S&P raised the outlook on Sofia's rating to "positive". The international rating agency S&P Global Ratings raised the outlook for Sofia's rating - from "stable" to "positive" due to the improved prospects for the capital's economic growth. The agency also confirmed Sofia's long-term credit rating - "BBB". The positive outlook reflects S&P Global Ratings' view that economic growth in Sofia could improve more than expected thanks to Bulgaria's entry into the eurozone, which is expected in 2025. Joining the eurozone would support income growth and welfare levels in the city , the Agency believes and add that the adoption of the euro could expand the city's sources of financing and improve its access to capital. The S&P Global Ratings announcement also said that Sofia will maintain relatively good budget performance thanks to a strong local economy that supports strong tax revenue growth. According to S&P Global Ratings, the agency could revise down the outlook to "stable" on weaker management practices such as those related to the City's companies, which have led to an increase in risks so far. Sofia's outlook may be revised to "stable" if the outlook for Bulgaria is also revised. Implementation of the new administration's policies could be hampered by structural challenges, the rating agency said. The agency considers Sofia's governance to date relatively weak in an international context, lacking long-term visibility of financial planning, and conservative, and considers the implementation of the city's capital plans and oversight of municipal companies to be generally weak. "We believe that the new city administration after the elections at the end of October 2023 can change the policy, focusing on increasing efficiency," S&P Global Ratings said. "The new mayor, Vasil Terziev, who is supported by a pro-European coalition, is leading a campaign to improve the transparency and efficiency of the municipality and its companies. In our opinion, this could reduce the risk in some of the municipal companies that have long suffered from weak finances, including the struggling company "Toplofikatsia".
Source: economy.bg (20.02.2024)

The state buys the liabilities of Toplofikatsia Sofia for BGN 1.6 billion A draft decree of the Council of Ministers proposes approval of changes in the budget of the Ministry of Energy for 2024, the ministry being additionally financed with a budget balance at the expense of the central budget in the amount of BGN 1,580,315,352. The purpose of these funds is to acquire the receivables of the Bulgarian Energy Holding (BEH) and Bulgargaz EAD from Toplofikatsia Sofia, explained the minister in resignation and added that this will be done according to the order and up to the amount according to the Law on the State Budget. He added that a positive decision on state aid regimes must be obtained from the European Commission (EC) or that the acquisition does not constitute state aid within the meaning of the Treaty on the Functioning of the European Union (EU). We have systematically accumulated a huge amount of obligations on the part of "Toplofikatsia Sofia" to the energy sector for gas supplies, said Radev and added that over the years, one part of these obligations was transferred from "Bulgargaz" to BEH, another part continues to grow and accumulates in balances with "Bulgargaz". As of December 31, the amount was close to BGN 800 million, at the moment it is again the same volume, explained the resigned Minister of Energy. His expectations are that as of March 31, the liabilities will slightly exceed BGN 800 million. This unfavorable practice ultimately leads to the impressive sum of BGN 1.6 billion in liabilities to the BEH group.
Source: vesti.bg (28.03.2024)

The absurdities in the Bulgarian energy industry continue. With a decision approved on Friday, the resigned government of Nikolay Denkov has amended one of the series of decisions in the sector, obliging "Bulgarian Energy Holding" to donate BGN 728 million to the Power System Security Fund. The strange donation was reached after the National Assembly obliged the Ministry of Finance to urgently provide BGN 1 billion to cover a deficit in the fund, which must cover the costs of liberalization of the electricity market for households. Now, however, it turned out that a local tax amounting to BGN 36.4 million must be paid on the donation. Usually the tax is paid by the recipient, but in this case the cabinet decided to oblige the donor BEH to pay it. By law, the state and municipalities are exempt from local tax on donations, but in this case the grant funding is from a commercial company to a fund. The donation itself should be made within 7 days from the day on which the Ministry of Energy will acquire the debts of "Heating-Sofia" to BEH and "Bulgargaz" for a total value of BGN 1.6 billion. There is currently no data on this operation to be finalized. No similar draft documents for entry have been submitted for the lot of the municipal company. There is no decision of the metropolitan municipal council on the subject, and the company is municipal. The scheme proposed by the "Denkov" cabinet for the transfer of loans and debts in the energy sector is very problematic, especially in terms of state aid. It is not clear whether, against the background of these questions, the caretaker government will not cancel the decree on granting 1.6 billion BGN extraordinary funds from the budget of the Ministry of Energy until receiving an opinion from the EC. The amount was ordered by the Ministry of Finance at the beginning of April, and the huge payment is one of the reasons why the parliament decided to limit payments outside of pensions, salaries and overheads. If the MC revokes the decree, another solution will have to be sought to secure funds for the Power System Security fund.
Source: Sega (12.04.2024)

