bulgaria: the legal framework on central heating distorts

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• Bulgaria: The Legal Framework on Central Heating distorts Competition and may harm Consumers’ WelfareBy Decision No 623/30.05.2013, the Bulgarian Commission on Protection of Competition (CPC) adopted a competition advocacy opinion in ex officio proceedings concerning compliance with the competition rules of the two legal acts regulating the supply of central heating: the Energy Act (Chapter Ten-Central Heating Supply) and the Ordinance on Central Heating Supply.

In its opinion, the CPC identified a number of provisions that restrict and/or distort competition in the Bulgarian market for the supply of central heating and in the related market for the allocation of central heating cost to individual consumers. Most of those provisions, directly or indirectly, affect consumers’ welfare negatively as well. In particular, the problems relate to:

• The allocation of central heating energy between individual consumers in apartment buildings in Bulgaria is not done transparently and is not based on market principles. According to the legal provisions, the three types of energy for which consumers pay – energy for water heating, energy for the building’s common heating installation and for heating individual apartments -, are mostly calculated and allocated using formulae set in the Ordinance, instead of using exact metering. The CPC considers that the elements of those formulae are not transparent and some of the variables may not reflect correctly the specific characteristics of particular buildings. The Commission also found that apartment owners are deprived of the right to decide themselves what method to use for allocating the energy for the common parts of the heating installation. The CPC recommended that all technically possible options be included in the law and that the apartment owners be allowed to decide which of them to use.

• The CPC established that the existing legal prohibition on removing heaters in individual apartments compels consumers to pay for the allocation of heat from those heaters, even though they are turned off. The CPC expressed its opinion that this prohibition should be lifted.

• The companies that are performing heat cost allocation service among consumers are subcontractors of the central heating supplier, which is also performing this service. The heating supplier sets the prices for the services provided by its competitors. In the CPC’s opinion, this removes price competition between those companies, facilitates exchange of sensitive information between competitors and allows for possible abuse of a dominant position by the heating supplier. The CPC recommended revoking the corresponding legal provisions and allowing the allocation companies to negotiate directly with consumers.

• The legal provisions do not encourage entry into the market of alternative suppliers of central heating. At the moment, there are only local vertically integrated undertakings, which enjoy a 100 % dominant position in those local markets. The CPC recommended discussing and adopting a strategy for opening those markets to competition.

The CPC’s opinion, together with recommendations for legislative amendments, has been addressed to the National Assembly and the Ministry of Economy and Energy.

Further information available on the Bulgarian Authority’s website