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State Commission for Energy and Water Regulation Initiated Procedures for Deprivation of Licences of CHEZ Electro Bulgaria Jsc. and CHEZ Distribution Bulgaria Jsc

On the 20-th of February 2013 State Commission for Energy and Water Regulation (“SCEWR”) announced on its internet site two resolutions concerning procedures for deprivation of CHEZ Electro Bulgaria Jsc. and CHEZ Distribution Bulgaria Jsc. of two licenses: license for public supplies with electrical energy and license for distribution of electrical energy respectively.

The procedures are based on acts for establishment of administrative offences issued on 19th of February 2013. The acts are not final and are subject to appeal by the CHEZ Companies. Previous administrative offences established with audits from last couple of years supports the current procedure as well. Generally, the breaches of law established are for violation of obligations for provision of documents to the SCEWR, breaches of the public procurements procedures and violations of the provisions for replacement of existing devices of commercial measurement. The state authorities found that the public procurements and execution of other activities of importance had been made by related parties which had affected the estimation of the publicly regulated prices as approved by SCEWR.

Both resolutions provide for 7 days term for the CHEZ companies to terminate the activities that represent the offences said and to eliminate their consequences, as well as to provide a written opinion on the procedure for deprivation of the licenses.

SCEWR scheduled an open hearing for deprivation of the two licenses on 16-th of April 2013. The law stipulates that the SCEWR shall notify and warn the companies in writing. The SCEWR can decide to deprive the licenses provided that the companies do not cease the breaches or do not eliminate the consequences, or do not comply with the instructions given. In addition, SCEWR shall estimate the level of the offences as well as the risk for energy supplies, breaches of the aims and principles of the law and how often the law or the licenses terms and conditions have been breached. CHEZ Companies shall be entitled to make their objections towards the grounds for deprivation at the open hearing of SCEWR on the 16-th of April 2013. Based on these SCEWR shall adopt a resolution whether to terminate the procedure or to derivate the licenses or one of them.

Provided that SCEWR adopts a resolution for deprivation of the licenses of the CHEZ Companies, it shall set forth a term for actual termination of the licensed activity. In case that it is required, it shall also assign a special manager of each company, whose assignment shall be registered in the Commercial Register and announced in the State Gazette for the period of court proceedings against SCEWR’s resolutions for deprivation of the licenses. The special manager shall receive under inventory list the projects of the company, manage the license activities on behalf and for the account of the company until transfer of the energy producing and transporting assets and determination of a new licensee. In case of licenses deprivation SCEWR shall also prohibit the company to apply for other licenses within certain period of time, but not less than two years. The opening of the procedure for deprivation of the license of the CHEZ Companies does not eliminate the option for other administrative procedures towards them with view to their violations.

Acts for administrative violations are issued to the other two public suppliers and distributors of electricity in Bulgaria – EVN and ENERGO PRO, but SCEWR has not initiated any procedures regarding their licenses.