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18 Oct 2016

Mechanism for Protection of Vulnerable Consumers in Bulgaria

Mechanism for Protection of Vulnerable Consumers in Bulgaria

The discourse of  protecting”vulnerable consumers” in relation to energy poverty has filtered down from EU legislation into national policy frameworks, as Teodora Peneva explores in the following guest article on the situation in Bulgaria.

On May 26, 2016, the Ministry of Energy announced a new mechanism for protection of vulnerable consumer of energy in Bulgaria, including financial, non-financial and long-term measures.

As part of the new mechanism, the definition of vulnerable consumers was re-written, to include three more groups of vulnerable consumers to the existing 17 groups covered by the targeted assistance for heating in effect since 2003. This will increase the target group to 1.1mn people (14% of the population) from the currently receiving winter heating allowance group of nearly 500,000 people. The newly added groups include 1) elderly over 70 years of age, living alone, with income only from pension that is up to the defined poverty line in the country for the respective year; 2) persons with over 90% reduced ability, with an attendant; 3) families with disabled children, with an attendant. Some of these criteria overlap with the existing persons and families receiving targeted assistance for heating under the Social Assistance Act of the country.

The definition for vulnerable energy consumers as outlined in the Additional provisions of the Energy Act prior to May 2016 stated that “vulnerable consumers” are household consumers receiving targeted benefits for electricity, heating and natural gas in accordance with the Social Assistance Act. The new draft definition states that “vulnerable consumers” are households that are supplied with electricity and are inhabited by people who for reasons of age, health or low income are at risk of social exclusion regarding electricity supply and consumption and benefit from social protection measures needed to provide them with the necessary supply of electricity.

Financial measures include introduction of a social tariff for electricity for the groups above. The tariff will cover the monthly amount of electricity needed for basic requirements only, which is up to 100 kWh per month per person/household using district heating or natural gas for heating of water for domestic use, or up to 150 kWh per person/household using electrical boiler for heating water, apart from heating needs.

Non-financial measures include: 1) establishment of a register of vulnerable consumers, and for people on life-support equipment to be protected from disconnection; 2) prohibition to suspend electricity supply during the winter for period of 30 days after payment deadline for persons with over 90% reduced ability with an attendant; 3) possibility for debt restructuring; 4) information campaigns; 5) objective and reliable online platforms; and 6) establishment of a code of ethics for suppliers of utilities.

The long-term measures are related to the National programme for energy efficiency of multi-family residential buildings funded through the budget of Bulgaria at the amount of BGN 1billion. The measure provides priority to multi-family buildings where more than 30% of the residents are energy vulnerable.

The social tariff for electricity will cover 70% of the price of energy in the total electricity price, which is some 33% of the final electricity price (with included distribution taxes and VAT), for the defined amount of electricity of 100/150 kWh/month. In the case of households using central heating for water, this will represent BGN 6.35 per month, or BGN 76.2 per year. In the case of households using electric boilers for heating water, this will be BGN 9.53 per month or BGN 114.36 per year. The tariff will be applied for 5 years, from 2017 to 2021. The annual budget for the social tariff is estimated at BGN 60mn, which will likely by funded from the state budget. This will be as an addition to the annual budget of about BGN 110mn provided for heating allowance so far. The total budget amounts to nearly 86.8mn Euro for protecting over 1.1mn vulnerable energy consumers. This comes as an addition to a building stock of a relatively low energy efficiency in the country, and building renovation programs that have also minimal coverage and budget. One billion Euro is currently provided for the period 2015-2017, which will help not more than 2,000 buildings or not more than 60,000 households of all income groups.

Bulgaria currently has no official definition for energy poverty, and not a strategy to define steps for gradual eradication of the problem. The working strategy is the anti-poverty strategy, which has no specific provisions on energy. The above mechanism was developed as a response to the requirements of the European Union and the Energy Roadmap 2050, issued in 2011.

Yet, the country has the largest percentage of energy poor people in the EU, according to latest statistics from the SILC survey. Estimations vary between 30% and 67% of a population of 8 million people, depending on the source and methodology used. Data from the National Statistical Institute shows that 1.58mn people lived below the official poverty line in 2015. Of these, less than a third receive heating allowance every year. At the same time, heating allowance covers a small portion of the housing cost, some BGN 72 per month during the 2015/2016 season. Housing costs amounted to BGN 168 per month in 2015, measured as an average amount for the year, not specified for the winter season, and the minimum living cost is BGN 560 per month for a member of a four-person family in the same period. Calculations of the Confederation of Independent Syndicates in Bulgaria show that 2.3mn people lived below the poverty line of a basket of 100 basic goods in 2015, or nearly 1mn more than the official poverty line.

In fact, the most vulnerable consumers are those with a slightly higher income than the eligibility criteria for the current heating allowance and for the expected social tariff. Current definitions and measures are covering the very minimum of the society’s needs, and are an “ambulance”, not a medicine, as experts from the Social Ministry comment.

The Bulgarian case shows clearly how EU directives are applied at the country level, and how effective this is regarding the income structure of the population and absolute costs. EU directives are practically inefficient without requiring member countries to apply a minimum absolute measurement for defining vulnerability, and for prescribing measures. Policies would have been much more efficient if vulnerability was addressed against minimum living cost in each country, with eligibility of consumers defined based on the remainder of their income after housing cost. However, often eligibility criteria are elaborated to fit a specific budget, approved in advance, and not to provide adequate support.