P U B LI C -P RI VAT E INFR ASTR UCTUR E AD VISORY FACILITY 73746 June 2012 IMPACT STORIES PPIAF Support to Private Sector Participation in the Gas Distribution Sector in Bulgaria PPIAF support in Bulgaria facilitated the reform of the gas distribution sector, and led to signi�cant private sector participation and investment in the sector. In 2002 PPIAF provided assistance to increase gasi�cation rates in Bulgaria through support to the design and implementation of a new system for gas distribution network licenses, and the design of a competitive and transparent tender process to select investors for the construction of the new gas distribution networks. Following PPIAF support, the Government of Bulgaria successfully launched tenders for seven gas distribution concessions, attracting combined private investment commitments of over $477 million. In July 1999 Bulgaria adopted the Energy and Energy Ef�ciency Act, establishing the State Energy Regulatory Commission, which was designed to provide an appropriate institutional and legislative framework for structural reform in the sector through the introduction of transparent and competitive market competition. One of the State Energy Regulatory Commission’s main functions was the issuing of licenses to gas distribution companies and permits for the construction of new gas distribution networks. The Ministry for Energy and Energy Resources had decided to move from the previous regime of licenses based on individual municipalities to eight larger regional licenses that encompassed the existing 33 gas distribution companies. It was the State Energy Regulatory Commission’s responsibility to organize a transparent and competitive tender process to select investors for these new gas distribution licenses. However, the State Energy Regulatory Commission did not have the necessary experience or resources to ful�ll this responsibility or examine the licensing system proposed by the Ministry for Energy and Energy Resources. It was in the context that the Government of Bulgaria requested support from PPIAF in 2002 to improve the energy sector’s regulatory framework in relation to the practical implementation of tendering and selecting investors for the construction of the new gas distribution networks, with the aim of attracting a wide range of investors. PPIAF SUPPORT The overall aim of the regional licenses proposed by the Ministry for Energy and Energy Resources was to facilitate increased gasi�cation by improving the ef�ciency of gas distribution operations, reducing costs, and attracting larger investors with the necessary �nancial strength to undertake network expansion. The PPIAF report analyzed potential strategies for the licensing of the gas distribution sector, and recom- mended a tendering approach for the licensing of the new larger, regional licenses. The report noted that the proposed exclusivity rights across large regions required strong regulations to protect against inves- tor under-performance, particularly with regard to network expansion in more remote areas. Therefore the report recommended that the State Energy Regulatory Commission retain powers to modify license areas in the case of non-performance by the investor in order to reduce the risk of leaving marginal areas ungasi�ed. www.ppiaf.org The report also identi�ed some legal implications to the new • The Zapad gas distribution concession awarded to RilaGas licensing regime, which would require amendments to the EAD reached �nancial close in October 2006. Energy and Energy Ef�ciency Act. These included de�ning • The Trakia gas distribution concession awarded to Citygas the boundaries of the licensed territories and the design of reached �nancial close in October 2006. the exclusivity provisions of the new licenses. Finally, the report suggested a tender process designed to promote competition and transparency, which gave ad- DONOR COORDINATION equate incentives to fewer regional investors while protect- In addition to the PPIAF support, the Bulgarian energy sector ing consumer interests. The report outlined model tender also bene�tted from signi�cant support from the European documents and the evaluation method that could be em- Union, through its Phare and Sara programs. These programs ployed to select a winning bidder. supported the elaboration and implementation of an energy sector restructuring plan and the establishment of the State Energy Regulatory Commission. Reform of the gas distribu- OUTCOMES tion sector, and the energy sector in general, enabled Bulgaria The government and State Energy Regulatory Commission to meet the European Union’s accession requirements. accepted the recommendations of the PPIAF-funded report to provide a framework to launch the tenders for large new gas distribution regions. Subsequently the State Energy IMPACTS Regulatory Commission launched the tenders to choose gas From 2003–2006 the seven concessions awarded by the suppliers for 35-year licenses to operate gas supply systems government attracted combined private investment com- in the identi�ed regions. The 35-year build, rehabilitate, op- mitments in gas distribution networks of over $477 million. erate, and transfer concessions were awarded as follows: Since 2003 gas consumption in Bulgaria has risen by more • The Varna gas distribution concession awarded to Var- than 20% to over 3 billion m³ annually. Bulgaria’s 2020 Energy nagas reached �nancial close in July 2003. Strategy, adopted in 2011, envisions a further development of gasi�cation for household consumption, with plans for the • The So�a gas distribution concession awarded to So�a- construction of the country’s �rst natural gas power plants gas reached �nancial close in July 2003. and new gas interconnectors to Romania, Greece, Serbia, and • The Russe gas distribution 10-year concession awarded Turkey. The government has also announced plans for the to Gasosnabdyavane Ruse reached �nancial close in Oc- exploration of shale gas, and in 2011 Chevron was awarded tober 2003. a shale gas exploration license in the north of the country. • The Miziya gas distribution concession awarded to Black Sea Technology Company AD reached �nancial close in RELATED PPIAF ACTIVITIES IN February 2004. BULGARIA • The Dobrudja gas distri- • 1999: Structural and Regulatory Assessment of the bution green�eld conces- Since 1999 PPIAF, a Transportation, Telecommunications, Electricity, and sion awarded to Black multidonor technical Gas Sectors, $60,000 Sea Technology assistance facility, has helped • 2002: Strengthening Regulatory Framework for Company AD developing countries use public- New Gas Distribution Networks, $225,220 reached �nan- private partnerships to improve their • 2005: Design of a Competitive Wholesale Energy cial close in infrastructure. A key focus has been Market, $145,000 February upstream technical assistance to support • 2008: Europe and Central Asia: South-East Europe 2004. the development of an enabling Regional Gasi�cation Study, $47,000 environment for such partnerships. • 2008: Europe and Central Asia: South East Europe: Legal and Institutional Framework to Support This series highlights how PPIAF’s support Private Sector Participation in the Gas Sector, has made an impact on the ground. $300,000