March 28, 2023
Bulgaria introduces measures for addressing high energy prices
In October 2022, the European Union (EU) adopted Regulation 2022/1854 on an emergency intervention to address high energy prices (the Regulation), introducing a common standard in fighting the high prices in the electricity markets and a mandatory cap on market revenues of the participants in these markets.
Subsequently, Bulgaria took last minute action to implement the Regulation. Specifically, Bulgaria introduced an obligation for both electricity producers and traders to pay special purpose contributions.
The deadlines for declaring and paying the obligations as well as potential sanctions are already applicable to energy market participants.
This Alert summarizes the proposed changes:
Producers (including those initially excluded by the Regulation) are required to report their market revenues from electricity sold at freely agreed prices as well as to report and pay special purpose contributions. These contributions should cover transactions during the delivery period from 1 December 2022 to 30 June 2023. The Bulgarian State adopted the national measures on 30 December 2022, while the exact caps concerning the producers were announced even later 12 January 2023.
Unlike electricity producers who were intended to be covered by the new rules from the beginning, traders were rather seen only as an option which the Regulation provided for the Member States to include in the scope at their own discretion. Accordingly, Bulgaria imposed the application of the emergency measures over electricity traders as well. The state though needed to create its own rules for the traders since the EU Regulation lacks specific instructions for traders and this appears to have unfortunately led to introducing local measures with inconsistences and loopholes.
Currently, there are a lot of discussions on whether the emergency measures introduce a new tax (or only an obligation for payment of public liabilities) and if yes, whether this constitutes an indirect or a direct tax. This raises various practical questions, including for instance whether it is legitimate to introduce the measures retroactively and also charge part of the market participants on last year’s revenues.
According to the national legislation, the new obligations should cover transactions with place of supply in Bulgaria, intra-Community supplies and export, yet such a place of supply rules are not envisaged in the Regulation. Furthermore, introducing them threatens to result in impeding the free market as well as triggering double taxation. Appropriate remedies in such scenarios remain unclear.
Also, the Bulgarian law provides that for traders the special purpose contributions shall be in the amount of the positive difference between revenues and (increased) costs from the trade in electricity. This results in ambiguity as to what shall be the revenues and expenses covered by the calculation mechanism – given the sector specifics, cash flows may be interpreted differently and even at the surface it could be disputed whether all of them are reasonable to be included.
Moreover, the co-relation of the new measures with already existing mechanisms for limiting revenues of participants in the electricity markets is also triggering questions. In Bulgaria, even before the Regulation, we have ongoing measures of the kind covering especially the electricity producers. So, one could potentially also identify overlapping between the new and the old mechanisms.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Bulgaria EOOD, Sofia