EKIP– Expert Club for Economics and Politics A Different Opinion
It is high time to understand that the state cannot give someone something that it has not taken from someone else. And since it is not possible for everyone to enjoy privileges, and someone always has to pay for them, interventions always cause conflicts.
Въпреки силно левия (т.е. антипазарен уклон) на исканията и слоганите, чути по време на протестите по българските улици, за средно интелигентния (и честен) страничен наблюдател трябва да е ясно, че настоящата криза е директен резултат от действията на държавата.
Foreign investors, always convenient for populist attacks, whose only goal in life is, if the loud-mouthed party leaders who have ridden the protests are to be believed, to rob the honest and poor Bulgarian citizen, are only the fuse that will probably blow in the form of license revocation. Energy is perhaps the most prominently centrally planned sector of the Bulgarian economy, with administrative pricing for the end user, state consumption forecasts, “recognition” of network losses, long-term guaranteed quantities and prices of purchased energy from private, public and mixed energy producers, and a strict licensing regime[i].
The latter is very interesting from the point of view of the fact that energy distribution is a sector that is considered a pure form of “natural” monopoly, in which competition cannot arise anyway due to the prohibitive initial investment. The standard definition of a natural monopoly gives central importance to the huge fixed costs required to build infrastructure, as well as to the technologically derived economies of scale that allow a supplier to satisfy demand most efficiently, i.e. at the lowest price. Since the same supplier will necessarily eliminate and will not allow new competition to enter in the future, a monopoly arises that must be regulated by the state so that it does not abuse this position.
Even if we accept this static thesis of freezing the technological advantages of a single seller and reject the idea of competition as a dynamic process of competition, the question remains - why is this naturally inaccessible market also administratively protected from new participants through a licensing regime. In fact, these powers of the State Electricity Regulatory Commission, which stop competition in energy distribution, are an implicit recognition of the bankruptcy of the mythology of the "natural" monopoly[ii].
The series of events of the last months are a wonderful illustration of the effects of interventionism, described by Ludwig von Mises back in the 1920s[iii]. Despite the declared most honorable intentions[iv], the intervention of the state in a market (in this case energy) leads to a crisis, and the public reflex demands more interventions to correct the situation. The new interventions – the “sequestration” of administratively created monopolies, the promise to reduce centrally planned electricity prices through changes in the energy mix lead to new protests, in the case of miners who feel threatened by the reduction of the percentage of electricity generated by thermal power plants. Guaranteeing their jobs, with at least half-hearted compliance with the promise regarding the price, cannot but affect another group interest, that of investors in “green” energy, for example. And if they are unlikely to take to the streets, there are far less obvious, but more effective methods of influencing political decisions and preserving/expanding privileges such as guaranteed high purchase prices.
It is high time to understand that the state cannot give someone something that it has not taken from someone else. And since it is not possible for everyone to enjoy privileges, and someone must always pay for them, interventions always cause conflicts. In addition to direct harm to certain groups that pay for the privileges of others, state intervention represents an indirect burden for everyone, due to the creation of financial incentives in the political process, which can only redistribute, but not create additional benefits. The pressure from left-wing associations for more and more interventions must be shown in its essence, namely a step down the steep slope of interventionism towards the return of total control of the repressive state apparatus over the economy, i.e. over the lives of all of us.
[iv] From the Energy Law:
Art. 2. (1) The main objectives of this law are to create prerequisites for:
1. qualitative and reliable satisfaction of society's needs for electricity, heat and natural gas;
2. energy development and energy security of the country through efficient use of energy and energy resources;
3. creation and development of a competitive and financially stable energy market;
4. energy supplies at minimal costs;
6. promoting the combined production of electricity and heat;
7. development of infrastructures for the transmission and distribution of electricity and natural gas and for the transmission of oil or oil products on and through the territory of the country.
(2) The production, import, export, transmission, distribution and trade in electricity and heat, natural gas, oil and oil products shall be carried out while ensuring the protection of the life and health of citizens, property, the environment, security of supplies, the interests of consumers and national interests.
The guaranteed high purchase prices for green energy are intended to encourage the development of this industry. This is normal practice everywhere in the world. What went wrong in Bulgaria is that our regulatory authorities allowed investors of a HUGE scale to build green energy plants with huge capacity. And at some point, of course, it turns out that it is not profitable, because a large amount of green energy, which is expensive, appeared too suddenly.
YES, the state should have intervened to limit the creation of such large projects!
They are harmful because they provide too much capacity of expensive energy in a short time and upset the entire system.
They are also harmful because they are made by foreign companies with foreign equipment and do not contribute to the Bulgarian economy. Whoever claims that this is a useful foreign investment should think about how much of this money actually stays in Bulgaria?
That it is a practice to subsidize one sector completely unnecessarily by giving a certain group money collected from the rest. There is nothing normal or right about that.
Is bringing in capital and creating production by foreigners a bad thing for you?
Thanks for the answer.
On your first question - I'm not competent to say whether it's right or wrong, but this is an initiative that comes from the European Union, and I assume there are strong arguments in its support. After all, this is one of the goals of the union, isn't it - for us all to contribute our share to the common budget and then for our competent representatives in Brussels to distribute the money to sectors that they deem appropriate.
In principle, injecting capital is the best thing that can happen to a country, but let's be a little more critical and look at what is happening in this particular case.
I give the example of solar power plants because I have knowledge there.
The Germans/Americans/Indians/Chinese (or someone else) come to build a solar power plant. They supply the panels and other equipment from elsewhere, the labor comes from elsewhere (even if they hire workers from Bulgaria, which is unlikely, the capital that remains is minimal, because these things are built very quickly and against the background of the entire investment, labor is a negligible expense). After they build it, what remains is this object that requires almost no maintenance, i.e. they generate almost no expenses in Bulgaria. They generate only the profit from the expensive electricity that they sell to the citizen and this profit is returned back to the respective country from which the investor comes. So instead of 100 small Bulgarian companies building power plants and making money, which they will still spend in Bulgaria, a few large foreign ones come and export the money to us. According to the first example with the Bulgarian companies, these power plants will be built gradually and so there will not be such a sharp volume of expensive energy.
In contrast, imagine Bill coming to build a store. They build with materials from Bulgaria, hire Bulgarian staff, sell Bulgarian goods, and that's how the money circulates in Bulgaria. - This is capital import, the rest is ONLY export!
I don't hide the fact that I am personally involved in a solar power plant project. Very small. And do you know how great it is when the state announces certain conditions and promises you that it will buy your energy, etc. You invest money and effort to build something and a few months later they cut you off, lower your price, introduce a bunch of obstacles just to break your business. Take a look at how brutally this sector was subsequently cut. Most Bulgarians who invested there are facing bankruptcy. This is discrimination.
Promoting "green" energy with high purchase prices on the one hand and limiting "large" (however large or small) projects are defined) on the other is actually very typical behavior of the state trying to juggle several conflicting group interests.
This is like subsidizing tobacco production while banning smoking. And yes, that is also a favorite ploy of the administration.
You said it very accurately, Bulgaria is trying to juggle several conflicting interests. And the worst thing is that it does not take the interests of its citizens into account at all.