Insolvency among electricity traders on the increase in Bulgaria

In the wake of increased competition stemming from the recent liberalisation of the Bulgarian electricity market, more and more electricity players and major electricity traders such as Future Energy and Energy Financing Group are now facing serious financial difficulties.

According to reports, some are now fighting to stay afloat after the initiation of insolvency proceedings. Given this increased market pressure, analysts state it is likely these and other energy traders may declare bankruptcy and face eventual liquidation.

The disruption appears to be connected to the arrival of renewable energy companies (“RES producers”) into the free market and their ability to sell power at non-regulated prices (i.e. without FiT). The advent of RES producers is the result of legislation passed three years ago. At that time, many of Bulgaria's electricity traders opted to seize this opportunity and retain new clients by offering competitive prices to these renewable energy producers.

Initially, the RES producers were competitive on the free market despite the costs of this type of power generation.

But low-margin operations, however, now seem to be turning against both RES producers and the electricity traders with a crushing affect on the market as a whole. Electricity traders have been unable to generate more profit in order to pay off increased prices to RES producers, resulting in delayed payments to these producers and other creditors, and ultimately pushing many traders into insolvency.

Because many of the endangered energy traders are tied to each other commercially, this insolvency avalanche is expected to cause more instability in the foreseeable future.

Unfortunately, creditors may have little luck recouping losses in insolvency proceedings since energy traders traditionally do not have properties or assets apart from the receivables they are owed. This factor is seriously jeopardising the interests of these creditors.

For more information on this eAlert, please contact Kostadin Sirleshtov, Iliyan Petrov and Deyan Draguiev.