Nuclear ambitions fan controversy in Bulgaria

Nuclear ambitions fan controversy in Bulgaria

The New York Times

SOFIA — As governments around the world struggle to secure energy supplies, cut carbon emissions and adapt to rising oil prices, Bulgaria has adopted an ambitious solution: Construct a new nuclear power plant, the country’s second, near the northern town of Belene, across the Danube from Romania.

Critics say the project is economically flawed, open to corruption and mismanagement, and will cement Russian dominance of Bulgaria’s energy sector while putting Bulgarian taxpayers at risk of footing the bill. The government says global energy pressures make the project necessary.

At a cost that is likely to exceed the contracted €4 billion, or $5.8 billion – already 16 percent of Bulgaria’s gross domestic product last year – the nuclear plant at Belene is the most expensive public works project in the country’s post-Communist history. Construction was actually started in the Communist era, in 1981, but the project was cancelled in 1990, before reactors were installed but after some $1 billion had been spent, as Bulgaria struggled with an economic crisis.

In 2003, the government of the then prime minister and former exiled king, Simeon Saxe-Coburg-Gotha, announced the resurrection of the Belene project.

NEK, the state-owned national electricity company, will hold a 51 percent stake in the plant. Bids for the remaining 49 percent stake were taken until Oct. 17 from five short-listed private investors: Enel, of Italy; E.ON and RWE, from Germany; the Czech power utility CEZ; and the Belgian power company Electrabel, owned by the French utility Suez.

Construction restarted this year with a €250 million loan from BNP Paribas. The project is awaiting a technical report by the European Commission before applying for an additional €350 million loan from Euratom to finance the second stage of construction. If the loan is approved, it would be the first time that Euratom financed the construction of new nuclear capacity rather than expanding existing facilities.

The government is pushing Belene to offset the loss of production that followed last year’s closure of two reactors at the country’s Kozloduy nuclear plant, in the northwest of the country. Bulgaria agreed to shut down the reactors for safety reasons as part of its entry into the European Union in 1999.

After the reactor closures, electricity exports were expected to end completely. But NEK announced this month that Bulgaria still planned to export 3.6 million megawatt-hours this year, down from 7.7 million in 2006.

In the past, Bulgaria covered 70 percent of the power import requirements of Greece, Romania, Serbia and Macedonia. Belene is seen as a carbon-free means to win back these markets.

The Bulgarian Prime Minister, Sergei Stanishev, told Parliament in January that Bulgaria’s energy policy was “totally consistent with the priorities of the EU energy policy, to build competitive national, regional and European-wide markets while protecting the environment and ensuring safe energy supplies.”

“Not having its own resources of natural gas, oil and high calorie coal, Bulgaria’s choice of building the Belene nuclear power plant is first and foremost a choice in favor of energy independence from fossil fuel supplies, which come precisely from Russia,” he said.

Independence from Russia energy supplies, however, is not self-evident at Belene. Bulgaria has awarded a contract to Atomstroyexport, in which the Russian gas giant Gazprom owns an 84 percent stake, to build the plant and install two 1,000 megawatt water-pressurized reactors. As a result, Belene will be the first Russian nuclear plant built in the European Union.

Russia already provides 100 percent of Bulgaria’s natural gas, 89 percent of its imported crude oil – which is processed at the only Bulgarian oil refinery, owned by the Russian company Lukoil – and 36 percent of its hard coal imports. Russia also provides all the nuclear fuel for the Kozloduy power plant, and recycles all its spent fuel.

“All the economists have attacked Belene on the basis of price, state guarantees and independence,” said Georgy Ganev, an economist at the Center for Liberal Strategies in Sofia. “You can’t completely lock yourself into Russian technology and Russian-supplied fuel at a moment when you are capable of diversifying.”

