Olivier Marquette before Trud Daily : We are saving NEK BGN 550 million

April 21, 2015

– Mr. Marquette, how would you assess the current situation in the energy market in Bulgaria?

– The energy sector in Bulgaria is at crossroads. The government is carrying out the needed structural reforms which aim to stabilize the financial situation of NEK and ensure the stability of the energy sector.

Also, it was announced that new measures, related to the liberalization of the energy sector and bringing it in line with the Third Liberalization Package of the European Union in the energy business, would be undertaken in the second half of 2015.

Our company fully supports the activities of the government with regard to the energy business and wishes to be part of the solution. This was demonstrated with the signed agreement on re-negotiation of the long-term power purchase agreement concluded between TPP AES Maritsa East 1 and NEK.

– What exactly is foreseen in the newly-signed agreement?

– The price of availability of AES Maritsa East 1 will be reduced by 14% for the remaining period of the long-term Power Purchase Agreement that expires in May 2026. This reduction will result in cost savings for NEK amounting to approximately BGN 50 million annually, or about BGN 550 million for the remaining period of the agreement.

The plant will continue to be dispatched according to the needs of the electricity system of the country, so there is no commitment leading to its full load.

The price reduction will become effective after fulfillment of certain conditions; however, among which is the full repayment of all accumulated outstanding payments of NEK to AES and after the approval of the amendment of the long-term power purchase agreement by the Energy and Water Regulatory Commission and the project creditors.

In addition, as a part of the agreement, after AES has received from NEK all outstanding payments, it will fully pay the outstanding amounts that AES owes to Mini Maritsa East.

– The company owns the newest TPP in the country,and if you knew what would happen in the market, would you still have invested?

– The total cost of the project in Galabovo is 1,2 billion euros. The investment was financed partly by AES and partly by a consortium of over 25 international and local banks.

As with regard to the investment decision – any re-assessment of past decisions in the light of current events is just a theoretical exercise without much relevance. What matters for our company now is the execution of the agreement with NEK.

– What will happen in case NEK fails to pay its outstanding amounts within the term agreed? Is the company considering filing a lawsuit?

– The amendment of the agreement does not disable the right of AES in case of default on part of NEK. From this point of view, referring the issue to the court is an option, but we would resort to this option, only if all the    other ways to solve the problem have been exhausted.

I am quite optimistic at the moment, and I don’t think we shall reach a situation which will need to be resolved through the intervention of the court.

– How much are the old and the current obligations of NEK to AES? What if NEK pays its old obligations according to the agreement but fails to regularly pay its current obligations?

– Currently, the outstanding obligations of NEK amount to BGN 400 million. We believe that the reforms, undertaken by the Bulgarian government, will allow NEK to pay off and move forward. In case of future defaults, AES will seek solutions within the provisions of the long-term power purchase agreement.

– Are you willing to review any options for further reduction of the price?

– The price of electricity, produced by AES Galabovo, is based on the investments made for 1.2 million euros. After the agreement was signed in 2001, the price of availability was reduced in 2005. So, in order to be part of the solution to the problems, now AES, once again, reduces its availability price and cannot afford to undertake any further reduction.

– Are you considering selling part of your electricity in the free market and do you have any plans to export electricity?

– It is possible to go to the free market, provided that specific mechanisms are applied, which would offset the variability of the revenues and which will allow us to fulfill our obligations to creditors and third parties and also cover for the investments made. Similar mechanisms are applied in several markets in the European Union, aiming to compensate the difference between the market price and the price of the long-term power purchase agreements. Upon execution of certain preliminary conditions, that do not distort competition, NEK could sell part of the electricity to Turkey – it exists a transmission line connecting Bulgaria and Turkey that is not used at present. At the same time, certain regulatory requirements need to be considered in order to allow the export of electricity to Turkey via this transmission line.