Representatives of the Economy and Energy Ministry would not agree to an increase of the capital of the Sofia Heating Utility Company (SHUC) by 55 million leva, municipal councilor Valya Chilova (GERB Party) said.

Chilova represented the Sofia Municipality to the general meeting of the SHUC shareholders.

The Economy Ministry officials stated that the increase could be viewed as state subsidy, which is unlawful. Chilova explained that the Sofia Municipality wanted to increase the company's capital at its expense so that it could repay its debts to gas distributor Bulgargas. The Ministry's second motive involved that, prior to increasing the capital of SHUC, the Sofia Municipality should obtain a permit by the creditor-banks.

The Economy Ministry's decision was surprising for the Sofia Municipality, said Chilova. According to her, the Tuesday developments would postpone the settlement of SHUC's problems. The Municipality has developed a strategy and was ready to begin arrangements for the company'sprivatization virtually on the same day. If a strategic investor for co-generation is chosen, heating bills will be halved, the Sofia Municipality official also said.

If the Municipality had acquired 72.33 per cent of SHUC, as agreed with the Economy and Energy Ministry, it could have organized the company's privatization on its own. Chilova suggested that the Ministry's conduct has probably been prompted by its wish to carry out the privatization itself.

Later in the day the Economy and Energy Ministry issued a press release saying that it backs an increase of SHUC's capital through subscribing and issuing of new shares, if, however, there are guarantees of compliance with the law.

Under the State Aid Act the capital increase should be authorized by a competent body. The European Commission has not granted such authorization so far, the message says. According to the Ministry, this entails a risk that the Commission imposes a sanction on Bulgaria for undue state aid to the amount of 110 million leva (double the amount of the state aid provided).

The National Audit Office has not come up with a stand on the would-be raising of the capital either, nor have the creditor banks been notified of the planned increase, the message further says.

Source: BTA