A fortnight after construction began on Bulgaria's second nuclear power plant at Belene, the Government is launching another large-scale initiative.

In a surprise motion on September 19, it registered Bulgarian Energy Holding (BEH). The suddenness of the move sparked media speculation that this was a deliberate move to conceal unregulated sales between state-run companies. The Ministry of Economy and Energy dubbed the hasty set-up as an example of improving the efficiency of state administration.

Sudden or hasty, the formation of BEH is already a fact. With consolidated assets of 8.5 billion leva, consolidated revenues of 3.6 billion leva and 21 000 people on the payroll, it is venerated as the giant that will reinstate Bulgaria as a regional energy leader.

September is a pivotal month for Bulgaria's energy sector with a flurry of long-standing decisions coming to fruition and flagging changes at root. 

Who's in
The structure of the new holding emerged from a consultation developed by Deloitte Bulgaria at the behest of the Economy Ministry and tabled in February 2008. With one exception. The holding integrates all five state-run energy companies, but instead of creating an entirely new holding, it uses gas supplier and distributor Bulgargaz Holding EAD as the umbrella. Alongside Bulgargaz are Kozloduy nuclear power plant, the country's power grid operator National Electricity Company (NEK), Maritza Iztok 2 thermal power plant and Maritza Iztok mines and their subsidiaries.

Minority Government stakes in the electricity distribution firms privatised in 2005 could also enter BEH's portfolio at a later stage, provided that restructuring proves a success, Bulgaria's Economy and Energy Minister Petar Dimitrov said at a September 19 news conference. The government owns 33 per cent in each of the companies majority-owned by CEZ of the Czech Republic, E.ON of Germany and EVN of Austria.

BEH will remain in charge of the country's oil and gas projects-South Stream, Nabucco and Bourgas-Alexandroupolis - but it is to part with Belene, the minister added.

Compliance
The new holding becomes the owner of the companies' equity, but not their assets, in what the local competition watchdog named a hedge against a monopolistic grip on the energy market. Bulgaria's Commission for Protection of Competition (CPC) greenlighted the new structure in July.

Each entity would continue operating independently but under the strategic guidance and fiscal targets prescribed by the parent company. This model does not represent a concentration of business activity but rather internal restructuring within state-run enterprises, CPC said in support of its decision.

BEH is fully compliant with local and European Union legislation, Dimitrov said, thus staving off concerns that concentration of production and distribution assets contravened the third package for liberalisation of EU electricity and gas markets. The package of regulations, to be put up for discussion at the autumn summit of EU energy ministers, foresees decoupling production from distribution assets.

Its passage, the minister said, would likely be protracted because countries are yet to settle differences about its expediency. If and when it is accepted, BEH will adjust its plans accordingly, he added. This would mean BEH would have to divest itself of gas transit firm Bulgartransgaz and the Electricity Grid Operator (EGO), owned by Bulgargaz and NEK, respectively.

Management reshuffle
Under the strategy drawn up by Deloitte, BEH will shun the practice of political appointments and employ senior managers through open recruitment procedures. Relevant experience and knowledge of local and EU energy markets top the list of job requirements. This means all five companies will shortly have new chief executives, headhunted from Bulgaria and abroad.

Until the appointment of the new executive team, the holding will be temporarily run by a five-member board led by Deputy Economy and Energy Minister Galina Tosheva and the executive directors of the collective companies except Bulgargaz. The recruitment process is estimated to last two months.

Savings
The Economy and Energy Ministry maintains BEH will help achieve higher efficiency and quality of energy services, optimise costs and introduce modern mechanisms to attract investment.

According to Deloitte, cooperation among the individual enterprises would mean 70 million leva in savings. Rough calculations show that costs of raw materials are expected to fall by seven to 13 per cent, transportation by five to 25 per cent, personnel by up to 15 per cent and rental by two to seven per cent.

Deloitte said results would arrive later, once BEH finishes operational restructuring and optimisation and has appraised its financial performance. The process would take at least a year. At that time, the holding would also have prepared its application for a credit rating in what will be the first step toward going public. Bourse listing will take place only when the unease on the financial markets fades, Tosheva told reporters.

BEH opens a new page for Bulgaria's energy market, energy experts have commented. Whether it shares the fate of Czech state giant CEZ, whose identical restructuring, also based on recommendation by Deloitte, or puts it on track to be a major player on the Central and Eastern Europe stage, remains to be seen.