" is two-component - fixed annual sum plus a variable part. The variable is calculated as a percentage of the fee for the transfer of power, rather than used kilowatt hours of energy. It constitutes 17% of the transfer fee, which is a significant advantage because the transmission of high voltage electricity cost considerably less than the transmission of medium voltage and low voltage. As this preference applies only to large energy users, other requirements are placed that weed out companies that can pay a lower fee "green energy". These models are presented to the European Commission and approved. - Are there indications that Minister Dobrev will commit to introducing a similar model in Bulgaria? We have submitted the proposals. After making the necessary calculations, we expect the response from the administration. Another suggestion we made to the finance ministry regarding excise duty on natural gas used for heating and fuel, first introduced by June this year. Last week we had a meeting on this subject in the Ministry of Finance. Since the European Directive establishes itself scenario in which individual Member States can introduce these new excise taxes since the beginning of 2014, we are now considering the possible effect that the postponement of the new rates would have on the budget and the possibility of delay. The Directive allows the tax increase to be made in two stages, initially it was minimal and only from 2014 to the final rate. Now this duty at the full rate is 10 cents per gigajoule for heating gas and BGN 0.85 for fuel for cars. We discuss excise duty for electricity, which is 1 EUR/MWh for commercial consumption from 1 January 2010. By Directive 2003/96/EC the minimum rate is 0.5 EUR/MWh. After the Finance Ministry checks whether and how the delay of this duty will affect revenue and whether it will be affordable for the budget next year, then we will know whether our proposal will be accepted by the Cabinet. In the longer term we expect the decision of the European Commission, which debated the new costs for the purchase of GHG emissions that would further burden the cost of electricity. We are in the final stage of debate for the permissible state aid to industry, related to the prevention of carbon leakage. This is the expected negative effect of restrictions on emissions in the EU - moving investment to countries that do not apply restrictions such as Turkey, China, etc. The aim is to compensate energy-intensive industries to the extent of the appreciation of electricity as a result of emissions from purchased power. In the end, it is important for us to implement a mechanism to compensate for appreciation in the pricesfrom the beginning of next year because of commitments to the purchase of carbon emissions, which are lay on the shoulders of heavy industrial companies, identified as major polluters.
Source: investor.bg (23.08.2012)