Critics say that money spent on Belene would be better used on less glamorous improvements of energy efficiency like insulating buildings. Bulgaria, according to 2004 figures from Eurostat, the European statistics office, is by far the most energy-inefficient state in Europe, using eight times more energy than the average amount used in the 27 EU member states to produce every €1 of gross domestic product.

Analysts have also attacked the lack of public debate and the inconsistency of government statements on the extent of state-backed financial guarantees, saying the opacity masks a determination to build the plant regardless of cost.

One vocal critic, Krassen Stanchev of the Institute for Market Economics in Sofia, has estimated the cost to the state at 2.1 percent of Bulgaria’s annual GDP.

“Belene has no clear economic or technical rationale,” said Ivan Ivanov, a member of Parliament from the opposition party, Democrats for a Strong Bulgaria, who sits on the parliamentary energy commission. “Electricity exports are not profitable when the state invests €4 billion in the construction of Belene. If it was profitable, the private sector would do it.”

One possibility could be for NEK to offer a 15-year fixed-price electricity purchasing guarantee, said Djurica Tankosic, a senior vice-president at WorleyParsons, the architect and engineering contractor on the project. “We are looking at the optimal structure of the securitization of this project,” Tankosic said.

Financial guarantees are currently the subject of negotiation with potential investors, but Tankosic said the state would not cover 100 percent of the investment risks.

One major unknown for the project is what the price of electricity will be in 2014, when Belene is expected to begin producing for the national electricity grid. Other countries are also building new capacity to feed the growing economies and energy needs of the region. In neighboring Romania, for example, the Cernavoda nuclear power plant started commercial operation of its second 700 megawatt reactor this month.

According to Standard and Poor’s, the credit rating agency, “NEK’s intention to participate as a majority owner in the Belene nuclear project could significantly increase the company’s exposure to operating, regulatory, market, and environmental risk.”

Some critics say that rather than meeting Bulgaria’s economic needs, the project is a response to lobbying pressures from the country’s several thousand nuclear professionals whose livelihood has been threatened by the progressive closure of Kozloduy. They also say that corruption has long been rampant in the arcane world of public procurement in energy, dominated by a handful of companies close to those in power.

Ognyan Minchev, director of the Institute for Regional and International Studies, in Sofia, charged that Russian interests had used direct cash payments to individuals to influence procurement decisions in similar projects. “Russian companies and Russian authorities have absolute freedom of what we might call ‘informal personal influencing’ of public officials in countries like Bulgaria,” Minchev said, without citing specific examples.

Ganev, the economist, said that as much as one-third of the cost of Belene could be channeled into questionable payments.

One allegation of corruption surfaced this year when the city council of Svishtov, a town located 10 kilometers, or six miles, from Belene that opposes the project on environmental grounds, brought to the attention of prosecutors a $7.8 million contract for an environmental impact statement and feasibility study signed by NEK with Parsons E&C Europe, which has since been renamed WorleyParsons Europe.

Some Bulgarian nuclear engineers said that nearly the same work had already been carried out at the site by the state firm Energoproekt, for about $150,000.

Justifying the contract and its cost, Tankosic, who signed on behalf of Parsons, said the work involved was a “very in-depth review” by a large group of licensed companies. “The process was absolutely transparent and it was absolutely by the books when it comes to Bulgarian regulations,” he said. Officials at NEK declined to comment.

Three months after receiving the complaint, the prosecutor’s office has yet to determine in which jurisdiction it should be investigated. Bulgaria has long been criticized by the EU for a dilatory approach to corruption issues.

Deutsche Bank and UniCredit backed out of financing Belene in July, after Deutsche Bank cited environmental risks as well as the bank’s commitment to social responsibility. German environmentalists say there is a danger of seismic activity in the region, and that the Russian reactor should not be licensed because it lacks a safety appraisal.

“According to our laws and solid political orientation, we are in the European Union and NATO,” said Ivanov, the opposition member of Parliament. “But in the most important economic sector of the 21st century – energy – we are still in the sphere of Russia.”

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