ANNOUNCEMENT
Re: Natural gas sale price formation
Ladies and gentlemen,
As regards requests for information related to the sale price formation of the natural gas supplied to the regulated market, the gas exchange - under Natural Gas Release Programme, and to clients with which Bulgargaz EAD has concluded contracts for 2020, and which as of 1st January 2020 will not fall into the scope of the legal entities under Art. 30, Paragraph 1, Item 7 of the Energy Act (the EA), Bulgargaz EAD informs as follows:
By amending Art. 30, paragraph 1, Item 7 of the EA, filed with an Act for amending and supplementing the Energy Act (AAS of EA), published in the State Gazette, issue 79 of 2019, significantly narrows the scope of legal entities Bulgargaz EAD sells natural gas to at regulated price. The amendment enters into force as of 1st January 2020, and Bulgargaz EAD in its capacity of Public Supplier will only sell natural gas at regulated price to:
- Natural gas distribution companies;
- Legal entities, holders of license for production and transmission of heat.
From the regulated market drop off all clients directly connected to natural gas transmission grid.
For 2020 Bulgargaz EAD as Public Supplier has concluded contracts for supply of natural gas at regulated price to clients connected to natural gas transmission grid, which are not holders of a license for production and transmission of heat or, respectively, distribution companies (“Contracts“). The Contracts were concluded a few months prior to entering into force of AAS of EA.
In accordance with the Bulgarian legislation it is a matter of principle that acts, including their amendments and supplements have not retroactive effect, i.e. they have only forward effect. Lack of explicit wording in transitional and final provisions of AAS of EA related to already concluded contracts with clients, which after entering in to force of AAS of EA, do not fall in the scope of the legal entities under Art 30, Paragraph 1, Item 7 of EA, stipulates the conclusion that such contracts retain their forward effect.
In the meantime, referring to the price in the contracts, determined in accordance with legal acts in force becomes irrelevant, because as of 1st January 2020 the EA shall not foresee the EWRC’s competence as regards the approval of the price under such Contracts.
In view of the newly occurred circumstances of objective nature (change in legislation) it is necessary the legacy contracts concluded with clients, which do not fall within the scope of the legal entities under Art 30, Paragraph 1, item 7 of EA, to become compliant with the new provisions of the EA, as the parties freely negotiate the price to be used for natural gas supplies as of 1st January 2020.
It is allowed that the price would also be determined by referring to the price for public supply proposed to EWRC for approval by Bulgargaz EAD.
In view of securing an equal treatment to its clients, Bulgargaz EAD considers that it should apply a uniform approach as regards price formation for supply of natural gas to the non-regulated market, and respectively to the prices under the contracts, which initially were concluded under regulated prices and then after entering into force of AAS of EA should be performed under freely negotiated prices.
In order to provide a flat transition and protect to maximum degree both parties’ interest, Bulgargaz EAD oferred to its clients sale price formation under the Contracts being done under provisions of Ordinance No 2 of 19th March 2013 for regulation of natural gas prices (the “Ordinance”).
As regards supply of natural gas at the natural gas exchange under the Natural gas release programme, Bulgargaz EAD applies the terms and conditions of the Agreement for implementation of the Natural Gas Release Programme, approved by EWRC on 29th November 2019.
As seen in the table below, price formation elements foreseen in Ordinance, applied in the price formation of different deliveries, are exceptionally similar, as taking into account the effect of special rules related to each delivery:
Bulgargaz EAD’s approach as applied guarantees objective and transparent price formation, taking into consideration the costs of the supplied natural gas.
Further to the aforesaid, Bulgargaz EAD has sent to all its clients, with which it has contracts for supply in 2020, and that as of 1st January 2020 do not fall into the scope of legal entities under Art 30, Paragraph 1, Item 7 of the Energy Act, a Notification accompanied by an Addendum No 2 to the respective Contract.
Bulgargaz EAD proposed amendment to the terms and conditions of the Contract, which determine the price of delivered natural gas, namely:
The value of delivered natural gas shall be paid under prices determined at 1 megawatt hour (MWh). The price for each month of the Contract term amounts to the price as proposed to Energy and Water Regulatory Commission for approval by the Public Supplier, under which the latter to sell natural gas to distribution companies and legal entities holders of a license for production and transmission of heat.
The proposed by the Public Supplier price above shall be formed under the terms and conditions of Ordinance No 2 of 19th March 2013 for regulation of natural gas prices.
The Public Supplier shall publish the price as formed on its website.
The price of the natural gas shall be in BGN per Megawatt hour (MWh).
For the first quarter of 2020 the proposed by Bulgargaz EAD price for approval amounts to BGN 44,04 (access costs, transmission costs, excise and VAT excluded).
Bulgargaz EAD intends to publish the proposed for approval price within 20 days prior to the beginning of each subsequent quarter.
The Notification on amendment of Contract’s terms and conditions and Addendum No 2 to the Contract are published on Bulgargaz EAD’s website.
Bulgargaz EAD management