In 2011 it seemed that Bulgaria would end its dependence on Russia for energy. Is this for real?
When Boyko Borisov came to power in 2009, he promised to review all the expensive energy contracts that bind Bulgaria to Russia. Two years passed. In June 2011 the Ministry of Economy, Energy and Transport issued its long-awaited strategy programme for the development of the energy sector. At the very beginning, the document openly pointed out that energy dependence on Russia is still one of the major issues of the Bulgarian economy. This country imports about 70 percent of its energy needs, mainly from the Russian Federation.
The programme highlighted two other problems. In Bulgaria, producing one unit of the GDP requires 89 percent more energy than in the average EU country, and the green energy sector is still inchoate.
Diversification of suppliers and boosting, by 2020, green energy up to 20 percent of all energy used were presented as the main tasks of the programme.
Despite the plan, Boyko Borisov had already taken the side of the Rosatom Company in its feud with his own energy minister, Traycho Traykov, over how Bulgaria and Russia should cooperate in the building and development of the Belene Nuclear Power Plant, and whether they should cooperate at all.
However, several weeks after the publication of the energy strategy, a strange thing happened.
In July 2011, the government revoked the licence of the only Russian controlled oil refinery in Bulgaria, LUKoil Neftohim Burgas. The refinery had failed to install the measurement devices required by the Finance Ministry, so it was closed, despite its monopoly position in the petrol import market. The crisis ended several days later, when the court ruled that Neftohim should reopen. But many analysts judged the event to be an open mutiny against Russian monopoly, even despite – or because of – the fact that Neftohim Bulgaria's president Valentin Zlatev was a personal friend of Boyko Borisov.
In December 2011 another assault on Russian energy dominance in Bulgaria was made. The government withdrew from the controversial cooperation with Russia and Greece in the construction of the Burgas-Alexandroupolis gas pipeline. Financial disagreements were slated as the reason. According to the initial agreement of 2007, Bulgaria owned 24.5 percent of the joint company Trans Balkan Pipeline and should earn about $35 million a year from transit duties. The pipeline was to pass along the southern Bulgarian coast, where tourism is the main source of income, and through the Strandzha, the largest national park in the country. Local people saw the project as a ticking environmental bomb, and in 2009 the citizens of Pomorie voted against the pipeline in a local referendum.
Understandably, President Georgi Parvanov, one of the architects of the Burgas- Alexandroupolis project, was extremely unhappy with the outcome and said, after the government had scrapped the plans for the pipeline: "Somebody, from a purely emotional standpoint, is trying to work out how to deal with the major energy projects, but they don't offer any alternative. What is the alternative? If it is shale gas, then this should be properly explained to the Bulgarian people."
Real changes in Bulgarian energy policy look inevitable in 2012 as, since he took office in 2002, and specifically during his second mandate as president, Parvanov has been one of the main proponents of Russian energy interests in Bulgaria. In 2008, after signing an agreement with Vladimir Putin regarding the building of the South Stream pipeline, Parvanov dubbed the deal a "Grand Slam for Bulgaria."
In January 2012, however, he will be replaced by GERB's Rosen Plevneliev.
There is a strong suspicion, however, that the posturing of the Bulgarian government in the second half of 2011 had just one purpose: to make dealing with the Russians over the Belene Nuclear Power Plant construction easier for the Bulgarians. Prime Minister Boyko Borisov is positive that Bulgaria will finish the project, regardless of the cost (1.2 billion leva, or about 600 million euros, have already been poured into the project), and the development of nuclear power is one of the main objectives of the government's energy strategy.
Public opinion appears to support this as well. Bulgarians still believe in the nuclear lobby mantra that nuclear power plants are the shortcut to becoming an "energy centre of the Balkans." A survey by Gallup, taken only a month after the Fukushima disaster, showed that 48 percent of Bulgarians approved of the building of Belene and only 15 percent were against it.
In November, the results of the stress tests on nuclear facilities, imposed by the European Commission after Fukushima, were trumpeted all over the media. The Kozloduy Nuclear Power Plant could withstand every natural or man-made disaster imaginable, the internal audit claimed. The unfinished Belene plant was stress-tested, too, with the same outstanding results.
For several months now the government has been openly working on how to make the Belene deal more favourable.
According to prior agreements, Rosatom is simultaneously an investor and a supplier of equipment to the power plant. That explains why the company increased the cost of Belene from 3.9 billion euros in 2006 to 6.9 billion euros in 2010. The search for foreign investors for the Bulgarian part of the deal failed in 2009, when German RWE withdrew from the project. The company justified its decision because of the world economic crisis, the non-transparent finance structure of the project and the lack of a contract with the Russian company.
In 2011 the British investment bank HSBC was appointed to evaluate the potential market for the energy produced by Belene, and the cost of operating the power plant based on predicted future income and expenditure. The bank is also on the hunt for an investor to replace RWE, and is working out how to restructure the Rosatom share in the project in a way that will reduce the cost but will leave the Russians happy.
The final decision on the fate of Belene has to be made by the end of March 2012.
SHALE GAS YEAR
2011 was the year when Bulgarians learned a new term: "shale gas deposits drilling." It was the effect of the strong interest that Chevron showed in searching for shale gas in the Bulgarian North- East.
The hype about shale gas started in the United States about 10 years ago, fuelled by the belief that its green credentials are greater than that of "conventional" natural gas and that production is much cheaper. The future seemed bright. The mass production of shale gas reduced natural gas prices in the United States by a half and the International Energy Agency predicted that a "golden gas age" was about to begin.
In the United States, however, there is now a strong opinion that the green impact of shale gas has been hugely overrated. Environmentalists in Bulgaria also oppose the drilling as too risky, and they protested against the deal with Chevron.
The government, however, has given the green light to Chevron to start drilling. Natural gas is a big issue as well. The market is dominated by Gazprom, but this looks likely to change. The long-term contract with the Russian company expires in 2012 and the European Commission has already threatened Bulgaria with sanctions over its unreformed gas market. Besides renegotiating the contract with Gazprom, Bulgaria has ambitions to boost its own natural gas production. The country has several working natural gas fields, which provide between 10 and 15 percent of the local market, at prices about 40 percent lower than those of Gazprom. By the second half of 2012, production is set to increase by 1 billion cubic meters, according to Traycho Traykov. This is when the exploitation of a new natural gas field near Lovech by American TransAtlantic Petroleum is due to begin.
Bulgarian energy politics were described in sports terms for the first time in 2008 when, after the visit of Vladimir Putin to Bulgaria, Georgi Parvanov called the important decisions in the energy sector that the two had made a "Grand Slam for Bulgaria." They cemented Russian domination in three major projects: the building of Belene Nuclear Power Plant, and of the Burgas-Alexandroupolis and the South Stream gas pipelines.
The new president, Rosen Plevneliev, seems to have his eye on the energy sector, but his priorities, at least for now, are different. "My Grand Slam consists of energy efficiency, energy independence and energy liberalisation," he said in December 2011. Plevneliev singled out the construction of gas connections with Turkey and Greece as an urgent task. He did, however, express his support for the building of Belene Nuclear Power Plant, after "a wide public debate."
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