REFILE-UPDATE 1-Bulgaria needs new deals, law change to cut power costs-regulator

Thu May 29, 2014 5:35pm EDT

(Fixes spelling of ContourGlobal in 13th paragraph)

By Tsvetelia Tsolova

SOFIA May 29 (Reuters) - Bulgaria's state energy regulator has urged the public power provider to renegotiate agreements under which it is obliged to buy all the electricity produced by two coal-fired plants owned by U.S. companies.

AES and ContourGlobal produce about 20 percent of Bulgaria's power at the two plants.

The Socialist-led government has vowed to keep electricity prices unchanged after cutting them twice since coming to office last May, after street demonstrations against high power prices toppled the previous centre-right government in February 2013.

The regulator said in a statement on Thursday the agreements with the two U.S. companies breached EU competition rules and power provider NEK should renegotiate terms to lower the cost of electricity produced by AES by at least 30 percent and ContourGlobal's by a fifth.

The regulator also proposed changing legislation to cut by 50 percent the preferential rates the country is obliged to pay for electricity generated by wind and solar power plants.

Under current legislation the state must buy all renewable energy produced at the preferential rates.

"After the contracts are amended and if the purchase of renewable energy on preferential prices is limited, we can see a reduction of costs ... by over 1 billion levs ($695 million)," the regulator said.

AES declined an immediate comment. ContourGlobal said the energy regulator was not a party to their contract with NEK and did not have a right to impose conditions on it.

"We expect the government to honour its obligations under the contract," the company said in a statement.

The proposals are the latest attempt by Bulgaria to avoid a spike in regulated power costs, a politically sensitive issue in the European Union's poorest country where power bills swallow up large chunks of household incomes, especially in winter.

Energy analysts say Bulgaria should work to amend its inefficient energy sector and increase energy prices, while at the same time offering financial support to poorer citizens. That would ensure that foreign investors are not punished by sudden regulatory changes, the analysts say.

AES invested 1.2 billion euros ($1.6 billion) in a 670 megawatt thermal power plant in the Maritsa East coal-mining complex that started operations in 2011 and has a 15-year power purchase contract.

ContourGlobal, which acquired a 908-megawatt plant in the same complex, has a similar agreement that expires in 2024.

Bulgaria has already imposed a 20 percent tax on the income of solar energy producers, many of which are foreign-owned, in a bid to rein in a boom in renewable energy that resulted in over 1,600 megawatts of wind farms and photovoltaic installations.

The Bulgarian Photovoltaic Association said the proposal to halve energy purchases at the lucrative feed-in tariffs would bring to bankruptcy all investors in the sector. ($1 = 1.4381 Bulgarian Levs) ($1 = 0.7354 Euros) (Additional reporting by Angel Krasimirov; Editing by Susan Thomas/Ruth Pitchford)