Taking the Nuclear Option

Economic News

22 Jul 2010
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Three weeks after Bulgarians went to the polls, discussions still continue on the formation of a new government. Meanwhile, the business of doing business has continued - with news this week of progress in a controversial nuclear energy project.



The scheme, which will see the construction of two nuclear power units at Belene, located on the Danube River about 250 km north-east of Sofia, has hit protests from environmentalists and economists, yet, the government argues, is vital for the country's energy security.



On July 13, the announcement came that two consortiums have purchased tender documents to be the lead contractor in the project. Bulgarian papers reported that the bidders were a consortium led by Russia's Atomstroiexport, which includes France's Framatom and Germany's Siemens, and another consortium led by the Czech Skoda Power, which is working with Westinghouse and Citigroup from the US.



At the same time, the EIU reported, RAO UES of Russia and Italy's Enel have also expressed interest in participating in the project as shareholders.



If realised, the Belene nuclear plant will be the largest single investment development in Bulgaria for the past 20 years. The total investment is likely to reach around 2.5bn euros, with the first unit of the new plant expected to be in operation by 2011, followed by a second reactor starting up in 2013.



The majority stakeholder in the project will likely be the Bulgarian state, which is expected to keep a 51% interest in the project, through in-kind contributions of existing nuclear power facilities and previous investments at Belene, valued by analysts at around 1.3bn euros. Yet the project foresees the major financial and operational role to be that of the private sector.



The timetable on the tendering process sets a deadline for final bids of July 17. The winner is then expected to be announced by the National Electric Company (NEC) in the autumn, with work commencing shortly afterwards, if the 2011 deadline is to be met.



The tendering announcement is the latest in a long series of steps by the authorities regarding Belene. The project was initially launched way back in 1986, under communist rule, but a lack of financing and protests from environmentalists led to the suspension of work in 1991.



Meanwhile, Bulgaria's existing nuclear power plant, at Kozloduy, came in for strong criticism from the European Union over safety, with this leading to the planned shutdown of two of its 440-MW Soviet-era reactors in December 2006. The plant has four of these smaller reactors, and two larger 1000-MW units. Two of the smaller reactors have already been closed - back in 2002 - due to safety concerns.



The government argues that with these closures, it will need to make up the difference - Kozloduy currently has 2880 MW of installed capacity, and generated around 40% of the country's total output in 2003.



At the same time, extra capacity will also be required as the economy expands, although currently, theoretical installed capacity nationwide is around 12,000 MW while peak demand is only around 8000 MW. However, energy sector analysts say, the installed capacity is often in fairly obsolete plants which need major upgrading.



At the same time, Bulgaria naturally wants to maintain its important role as an electricity exporter. Two 1000-MW units are planned for Belene, and might come in handy for that too.



The Bulgarian government therefore decided on April 7 this year to give the go-ahead for a relaunch of the project and the construction of the country's second nuclear power plant.



In addition, "The construction of the Belene nuclear power plant will influence significantly the labour market in northern Bulgaria," a government statement said last April. "It will contribute to an increase in the average working wage and will reduce unemployment in the region by nearly 50%, as the plant is expected to create nearly 1000 job positions for specialists."



Yet for all that, the scheme remains unpopular with many. The chief environmental criticisms centre on the fact that the plant will be located in a seismically active area, while, opponents argue, the question of storing spent nuclear fuel has not been fully resolved.



The plant is also on the Danube River, one of the world's busiest waterways, and only 100 km from the neighbouring Romanian capital of Bucharest. Romanian groups have therefore been particularly vocal in their opposition.



At the same time, some economic analysts have questioned the wisdom of such a large-scale investment, with some suggesting the eventual cost is more likely to be 4bn euros. The opposition parties' also objected to the timing of the government's decision on the project, making it an issue in last month's elections.



"The economic and social price of the project, the risk for national security, which the incumbents take with the construction and exploitation of the Belene nuclear power project, as well as the conditions on dealing with radioactive waste, are all unacceptable for Bulgarian society," a statement from the main Bulgarian protest group argued back in April.



Nonetheless, the outgoing government was determined to carry the project through, and the fact that opposition objections have been largely technical indicates strongly that whatever the shape of the new government, it will likely forge ahead at Belene as well. However, in the meantime, much is on hold, awaiting the outcome of the now-lengthy horse-trading going on over the government's future complexion.

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