Economic Update

Published 22 Jul 2010

While the heat wave this summer that hit continental Europe dried up rivers and left residents sweltering, it also had one positive spin off for Bulgaria. The country’s energy exports received an unexpected boost – with the state provider grabbing an even larger share of the Balkan electricity market.

In a public statement released in late August, Bulgaria’s state-controlled electricity provider, the National Electric Company (NEK), proudly announced that its already substantial share of the Balkan electricity export market had risen from 46% in June to a commanding 65% in July.

NEK’s statement also indicated that in a summer typified by constant peak rates of energy consumption – largely due increased use of air-conditioners, fridges and fans – the company came to the aid of neighbouring Balkan countries by providing the vast bulk – 90% – of the region’s electric power deficit.

In a statement from the company on September 17, NEK attributed this extraordinarily high market share to a very specific short-term environmental problem: the heatwave. Continuously rising temperatures dried up existing water supplies vital for the functioning of hydroelectric plants – which, coincidentally, are not a major source of power generation in Bulgaria, but are elsewhere in the Balkans.

Neighbouring Romania’s electricity sector provides an ideal case in point. Over the past 2-3 years, Romanian power stations, akin to their Bulgarian counterparts, served as a stable source of energy supply within the region. This, however, changed in the course of this past summer.

With water one of the most effective and cost-efficient cooling systems for the maintenance of nuclear reactors, a sudden dramatic change in the water’s natural flow can create a situation whereby operations are temporarily halted.

This was the case for the 750MW Cernavoda nuclear reactor, located in south eastern Romania and providing 10% of the country’s overall power output. Significant reductions in the flow of the Danube River resulted in the shutting down of the plant on August 23.

Fortunately, because of its coolent pipe’s deeper position within the Danube River, Bulgaria’s nuclear reactor, Kozlodui, unlike its Romanian counterpart, was not effected by the river’s reduced water flow.

Bulgaria’s enhanced involvement in the electricity export market is, of course, nothing new. In an interview that the Oxford Business Group, James Nye, the Co-Founder and Director of the London-based electricity trading firm, Energy Financing Team Limited, (EFT), said Bulgaria was now “one of the more consistent and larger exporters of electricity within the South Eastern Europe region”.

Nye then highlighted NEK’s aggressive lobbying for its strategic interests within the region as a major factor in its export success.

“While there is no official entity called NEK Trading,” he said, “Bulgaria’s National Electric Company (NEK) actively competes in the same league as my company, EFT, for regional electricity tenders that tend to crop up from neighboring energy companies that find themselves in desperate need of imported electricity.”

NEK has also been successful in establishing strategic relationships with foreign partners. One of the latest examples of this occurred in late August, when the Bulgarian government announced that NEK, in association with Austria’s Va Tech GmbH, had agreed to invest EUR107m in the construction of both a 111m cubic meter water reservoir and an 80MW hydroelectric plant.

The future location for this modern hydrocomplex, tentatively called Tsankov Kamak, is the town of Smolyan in the central Rhodope Mountains. The final phase of the project is expected to be completed by the beginning of 2007.

At present, NEK’s main export markets are Greece, Albania, Montenegro and Macedonia. However, recent events in the Middle East could create new areas for growth – at least according to the Bulgarian minister of foreign affairs, Solomon Passy.

The minister was in Iraq two weeks ago with a delegation that included Bulgarian businessmen eager to stake their claim to lucrative long-term infrastructure projects. Passy surprised everyone by saying that with Iraq suffering from an acute shortage of energy, he was confident that Bulgaria had the “capacity to fill the gap” in Iraq by sending electricity via Turkey.

In an effort to avoid committing Bulgaria to a project that was not even officially in the planning stages, later that day, Energy Minister Milko Kovachev attempted to clarify matters. He said that what his ministry effectively had in mind was to offer “small shipments of some 5-20MWhs of electricity on account of the fact that connections between both Turkey’s and Iraq’s energy systems are very restricted.”

He also stressed the fact that an ambitious project of this sort was risky by nature, largely because of the immense distances that had to be covered, the extremely short timeframe and the exorbitant logistical expenses that would inevitably come into play.

Immediately following the return of the Bulgarian delegation, NEK officials gave further credence to Kovachev’s carefully phrased assertions by highlighting the fact that because the ‘talks’ in question were only in the preliminary stages of development, it was simply too early to fix even an approximate value of the total cost of the project in question.

Moreover, with the Iraqi reconstruction effort going on against the background of a protracted low-intensity conflict, the Bulgarian government will have to think long and hard whether this daunting project is really worth their while.

However, with Syria and Turkey both expressing an interest in providing energy-starved Iraq with electricity, the Bulgarian government needs to make a decision soon if it hopes to receive a sizeable share of the pie.