"Toplofikatsia Sofia" missed an opportunity to save BGN 200 million in costs "Toplofikatsia Sofia" missed the opportunity to save BGN 200 million in costs from its carbon emission quotas over the past six years. The municipal company concluded contracts with disadvantageous clauses with emissions traders and bought allowances at prices that were significantly higher than market prices. These are the summarized conclusions from an expert analysis of public data for 2019-2024 prepared for Greenpeace - Bulgaria. Calculations show that during the period under review, quota cost savings of BGN 20-30 million per year were possible if quota trading was adequately managed. In 2019, the contract between "Toplofikatsia Sofia" and the commercial intermediary "Grand Capital" entered into force, which provides, on the one hand, a remuneration for the intermediary in the amount of 0.50 euros for each purchased quota. On the other hand, it also foresees a fixed price for the purchase of carbon emissions quotas of 28.50 euros/ton. However, at the time of the conclusion of the contract, the estimated emission prices are significantly lower, and for 2019 they are 23 euros/ton, and for 2020 – 25 euros/ton. By paying a fee to the intermediary, the "Heating Sofia" customer should expect to receive an optimally advantageous price at an optimally advantageous time as a service from the intermediary. By fixing a price, significantly higher than the estimated prices, the transaction benefits the intermediary at the expense of the client, practically receiving double remuneration. For 2020, nearly 34% of the quotas are worth EUR 29.70/ton, 4.24% were ordered for EUR 27.75/ton, and the remaining over 60% cost between EUR 44 and 45/ton. To the extent that the market prices of allowances do not approach these values at any point in 2020, it can be reasonably concluded that these prices are fixed and most likely embedded in the contract with Grand Capital. They were paid to the significant detriment of "Toplofikatsia Sofia", as the highest price of the annual futures for 2020 was 33 euros/ton. According to the conclusion of the Revision Commission, the pre-fixed price in the contract was significantly higher than the current price of the quotas on the dates when the intermediary carried out the exchange transactions. This is how the intermediary earns BGN 9.2 million from the transaction for the emissions of "Toplofikatsia Sofia", in addition to the commission of BGN 800,000 for each purchased quota.
Source: actualno.com (24.04.2024)

The executive director of "Toplofikatsia - Sofia" Alexander Alexandrov has resigned from his post. The reason for his decision are the accusations from last week of the municipal councilor of the capital from "We continue the change - Democratic Bulgaria" ("Save Sofia") Boris Bonev, according to whom Aleksandrov, appointed at the time of the former mayor of Sofia Yordanka Fandakova from GERB, abused procurement. Bonev talked about an "extremely profitable family business" of the director and the woman with whom he lives on a family basis, related to the outsourcing of public procurement activities.
Source: Dnevnik (14.06.2024)

Without a competition and after two days of scandals, the Metropolitan Municipal Council adopted a decision changing the composition of the boards of directors in 6 key municipal companies that manage assets over BGN 3 billion. The changes will go into effect even if they are contested, as a preliminary implementation has been approved. At the same time, it was voted to announce competitions for permanent managers of the companies. They will be done according to the previous rules, despite the intention of the PP-DB/"Save Sofia" managers to have this happen in a new, more transparent way. The companies that will have new management are: "Toplofikatsia Sofia", "Center for Urban Mobility", "Metropolitan Motor Transport", "Metropolitan Electric Transport", "Metropolitan" and "Sofinvest". Four of the five members of the "Metropolitan" management board are changing. The new leadership includes former Deputy Minister of Transport, appointed under the management of the "Petkov" Cabinet, and Deputy Head of the "Ruse-Caspian" project at the National Railway Infrastructure Company - Nikolay Naydenov, a lawyer who was in the municipal "Pazari Zapad" - Delyana Ivanova, as well as Konstantin Azov, who changed a number of management positions in state transport companies in recent years. He was last in the management of BDZ, and his career started in the management of GERB at the national level. The current executive director and former mayor of the "Studentski" district of GERB, Dimitar Dilchev, has been released from the Center for Urban Mobility. The only current board member who has retained her seat is Rumiana Milova, who over the years was responsible for parking in paid zones. New to the management of the company is Ekaterina Stefanova, who was the director of "Development and administrative activities" in the company, worked in the "Studentski" district under the management of Dilchev. The administration also includes Petar Seferov - director of "Port Infrastructure" until October 2023, Stanimir Arabadzhiev - deputy director of the state "Automotive Administration" and Alexander Georgiev, who also works at TsGM. One person also remains on the board of "Stolichen autotransport" - Lachezar Pekov. The new management includes two people who now work for the company, a lawyer, a person who worked in the "Road Infrastructure" agency, as well as the owner of a waste company. Directors Evgeniy Ganchev and Kiril Georgiev are proposed to keep their positions in the management of "Stolichen Electrotransport". Among the new members of the board is a person who worked at "Sofia Airport" as well as a manager of a food additives company. As for the supervisory board of "Toplofikatsia Sofia" - Sasho Chakalski, who was the head of Municipal Bank before its privatization, retains his position. and two new members enter - Georgi Balabanov, who was a manager of business development and international projects, as well as an advisor in the European Parliament, and Miglena Ivanova - financial controller at "Bulgargaz". They replace Valentin Terziyski and Milena Tsenova "Toplofikatsia Sofia" elects the board of the company, from which the executive director is issued. Only one person retains his place in the management of "Sofinvest".
Source: mediapool.bg (12.07.2024)

