Pipelines & Power Plants

Economic News

22 Jul 2010
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Bulgaria is looking to shore up its long-term energy supply needs by pulling together conventional and nuclear power to guarantee that the lights stay on in the coming years.

The energy sector in Bulgaria has been in the news a lot in recent months, often not for very positive reasons.

There have been some tangled negotiations with Russia over the pricing of gas provided in lieu of transit fees. Then there has been ongoing criticism of both of Bulgaria's existing nuclear reactors and plans to replace them. Finally, there have been fears of shortages or massive price hikes that have made the headlines.

The sector again found itself on the front pages when the German magazine Der Spiegel reported on April 25 that there had been major systems failure at the controversial and ageing Kozlodui nuclear power plant in March.

Though Bulgarian officials denied this was the case, they did acknowledge there had been an "incident" at the complex, which the EU wants to see closed ahead of Bulgaria's accession to the bloc.

Bulgaria is in negotiations to both deactivate the Kozlodui plant, which uses similar technology to the ill-fated Chernobyl station in Ukraine, which exploded 20 years ago. The aim is to replace the plant with a new generation reactor at Belene on the Danube.

Though a cabinet ruling to fast track the construction of the new nuclear power plant was taken on April 20, with work on administration and utility buildings set to start in June, no decision has yet been made as to the contractor to build the reactor itself. However, this should happen by the middle of the year, according to Lyubomir Velkov, the executive director of Bulgaria's national power grid operator, NETC, though funding for the project still has to be found.

If Bulgaria does comply with EU demands to shut down its existing reactors at Kozlodui, something that it has tried to put off, it will be faced with the need to increase its dependence on other energy sources, just at a time when it is heading towards a possible confrontation with Russian gas exporter Gazprom.

Under pressure from Moscow to review the pricing structure for the supply of natural gas, Bulgaria, and indeed neighbouring countries, fear another showdown along the lines between Russia and Ukraine that cut supplies to Europe and Turkey last winter.

Though Sofia's agreement with Gazprom is not due to be renegotiated until 2010, Russia is looking to increase prices by up to 40% this year - a strong incentive for Bulgaria to seek other options.

Currently, Bulgargaz, Bulgaria's natural gas retailer, receives gas in lieu of a transit fee for every 1000 cu metres transported over every 100 km, at the set price of $82.50 per 1000 cu metres. This works out at a gas price of about one-third of current market rates. This is what Russia is seeking to change, while the threat of losing this cut-price supply that has prompted Sofia to seek alternatives.

On April 20, Prime Minister Sergei Stanishev met with his Polish counterpart, Kazimierz Marcinkiewicz, to discuss co-operation in the energy sector and supply diversification.

The two leaders said their countries would collaborate on the creation of a joint energy policy and work together under the common EU energy policy to increase the range of sources.

During the meeting, Bulgaria also signalled its interest in becoming involved in the Nabucco pipeline project, which foresees carrying Iranian and Azeri natural gas through networks in Turkey and then on to Romania, Bulgaria, Hungary and Austria. A tentative start date for construction has been set for 2008, with completion scheduled for three years down the track.

However, Stanishev has stressed that his country's potential involvement in the Nabucco pipeline should be seen a move to secure a source of additional supplies to feed Bulgaria's growing need for energy, rather than opposition to Russia.

"Each country should seek its own proportions and balances," he said after his meeting with the Polish prime minister, going on to again stress this was not a move to enter into economic competition with Russia or shut it out of the Bulgarian market.

The meeting between the Bulgarian and Polish prime ministers came just one week after Gazprom flagged its intent to turn the screws on Sofia over pricing and supply.

Talks between Bulgaria's Energy and Economy Minister Roumen Ovcharov and Alexander Medvedev, Gazprom's deputy executive director and general manager of its export arm Gazexport, in Sofia on April 14 made clear how wide the gulf is between consumer and supplier.

Saying that the existing formula could no longer be justified given present natural gas prices and increased levels of gas being pumped through the trans-Bulgarian line to clients in Greece, Macedonia and Turkey, Medvedev said that a new agreement had to be reached based on a lower transit fee, offset by annual investments of $100m in gasification projects.

However, while conceding that Bulgaria will have to consider Gazprom's demands and accept an increase in some charges in return for higher volumes of gas being shipped through the pipeline running through the country, Ovcharov said that the transit fees in the agreement were fixed.

Bulgaria can ill-afford to antagonise Russia, yet neither can it afford to make too many concessions. Further rounds of negotiations with Gazprom, along with talks with neighbours to ensure energy diversity, are therefore set to continue.

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