After the acceptance of the Energy Strategy of Republic of Bulgaria in 2002, the Bulgarian energy sector could be characterised with the words: restructuring, privatisation and liberalisation. It is important to note that this process is very slow and the energy sector continues to be ineffective and is far from the understanding of the words "competitive sector". The distribution of electric energy is already separated from production and is in private hands, although this does not change the fact that a large part of electricity is still produced by state owned companies. The electricity grid National Electric Company (NEC) is owned by the state as well. The claim that the there is already a free market for electricity and almost any user could freely negotiate the price of their supply is arguable. It is clear that NEC is buying enormous quantities of electricity (including long term contracts for buying electric energy from the thermal power plants Maritza-Iztok 1 and 2, as well as electricity from renewable sources), which inevitably affects the market and the price. On the other hand even if the consumers negotiate freely with the distributors or directly with the producers, the fact that these producers are state owned is enough reason to claim that the price is not determined entirely by market conditions.

In fact everything in the Bulgarian energy sector comes down to one simple word - competition. The aim of the current state policy (followed by the European Commission as well) is to reach a high level of competition in the sector. The main question, however, remains how exactly to achieve this competition?

Until now the Government considered that it was enough just to liberalise the sector in order to achieve competition. Liberalisation in this case meant the artificial break up of the large government monopolies and creation of smaller, but still state owned, companies. The smaller companies in question were then privatised and passed into private hands. In other words the logic of the Government was approximately the following: "It is nice to have competition and many players on the market, however if by chance there is a larger player than the rest then it must be state owned." Such logic however is twisted. It is based on the understanding that the state monopoly is something good, while big business and its aspirations for growth and taking over market niches are something bad. The sector, however, offers the presence of large players and if this does not change there will never be a competitive energy sector.

An interesting example with a similar sector is telecommunications. This sector used to be a state monopoly and now there are just several big, private players on the market. Did big business damage the sector? Or did it make it one of the most developed in the country?
The understanding of the ways to achieve competition in the sector must be changed from "let us first liberalise (break down the large state companies) and than eventually privatise" to "let us privatise immediately, then the liberalisation (the restructuring of the existing structures and the entry of new players on the market) will happen by itself".

However, the probability that the Government will change its approach to the energy sector during 2008 is very high. Unfortunately the variant outlined above to achieve higher competitiveness in the sector may remain a low priority. In mid-February, the Minister of Economy and Energy announced that "the ministry was working on the creation of an energy holding, which would combine the natural gas distributor Bulgargaz, NEC, the Kozloduy nuclear power plant, the Maritza-Iztok 2 thermal power plant and Mini Maritza-Iztok (Maritza-Iztok Mines)".

Energy Minster Petar Dimitrov said this would be "a significantly competitive structure". It is interesting to note that in all official documents talk about the creation of a more competitive sector but nowhere is mentioned the creation of competitive structures. This structure practically will have no one to compete with. This is the Government's vision of a "competitive sector".

Apparently, the Bulgarian Government has a quite mixed vision about the energy sector and as a result the misunderstanding of the term "competition". The misunderstanding of competition was illustrated perfectly during July 2005 by the state department responsible for those issues - the Commission for Protection of the Competition (CPC). On July 6 2005, the CPC allowed the purchase by PAO EEC Russia of TES Varna JSC. The Russian company won the tender by offering a price which was double that offered by the next competitor (CEZ). On July 8 2005, only two days later, CPC allowed the purchase by PAO EEC Russia of Rousse Central Heating Plant. The price offered was over four times higher than the next contender (again CEZ). CPC however, placed a restriction which did not allow the execution of both deals. The deals in question were for over one billion leva, but according to CPC they would have lead to the establishment of a predominant position, which would have significantly limited effective competition on the market. The Russian company was forced to choose which one of the two companies to acquire and as a result both deals failed.

When remembering these events the question arises: if competition was limited by a private company acquiring two companies, each with a relatively small market share, how will the consolidation of the largest companies in the sector and the formation of a very large state owned holding help?