Decision No. 5 of 11 May 2017 on Constitutional Case No. 12/2016
Referring Authority and Subject Matter of the Case
The case was initiated upon a request submitted by forty-nine Members of Parliament from the 43rd National Assembly. The subject matter of the case is the establishment of unconstitutionality and the declaration of inconsistency with Article 63 of the Treaty on the Functioning of the European Union (TFEU) of §18, paragraphs 1, 2, 3, 4 and 5 of the Transitional and Final Provisions of the Act Amending and Supplementing the Energy Act (TFP AASEA) (promulgated in State Gazette, issue No. 56 of 24 July 2015). In the request, it is first argued that the principle of the rule of law, proclaimed in Article 4, paragraph 1 of the Constitution, has been violated. The applicant further contends that the contested provisions are also contrary to rules laid down in international treaties to which the Republic of Bulgaria is a party, which establish an obligation for the State to protect foreign investments and not to impair such investments by unjustified or discriminatory measures. The applicant maintains that there is also a contradiction between the contested provisions in §18 of the TFP AASEA and Article 19, paragraphs 2 and 3 of the Constitution, as well as an inconsistency with the rule laid down in Article 63 TFEU.
Summary of the Court’s Reasoning
Taking into account the process of development of the national legal framework in the renewable energy sources (RES) sector in its entirety, the Constitutional Court holds that the legislature has employed a broad range of measures in pursuing a policy aimed at promoting the production and consumption of energy from RES, in accordance with the Union policy on security of energy supply, environmental protection, and the prevention of climate change.
The Constitutional Court considers that the amendments to the legal framework have been introduced by the Bulgarian legislature in a consistent manner, are based on systematic analyses conducted by the competent national authorities, and are in conformity with the Union objective of achieving an internal energy market, as well as with the steadily emerging trend in EU regulatory law towards minimising direct price support and integrating renewable energy producers into the competitive market. Accordingly, the Constitutional Court finds that the contested legislative amendments introduced by §18 of the TFP AASEA cannot be qualified as infringing legal predictability and the principle of trust in the stability of the legal framework in the renewable energy sector, and holds that §18 of the TFP AASEA does not contravene Article 4, paragraph 1 of the Constitution on this ground.
The Constitutional Court also assesses as unfounded the applicant’s claim that §18 of the TFP AASEA violates the principle of legality due to an alleged contradiction with the objectives of the Renewable Energy Act and that its provisions create internal inconsistency within the same statute. On the contrary, the contested provisions achieve precisely the opposite effect - bringing the statutory text into alignment with the objectives of the Renewable Energy Act, understood within the legal context of the European legal framework and the national tasks in the sector, namely the establishment of a functioning electricity market, a fair distribution of the financial burden borne by society for environmental and climate protection, and the assurance of a competitive economy.
The Constitutional Court maintains that the objective of the contested provision of §18 of the TFP AASEA is legitimate, as it prevents a negative socio-economic effect, namely the increasing price of electricity for end consumers. The Court does not find that there exists, on the part of the economic operators falling within the scope of §18, paragraph 1 of the TFP AASEA, a constitutionally relevant interest in the preservation of the previous legal framework that would outweigh the public interest in reducing these prices and in the development of a competitive electricity market in the country.
The Court considers that the contested legislative amendment not only does not violate, but in fact ensures the effective implementation of the principle that the law shall guarantee equal conditions for economic activity for all economically active entities, as laid down in Article 19, paragraph 2 of the Constitution.
Furthermore, for a violation of the principle under Article 19, paragraph 2 to be found, the inequality must be of such a nature as to call into question, in the specific circumstances, the very essence of equality, which most often leads to a violation of a fundamental right, including the right to property. The Constitutional Court emphasizes that, pursuant to the said provision, compensation in cases of compulsory expropriation of private property for state and public needs must be equivalent, and not the most favourable (i.e. yielding the highest expected returns) for the owner.
At the core of the alleged inconsistency of §18 of the TFP AASEA with Article 63 TFEU lies the asserted legitimacy of the legal expectations of investors falling within the scope of paragraph 1 of the same provision to the continued maintenance of guaranteed high profits and a position of economic advantage. Emphasizing that constitutional protection extends to justified legal expectations, and taking into account the specific nature of the regime of preferential pricing granted in the country to a certain category of economic operators in the renewable energy sector prior to the amendment introduced by the contested §18 of the TFP AASEA, as well as the requirement that investors’ expectations must be formed with due care and must be reasonable under the given circumstances, the Constitutional Court finds that reliance on legitimate expectations in the present case is unfounded.
Grounds for the Ruling and Disposition
Pursuant to Article 149, paragraph 1, item 2 (the competence to rule on requests for a declaration of unconstitutionality of laws) and item 4 of the Constitution (the competence to rule on the compatibility of laws with international treaties to which the Republic of Bulgaria is a party), the Constitutional Court rejects the request submitted by forty-nine Members of Parliament from the 43rd National Assembly for a declaration of unconstitutionality and for a finding of inconsistency with Article 63 of the Treaty on the Functioning of the European Union of §18, paragraphs 1, 2, 3, 4 and 5 of the Transitional and Final Provisions of the Act Amending and Supplementing the Energy Act (promulgated in State Gazette, issue No. 56 of 24 July 2015).