SOFIA (Reuters) - Bulgaria raised electricity prices by an average of 2 percent on Tuesday aiming to keep politically sensitive costs at bay despite huge deficits in the Balkan country's energy sector.
The move, announced by the country's energy regulator late on Monday, comes less than a week after it said that state power provider NEK had accumulated debts of 2.9 billion levs (1.3 billion pounds).
In May, the regulator urged NEK to renegotiate agreements under which it is obliged to buy all the electricity produced by two coal-fired plants owned by U.S. companies AES and ContourGlobal, which produce about 20 percent of Bulgaria's power.
The regulator said the agreements breached EU competition rules and that NEK should renegotiate terms to lower the cost of electricity produced by AES by at least 30 percent and ContourGlobal by a fifth.
It said in a statement the partial market liberalisation, reduced consumption and a high ratio of electricity bought under long-term contracts had led to an "excess of electricity delivered at prices not in line with market valuation".
This is the first price rise approved by the regulator since June 2012.
Electricity costs are a politically sensitive issue in the European Union's poorest country where power bills consume a large slice of household income, especially in winter.
The Socialist-led government has cut power prices twice since coming to office last May aiming to avert a repeat of street demonstrations against high power prices which toppled the previous centre-right government in February 2013.
However, Prime Minister Plamen Oresharski's cabinet, dogged by street protests and charges of graft, has said it would resign soon after the Socialists did badly in the EU vote.
Bulgaria's wholesale natural gas prices will fall by 1.81 percent from July 1, the regulator said. It set gas prices at 601.7 levs ($420) per 1,000 cubic metres for the third quarter of 2014 from 612.8 levs.
Russia's Gazprom supplies over 85 percent of the gas required by Bulgaria, whose daily gas requirement averages 3.3 million cubic metres per day.
Last month, the government said it could ensure natural gas supplies for at least three or four months if a price dispute between Moscow and Kiev disrupts supply.
($1 = 1.4293 Bulgarian Levs)
(Reporting by Angel Krasimirov; editing by Jason Neely)