IMF: State-owned companies in Bulgaria are expensive, inefficient and carry risks for everyone Large companies with state participation in Bulgaria have low profitability and inefficient allocation of resources, and although they are not significant in terms of share, they play a decisive role in the production network, which can negatively affect the productivity and competitiveness of the entire economy. The level of state-guaranteed debt of state-owned enterprises is small - on average only 0.5% of GDP in 2010-21 (the average level in the EU is 9%, and in other countries of Central and Eastern Europe it is 3.5%). And the support with such guarantees due to the COVID-19 pandemic was many times lower - 0.3% of GDP in Bulgaria compared to almost 2% in the EU for 2019-2021. But there is a key point - there is no generalized information on guarantees in Bulgaria, issued by the state-owned enterprises themselves, since their activity does not require the approval or supervision of the Ministry of Finance. Thus, total liabilities averaged around 12% of GDP in 2013-2021, which could be a source of concern. This is stated in the Analysis of the International Monetary Fund "Fiscal risks of state-owned companies". The analysis is based on data from 15 companies in which the authorities at various levels have over 50% share: Energy sector (National Electric Company (NEK), Kozloduy NPP, Bulgargaz, TPP Maritsa Iztok 2, Electricity System Operator, Bulgarian energy holding (BEH), Mini Maritsa Iztok, "Bulgartransgaz"), Transport sector (National Railway Infrastructure Company (NRI), BDZ - Passenger Transport Ltd., Air Traffic Control (RVD), Transport Construction and Reconstruction (TSV), BDZ - Cargo Services Ltd., Port of Varna, Bulgarian Port Infrastructure). The total assets and liabilities of these 15 companies represent about 70% of the total for the entire segment with state participation 2015-2021, which covers about 700 companies. The general assessment for them is that the fiscal support is much higher than what they give as revenues to the budget. In 2017-19, they received subsidies, capital investments and capital transfers (direct support) and deferred tax and dividend exemptions (indirect support) of an average of 1.5% of GDP. To this they have responded with a contribution of 0.2%. Net, they absorbed 1.3% of GDP immediately before the pandemic and at the end of the last GERB government. In the first pandemic year (2020), this ratio became 2.5% against 0.1% and is an illustration of how an unexpected shock can lead to large fiscal costs for companies with state participation, the IMF says. These are companies in which 4.1% of all employed work. Their financial stability can affect the fiscal performance of the state, especially when they have incurred potentially significant costs, whether expressly guaranteed or without the authorities making a contractual commitment. In 2023-2024, the state doubled the dividend collected by these companies from 50% to 100% to support the budget, but the price for this is a risk to their investment, productivity and profitability. "Furthermore, the dividend policy lacks predictability and seems to be driven by the needs of the state budget. Such a policy reduces the incentives of companies to invest and thus has a significant adverse effect on economic activity," the authors of the report add. State-owned companies are much, much less profitable than those in the private sector. Return on assets (one of the key measures of profitability) was between minus 1% and 2% for the period 2015-2021, with an average of 10% in private. In 2022, this difference suddenly melted (9% for state-owned, 11% for private), but not because there was better management, but because of three specific companies - NEK, Kozloduy NPP and Maritsa Iztok 2 TPP, and their income from sharply increased energy prices due to Russian aggression against Ukraine. Return on equity (another measure of profitability, measuring a firm's ability to generate profits using its shareholders' capital) for SOEs is on average 20 percentage points lower than that of private firms. Due to the specifics of many state-owned enterprises, profitability is logically lower than that of private ones, but in countries with better management results, the difference between them is 4 percentage points or five times smaller than in Bulgaria, the IMF recalls .Everyone suffers from the bad management of business with state participation. Six state-owned enterprises have been facing short-term challenges in meeting their obligations for years. In the period 2015-2022, without sufficient liquid assets to cover the amounts due to creditors in the next 12 months were National Railway Infrastructure Company, TPP Maritsa Iztok 2, National Electric Company, BDZ - Passenger Transport, BDZ - Freight Transport and Transportation Construction and Reconstruction. Bulgargaz faced a liquidity crisis in mid-2022 due to low collection of receivables and arrears from Toplofikatsia Sofia. Accumulated arrears to suppliers were paid through a (bridging) loan and/or state aid. Another indicator of concern to IMF analysts is the high debt-to-asset ratio (ie, less financial flexibility) of several large state-owned enterprises. These are, for example, "Bulgartransgaz", National Railway Infrastructure, Bulgarian Energy Holding and Electric Power System Operator. It has also seen how debt-to-asset dynamics can change sharply - in the case of Bulgargaz, it jumps from around 45% in 2019 to over 90% in 2022. The combination of high debt and low profitability raises concerns for the ability to service the debt and therefore risks at the fiscal level, the IMF explains.
Source: Dnevnik (18.07.2024)