The idea of bringing 'duty to society' energy tax back has angered Bulgarian businesses

The Association of Bulgarian Employers' Organizations (AOBE) reacted sharply to the ideas launched in the public space for the return of the "obligations to society" tax, which had been nullified in the past several years. Its reintroduction is seen as an option to fill the financial hole in the Security of the Electric Power System (FSES) public fund, which last week was reported to have reached a size of BGN 1 billion (500 million euros).

AOBE states that there is a proposal to increase the fee paid by all end customers to EUR 15/MWh. And the more they consume, the more the businesses will have to pay.

We are categorically opposed to such proposals, and we are determined to prevent this by all means permitted by the law", reads the position of AOBE, which is currently chaired by the Confederation of Employers and Industrialists in Bulgaria (KRIB).

The association also states that in conditions of economic slowdown throughout the European Union and a drop in orders for Bulgarian enterprises, even a minimal increase in energy costs will lead to serious consequences for the Bulgarian economy.

There is no doubt that both the reintroduction of the "obligations to society" fee and the increase in the traders' contributions to the fund will be paid by the enterprises, that is, by those working in the actual sector," says the business association.

AOBE's position follows a decision on Wednesday, taken by GERB and DPS MPs, to introduce a bill to force Bulgarian Finance Minister Assen Vassilev to transfer BGN 1 billion (500 million euros) from the state budget to FSES by the end of March, with which to plug the hole.

What the balance sheets show

The employers’ association calculates that the average price on the day-ahead market segment of the Independent Bulgarian Energy Exchange (IBEX) for the period 1 - 12 March 2024 was BGN 133.56/MWh, and for the period 1 January - 12 March 2024, it was BGN 152.86/MWh. Restoring the "duty to society" fee in the proposed order would mean a 20-23% increase in the energy price excluding excise duty, VAT, balancing costs and grid prices. At the same time, the energy price on the day-ahead market in Bulgaria has been one of the highest in the European Union since the beginning of the year.

Against this background, a negative index of Bulgarian industrial production has been reported for the 13th consecutive month, and in some industries, since the beginning of the calendar year, there has been a decline in orders by magnitude of 20-25% compared to the third and fourth quarters of 2023.

As a result, any additional energy costs will drastically worsen the competitiveness of the Bulgarian economy, which is currently being crushed by high gas prices (Bulgargaz sells at prices 24% higher than the TTF quotations and 42 % higher than those of Balkan Gas Hub for March).

At the same time, starting on 1 July 2024, there will be a liberalization of the electric energy market for domestic consumers, which has been described as opaque as the size of compensations to be paid to final suppliers is unknown. This will essentially continue the vicious practice of cross-subsidizing the free market to the benefit of household consumers.

That’s why we express our bewilderment that the first measure proposed is to increase the FSES budget without looking for opportunities to optimize the fund's expenses.

The business sector also opposes the “speculation" that the shortfall in the FSES is due to the payment of compensations to non-domestic end users. These statements do not correspond to the facts.

AOBE insists on an urgent meeting with representatives from the relevant state institutions.

Translated by Tzvetozar Vincent Iolov