Power Problems

Economic News

22 Jul 2010
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Outlining the government's energy development strategy last month, Bulgaria's Energy and Energy Resources Minister presented a substantial list of future projects. With regional energy market liberalisation just around the corner, calls for a substantial refurbishment of power supply and generation facilities were high on the agenda, while some important new pipelines were also on the list. Yet the element of the plan that grabbed all the headlines was the project to build a new nuclear power plant, perhaps part-financed by funds aimed at helping decommission Bulgaria's existing reactors.

Milko Kovachev, the minister concerned, revealed his list of priorities on May 19. These included the Nabucco natural gas pipeline and the Burgas-Alexandroupolis and Burgas-Vlore oil pipelines. In addition, plans to use local coal at the Maritsa East complex, the rehabilitation and modernisation of other power generation facilities and an upgrade of the national power transmission infrastructure were also high on the agenda.

Kovachev was also making his remarks in order to outline Bulgarian participation in regional power markets, alongside the European Union single energy market. Bulgaria is already a key player in electricity, both as an exporter and as a transit country for east-west and north-south grid lines. Boosting this role is therefore of major importance, particularly as market liberalisation is likely to see heightened competition. Bulgarian power producers will then able to directly conclude deals for electricity export with any company in South-eastern Europe, Italy, Austria, Slovenia, Hungary and Moldova. However, so will power producers from other countries.

To boost the country's competitive position, the minister explained, requires Bulgaria to establish new generating capacity. Thus, the proposed construction of the country's second nuclear power plant, at Belene, on the River Danube.

Bulgaria already has one nuclear power station - at Kozloduy, 200 km north of Sofia. This plant produces 45% of local energy supplies and is a major reason for the country's leading position as a regional electricity exporter. Yet due to security concerns, two of the units at the plant are scheduled for closure in 2006 under the country's accession deal with the EU.

Herein lies the current controversy. Many now say that it was a grave error to link the closure of the two units to the EU agreement, arguing that the deal failed to allow for upgrades at the plant to tackle the original safety concerns.

This has led to a rash of conspiracy theories over why the EU continues to insist on the closures. This insistence is despite a report from an EU delegation to the plant in November 2003 which concluded that the two units had been upgraded sufficiently to be safely run until the end of their life spans, in 2010 and 2012 respectively.

Finnish Euro MP Piia-Noora Kauppi even accused the European Commission of "purposely crippling the economy of a struggling future member state" by insisting on the closures.

Certainly, the authorities in Sofia are also regretting their acceptance of the closure deal.

On June 2, President Georgi Parvanov urged the EU to agree an extension of the deadlines it has set for the two units' closure.

"If this is obviously a tactical mistake the Bulgarian party made in handling the accession talks," he told a meeting being held to celebrate the 30th anniversary of Bulgaria's nuclear programme, "wouldn't the (EU) member-states show understanding to a future member-state and spare the Bulgarian citizens from being punished for the mistakes their rulers made?"

Workers at the plant have also protested the closure plans, while a petition featuring some half-million signatures demanding the plant be kept open has also been collected.

The opposition Bulgarian Socialist Party (BSP) has also not been backwards at coming forwards on the issue. Exploiting the government's obvious embarrassment, the BSP has now called for a national referendum over whether the units should be closed or not.

Meanwhile, debate has also begun on the proposal to build a second nuclear power plant at Belene, on the River Danube.

Until now, those in favour of the project have argued that the new plant is needed first of all to offset the dip in production that will result from the closure of the two units at Kozloduy. According to the Energy and Energy Resources Ministry, the country will need additional generating capacity of between 1000 MW and 2000 MW by the year 2012, meaning that construction has to start now if the gap is to be filled domestically.

Secondly, the Ministry is working on the assumption that the entire region will require extra capacity by around 2009, the year the Belene plant would come online if started now. In addition, Bulgaria also has environmental commitments to slash its output of greenhouse gases, with nuclear power - perhaps ironically - seen as a good solution for preserving the planet's ecology. Finally, there is also the argument that the plant will bring jobs and incomes to a depressed area, and particularly the neighbouring city of Russe, one of the country's major economic black spots. It would also provide employment for those losing their jobs at Kozloduy.

However, the proposal has also drawn protests from environmentalists, who argue that its location on the Danube presents a potential nightmare if there were ever a leakage at the plant, while there are also questions over the area's geological suitability.

The economics of the proposal are for the state to own a 51% stake in the plant, with between 20% and 49% available to foreign investors. National Electricity Company project management unit chief Krasimir Nikolov said late May that the government was thinking of issuing a state guarantee for 50-80% of the overall financing, ruling out an earlier proposal to offer a 100% guarantee.

How this financing will be arranged was fleshed out a little further too by Nikolov, who said that the government's participation might be made using money accumulated by the existing plant at Kozloduy.

This has money in two funds, the first of which has been provided for the decommissioning of reactors, while the second has been provided for environmental safety. The two amount to some Lv300m and are expected to grow by Lv100m a year. The European Bank for Reconstruction and Development is currently financing these decommissioning and environmental safety activities. How this idea will go down with them remains to be seen.

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