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By Tsvetelia Tsolova

SOFIA (Reuters) - Prime Minister Boiko Borisov sought to calm mass protests on Tuesday by promising to slash electricity prices and punish foreign-owned power companies, setting Bulgaria on a collision course with EU partner the Czech Republic.

A day after sacking his finance minister, Borisov said the distribution license of central Europe's largest listed company, Czech-based CEZ would be revoked, and other firms fined after the latest round of increasingly violent protests.

Tens of thousands have demonstrated across Bulgaria, the European Union's poorest country, against high electricity bills and demanded that the government re-nationalize power distributors, just months before an election.

Budget cuts have felled a series of governments around Europe but Borisov, a former bodyguard to Bulgaria's Soviet-era dictator Todor Zhivkov, had seemed relatively immune until recent weeks, in part because he has frozen salaries and pensions rather than cutting them.

Bulgarians make a meager 800 levs ($550) a month on average.

"I am worried for the small incomes of people and the prices - and the fact that we have only a limited scope to react," the prime minister told reporters, in his first public comments since nationwide protests spread on Sunday.

11 people were arrested after protesters hurled stones at parliament and clashed with police in the latest protests in the capital Sofia on Monday night. There were protests in at least five other cities, and authorities expect people to come out again on Tuesday.

Borisov was opposed to protesters' demand for nationalization of power distributors, which also include another Czech company, Energo-Pro, and Austria's EVN.

But the government would propose an 8 percent cut in electricity prices from March to the energy regulator, CEZ's license was to be revoked by the end of the day and the three power companies had also been fined, Borisov said.

CEZ, central Europe's biggest power provider which provides electricity to 1.9 million clients in western Bulgaria, denied any wrongdoing and accused the government of politicizing the issue to win votes.

The Czech government, which owns 70 percent of CEZ, has already stepped into a row between the company and Albania, and industry minister Martin Kuba said Bulgaria's move was "very alarming".

HEFTY BILLS

CEZ shares in Prague extended losses after the news, falling 1.4 percent to a three-week low. EVN shares fell 4 percent in Vienna and Sofia-listed Energo-Pro shares plunged 10 percent.

CEZ's Bulgarian distribution business accounts for 1.5 percent of operating profit and its loss could also lead to impairments and the news follows Albania's decision to revoke its license there last month.

Borisov did not disclose the amount and reasons for fining EVN and Energo-Pro or why only CEZ would lose its licence but the economy ministry cited breaches of public procurement law.

The premier is wary of succumbing to the same fate as a previous Socialist administration in 1997, which resigned days after protesters stormed the national parliament in response to a banking crisis and hyperinflation.

His GERB party's lead over the opposition Socialists has almost disappeared with only four months until the election in July, and his image has been damaged by the economy and failure to crack down on widespread corruption and organized crime.

Bulgaria raised the costs of electricity - politically sensitive since bills eat a huge part of modest incomes - by 13 percent last July, but the real impact was not felt until households started using electrical power for heat in winter.

Borisov dismissed opposition demands that he resign, saying his government had to maintain fiscal stability during the global economic crisis and had done more than its predecessors to overhaul Bulgaria's outdated roads.

Analysts said Borisov's pledge to cut energy prices may help defuse public discontent temporarily, but he has to come up with a clear vision how his cabinet will tackle unemployment and low incomes to win support.

"The promised price cut is adequate, but for the protests to cease Borisov has to deliver much more and say how he plans to raise incomes and deal with the rising unemployment", said political analyst Boryana Dimitrova with Alpha Research pollster. ($1 = 1.4649 Bulgarian levs)

(Additional reporting by Angel Krasimirov in Sofia and Jason Hovet in Prague)

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